Abolition of a Trade Barrier: the Case of the EU Milk Quota and the Chinese Market

Milk is among the most produced and valuable agricultural commodities worldwide, representing 10% of global agricultural output and 65% of total dairy production. The global trade of milk and milk products accounts for 5% of world trade of agricultural commodities. The European Union is the second milk producer worldwide and the largest milk exporter (with almost 30% of global exports). Because of an overall European decreasing milk consumption and a self-sufficiency rate higher than 100%, EU milk exports are increasing. China is among the main milk-deficit countries with an estimated self-sufficiency rate around 80% in 2017. Although it is expected to increase its milk production, because of the growth in consumption, fueled by population and GDP upward trends, and the not sufficient domestic supply, it remains the largest importer of dairy products worldwide. About 20% of milk and milk products imports worldwide are represented by China. China is the top extra-EU importer of milk with a 19% share of total extra-EU exports of milk. Among the market distortion policies, it is certainly worth mentioning the production quotas. Our case study focuses on the EU milk quotas, introduced by the CAP in 1984 to control the excess of supply in the market, and then removed in 2015 to liberalize the market. Starting from these premises, the aim of the paper is to understand whether the drop in milk prices following the EU milk quota removal has found a tradeoff with the rise of milk exports towards China.