Imputing Dairy Producers' Quota Discount Rate Using the Individual Export Milk Program in Quebec

A Journal of the Canadian Agricultural Economics Society

Imputing Dairy Producers’ Quota Discount Rate
Using the Individual Export Milk Program in Quebec¹

Maurice Doyon

Associate Professor, Department of Agricultural Economics
and Consumer Studies, Laval University

Catherine Brodeur

Graduate research assistant, Department of Agricultural Economics
and Consumer Studies, Laval University

Jean-Philippe Gervais

Canada Research Chair in Agri-industries and International Trade,
Department of Agricultural Economics and Consumer Studies, Laval University

The Issue

Trade liberalization scenarios are often evaluated using sophisticated programming
models that rely on a number of assumptions related to demand and supply parameters.
One challenge researchers often encounter in the calibration of dairy trade liberalization
models is to identify the supply response of producers under production quotas. The
existence of production quotas in the Canadian dairy industry implies departures from
standard marginal cost pricing. Under traditional net present value models, an assumption
about the discount factors attached to production quotas must be made to infer the supply
response of Canadian dairy producers following a change in the economic environment
(e.g., import tariffs). The Individual Export Milk (IEM) program in Quebec generated an
opportunity to estimate dairy producers’ discount factors for production quotas
conditional on different assumptions about structural parameters such as producers’ risk
preferences and cost efficiency.

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