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Are tariffs in the dairy sector a necessary instrument or outmoded?

In times of crisis and price volatility the threat of import duties looms; this volatility is having a heavy impact on world milk production. Farmers who are seeing an unsustainable drop in the price of milk are blaming milk and dairy imports from countries where production costs are lower. No time has been lost for the desire to protect oneself to kick in, i.e. the desire to reactivate regulatory mechanisms which have been eliminated in various phases with market liberisation.

In Pakistan, for example, the world’s fourth largest milk producer after India, the USA and China, a tariff has been introduced that doubles the customs duty on milk and whey powder imports – raw materials for baby food and the confectionery industry. The objective of this action, which acts as a barrier against cheap imports, is to support milk prices paid to producers.

However, one wonders if these protectionist measures are sufficient to ensure an increase in prices paid to farmers. This will be discussed at the CLAL Dairy Forum 2016 together with Philippe Chotteau, head of the Economics Department at the French Institut de l’Elevage, who will be presenting his report entitled “Market measures, subsidies, company strategies: the impact on competitiveness. What tools to use to address market volatility?” on 11 October in Bardolino on Lake Garda.

Meanwhile it is worth noting that in above-mentioned Pakistan the price of milk is higher than in New Zealand, the EU and also India. Nevertheless Pakistan’s industry is not doing as well as the others’ due to low productivity, fragmentation and disorganisation, although they are not the direct consequence of protectionist measures as the latter is only one of various factors that influence profitability. The others are the increase in production yield and cost reduction.

It is therefore firstly necessary to improve organisation and increase production efficiency and then subsequently consider regulatory mechanisms that are proportionate to the market and in dynamic sinergy with it.