The Dairy Support System: Who loses and who gains when quotas are tradeable?
DOI:
https://doi.org/10.24122/tve.a.2024.21.2.5Lykilorð:
Dairy quotas; subsidies in agriculture.Útdráttur
Iceland has a tradition of intervening in the domestic agricultural market, including dairy farming. Much of the intervention has consisted of a combination of a minimum support price and subsidies, in addition to import tariffs. An important feature in dairy farming has been the direct payment quotas held by the individual farmers, which are transferable.
Does the quota trade hurt farmers rather than help them? Do those farmers who buy quota lose and those who sell gain? Does flow of capital from continuing farmers to ex-farmers result in the gains from the subsidy only benefitting those farmers that were operating and received direct payment quota when instituted, and then sold out of the system?
We attempt to answer these and related questions here. In doing so, we show that popular arguments about who gains and who loses in quota trades are confused. Contrary to popular claims, economic analysis shows that no one incurs a loss, not those operating in the system, not those who cash out, nor those who buy quota. Not only doesn’t anyone lose but in fact most or all gain through trade.
This in general confirms the basic principles of economics and free trade. Gain is the motive for trade; people do not engage in trade if they do not see some gain in doing so. This also confirms that trade increases farmers’ wealth. Not only the farmers who receive the initial allocation of quotas gain through trading the quota; farmers buying into dairy farming also gain.
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