Competitiveness of the EU dairy industry

Competitiveness of the EU dairy industry

An increase in productivity in European agri-food sectors has a small negative

impact on the economic performance of the food processing industries in other


As presented in the figure 8.4 full liberalisation will have a significant negative

impact on European milk processing. The share in food industries' value

added continues to decline under this scenario. In the other countries, however,

this share increases. In Australia and New Zealand the contribution to total national

income is even higher compared to the initial situation.

8.7 Employment in milk processing industries

The impact of different policy scenarios on employment is described in the table

8.5. The decline in the contribution of the European food processing industries

to total GDP under Full Liberalisation is also mirrored by the development of

employment in the European milk processing industries.

Full Liberalisation will lead to a decline in sectoral employment by around 3.2%

in EU milk processing. Employment in the other regions or countries increases

under the Liberalisation scenario reform between 7.2% in the Rest of Asia and almost

44% in Australia/New Zealand. In these countries employment in milk processing

increases, which is also reflected in an increase in the sectoral shares in

total GDP, see figure 8.7. However, due to factor substitution the increase in labour

employment leads also to an increase in capital use and capital is partly substituted

by labour. However, in the EU the opposite development is the case. Here

labour in dairy industries is substituted by capital.

Enhanced growth in sectoral productivity in primary milk production and

dairy processing are modelled under the scenarios HPDairy and HPMilk. Both

will lead to a small decline in employment. However, the impact of productivity

on employment is rather small compared to the consequences of trade liberalisation

modelled under the scenario Full Lib. The main reason for the moderate

impact of different assumptions on productivity growth in European agriculture

and food processing industries can be explained by the limited economy-wide

relevance of the food processing sector in total and especially for the dairy sector.

Changes in sectoral productivity growth will have an impact on the output

level but almost no impact on the economy-wide factor markets. Therefore, different

growth rates of productivity in food processing and primary agriculture

have only little impact on the level of factor prices.


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