The Essence of Hippocrates

Abstract

This study analyzes and measures the effect of dairy policy, in particular the proportional import quota in Indonesia. The effects this policy are estimated by the social efficiency or welfare cost and the distributional effects of the policy are noted as transfer of income from consumers to producers within the proportional import quota scheme. The study finds that the policy hurts consumers and taxpayers, since the deadweight losses generated by the regulation are quite large. The milk processors, who also act as importers, gain the largest part of the benefits from the regulation. The domestic milk producers also gained some of the benefits, both directly and through their cooperatives. Simulations are conducted on a model of the Indonesian dairy market. The results reveal that if the proportional import quota is removed, then domestic producers would lose. The milk processors would also lose, since there would be no economic rent on import quota. The consumers would accrue a large surplus since they would receive a lower price for milk products. Results of varying the elasticities indicate a decreased trend of losses as the demand and supply elasticities become inelastic.