EU Milk Quota Abolition - What are the Effects on Intra-Union Trade?

Abstract: On 1 April 2015, the EU milk quotas were abolished after 30 years in force. The purpose of this paper is to assess the Intra-Union trade effects of the reform, using the gravity model of trade. In particular, the aim is to find out whether competitive Member States have started to export more dairy products as compared to the non-competitive Member States following the reform. In order to perform the analysis, the paper uses monthly import data for the EU-15 countries between 1 April 2013 and 31 March 2016. Because of the large number of zero trade values present in the dataset, three different models are specified. The first is a fixed effects model where the zero values are left out of the sample. The second is a fixed effects model where the zero values are retained. The third is a poisson fixed effects model. The results from the poisson fixed effects model show a statistically significant relationship between the EU milk quota reform and trade. According to the estimation outputs, the exports of competitive Member States have increased by 14.5 per cent more in total or 2.3 per cent more per month than those of the non-competitive Member States. In terms of policy formulation, this is an important result, as it suggests that the EU milk quota abolition may have great implications for the location of dairy production within the Union in the future.