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Current Agriculture, Food & Resource Issues

D. Surprenant and J.-P. Gervais

Figure 1 The economic impacts of the Canadian Chicken TRQ.

returns to scale as represented by the industry marginal cost curve, M C₀ . This curve can
be interpreted as the processors’ supply function if one assumes there is perfect
competition at that market level and the farm price is held constant throughout. The
segment D represents the retail demand for processed chicken products.

Assume that the share of import licences under the MAC held by all processing firms
is M ₀. Processors can import and resell chicken products directly to retailers.⁴ Processing
firms have two options. They can process domestic chicken or import processed chicken
products. Hence, under the TRQ, the processors’ effective marginal cost curve is not
exclusively defined by the segment M C₀ . Since the world price augmented by the in-
quota tariff is below the intercept of the marginal cost curve, processors have an incentive
to import chicken products up to the quantity M ₀. At that quantity, it is more profitable to
process chicken domestically than to import chicken products at the world price
augmented by the over-quota tariff (p + τ ^ov). The bold lines in figure 1 represent the
effective marginal cost function for processors. The equilibrium occurs when this
effective marginal cost curve intersects the demand curve of retailers, yielding the
domestic retail price p₀ . What is the value that processors attach to an import licence?
Standard trade policy analysis usually defines import rents as the difference between the
world price and the domestic price, multiplied by the total volume of traded goods
(Vousden,1990). However, since processors’ domestic output is altered following an

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