Isabel de Felipe

HABIT FORMATION AND DEMAND SYSTEM ESTIMATES FOR FLUID MILK IN SPAIN

Spain’s dairy sector is of major importance to the country due to the basic demand for milk products, the nutritional aspects of milk products to the diet, and the relative large size of the dairy sector in Spain’s agriculture. This sector has been particularly influenced by political policies since Spain’s entrance into the European economic community. Production quotes have been imposed, placing increasing pressure on domestic production. Demand for milk products have shifted over time as have the product forms. Understanding domestic demand is essential to setting production policies and addressing equity questions relating to EEC milk production quotes. How has the domestic demand for fluid milk changed and what are the longer terms projections? In order for the EEC to better deal with policy issues, definitive measures of fluid milk demand are needed. Modeling the demand for Spain’s dairy products is the objective of this paper with the purpose to estimate short and long term demand relationships useful for policy analysis. Between 1986 and 1992, the balance of trade in dairy products decreased from a deficit of 30 to more than 69 billion pesetas. Productivity doubled from 2.1 liters per cow in 1965 to nearly 4 liters in 1992. In this same period, Common Agricultural Policy (CAP) quotes restricted Spain’s production (Rocha, 1991). Increased competition from community partners is creating downward pressure on domestic production with a maximum quote of 6.47 billion liters in 1991