Quantity Formulation vs. Price Formulation and Assessment of the Minimum Price Policy in the Tunisian Dairy Sector

Tunisia - 15 September 2018

Trade topics: Other

The objectives of this article are to develop a partial equilibrium model for a dairy sector according to two approaches—“Quantity Formulation” and “Price Formulation”—and to show their equivalence under the assumption of perfect competition. We introduce the spatial dimension to present the “Price Formulation” approach of models developed by Bouamra et al. (1998) and Abbassi et al. (2008) .We illustrate theoretically and numerically how to incorporate the minimum price policy at the farm level for the Tunisian dairy sector according to the Price Formulation approach. We analysed two scenarios of removal of minimum price policy that differ according to the values of farm supply elasticity. The simulation results show that producers stand to lose between 78.6 and 127.8 million Dinars in surplus depending on the value of farm supply elasticity. Permit holders’ rent would also decrease between 0.8 and 1.3 million Dinars. However, consumers’ surplus is predicted to increase between 67.8 and 110.1 million Dinars compared with the baseline solution. The overall welfare implications of removal of minimum price policy are negative and range between 13.3 and 18.2 million Dinars.

Author