Political Economy of United States and European Union Dairy Policy Choice

Policy interventions in dairy markets are pervasive in industrialized countries. Resistance to domestic agricultural policy reform in the USA and the EU is partially responsible for delays in reaching a GA TT Uruguay Round agreement. We explain US and EU dairy policy choices by analyzing the influence of key domestic variables. J?mpirical results for the US price support and the EU intervention price show a dominant influence of the support (intervention) price in the previous year. US farm income, stocks, and government costs also influenced US policy-makers' choice of the price support level. In the EU, where multiple policy instruments are used, government costs influence both production and surplus disposal policies. The EU chooses dairy policies sequentially - first the farm support policies and then surplus disposal policies. The results imply that trade policy reforms will be most acceptable if farm incomes can be maintained without increasing government support expenditures