MULTIPLE MARGINALIZATION AND TRADE LIBERALIZATION: THE CASE OF THE CANADIAN DAIRY INDUSTRY Abdessalem Abbassi Professeur assistant, Université de Carthage Faculté des Sciences Économiques et de Gestion de Nabeul, Bureau 160 Tel: +216 28 271 548
[email protected] Bruno Larue Canada Research Chair in International Agri‐food Trade (CREATE), Laval University
[email protected] Cahier de recherche/Working paper #2012‐13 MULTIPLE MARGINALIZATION AND TRADE LIBERALIZATION: THE CASE OF THE CANADIAN DAIRY INDUSTRY Abstract: The paper analyzes the welfare impacts of trade liberalization under multiple marginalization through a spatial equilibrium model of provincial dairy markets. Canada’s dairy policy implements a supply management scheme designed to achieve higher domestic prices for farmers, taking into account the mark-up rules used by downstream firms. Our model builds on the reciprocal dumping model of Brander and Krugman (1983) as processing firms from different provinces compete à la Cournot with one another in several provinces. Simulations reveal that welfare in the Canadian dairy sector could increase by as much as $1 billion per year if aggressive tariff cuts were made while moderate liberalization plans would yield annual gains of $234.5 million. Even large producing provinces like Quebec and Ontario gain from trade liberalization. In comparison, a perfect competition model yields more modest welfare gains in the range of $15.6 million and $34.5 million. Finally, we show that the switch in the sign of the transport cost-welfare relation identified by Brander and Krugman (1983) occurs at transport costs that are too high to be policy-relevant. Résumé: Nous analysons les effets de la libéralisation des échanges sur le bien-être dans un contexte de marginalisation multiple par le biais d’un modèle spatial des marchés provinciaux pour les produits laitiers.