Minimum price policy impact in the Tunisian dairy sector

Abstract

PurposeThe purpose of this paper is to develop a partial equilibrium model for the Tunisian dairy sector according to “quantity formulation” and “price formulation” and to show their equivalence under the assumption of perfect competition.Design/methodology/approachThis model incorporates domestic policies, that is, producers' price support and subsidies to milk collection centres and trade policies, that is, TRQ and ad valorem tariffs. The authors 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.FindingsTwo scenarios for the removal of a minimum price policy are analysed and show that producers' surplus loss varies between 78.6 and 127.8 million dinars. The overall welfare implications of removing a minimum price policy are negative and range between 13.3 and 18.2 million dinars.Research limitations/implicationsThis study could not include all of the detailed factors in the Tunisian dairy sector.Originality/valueBased on the numerical results obtained in the study, the authors recommend that public authorities maintain the minimum price policy because it prevents a decrease in raw milk producers' surplus. Moreover, this policy is effective because it generates excess raw milk production, estimated at 28.23% in 2010, that can be used for various homemade dairy products. Under an effective minimum price policy, the formal processing sector absorbs all the excess raw milk only if the public authorities allocate grants to encourage investment in new milk collection centres and in milk drying equipment, especially in disadvantaged rural regions. The latter economic policy coupled with a minimum price policy not only guarantees a higher income for raw milk producers but also may represent a development factor for underprivileged rural areas.