Summary

Milk producers ' responses to low expected rates of superlevy and superlevy uncertainty during 1984/5-1986/7 are examined. In England and Wales, the average size of unplanned deviations from quota remained constant over time, whereas the variation amongst producers in the planned deviation from quota rose more than threefold as producers learned to cope with the new system. Individual supply decisions appear consistent with the hypothesis of utility maximisation under uncertainty. The extent of over-quota supply is shown to depend on marginal cost, pre-quota expansion trends and size of enterprise, although much variation in supply relative to quota remains unexplained. This paper examines the response of producers to two features of the superlevy system as it was operated during the first three years of the EC milk quota scheme. Under Formula B, the rate of levy paid by the individual producer on each litre of his over-quota supply was small compared with the punitive rate charged to the dairy on its net excess. Initially, producers did not appear to recognise this. Over time, however, many producers revised their perception of the new policy so that by 1986/7 they were taking advantage of the opportunity built into the scheme for supplying over-quota milk at low penalty rates. They did so despite the second feature of the scheme of interest here, namely the uncertainty over the rate of superlevy to be paid. This rate depended on the collective behaviour of all producers in the dairy and was not known until the end of the milk year. In theory, in these conditions, we would expect planned excess supply to be greater for producers with low levy expectations and higher tolerance of risk (Burrell, 1985). * The author wishes to thank the Milk Marketing Board of England and Wales for their sponsorship of this research