NPR - PRODUCTIVITY AND THE EVOLVING NORWEGIAN DAIRY QUOTA SYSTEM

Abstract:

In recent decades the Norwegian Dairy Industry has undergone substantial changes and experienced extensive restructuring. Notably, the restrictive output quota scheme first implemented in 1983 to address overproduction has changed over time. The move in 1996 to the quota buy and sell scheme management system was sought to achieve greater allocative efficiency and create a more desirable quota distribution in the industry as well as overcome the previous issues of inflexibility and unfair features of the strict quota system. Detecting the relationship between dairy productivity and the evolving quota rules in intertemporal manner is of interest. This paper estimates dairy total factor productivity dynamically in order to observe the potential dynamic linkages of production decisions and statistically tests the dependence between differentiated quota systems and farm-level productivity by utilizing Chi Square test of independence. The empirical application focuses on three distinctive five-year panel data periods of no quota, restrictive output quota and transferable quota system; 1977-1981, 1991-1996, 2008-2013, respectively. We found that productivity increased significantly when operating under the strict quota system (2.02%) followed by positive but much smaller productivity increase in the subsequent ‘buy and sell’ quota scheme (0.03%). We identified that the transferable quota system has an overall positive effect in terms of both productivity increase and structural change (because statistically significantly more firms attained productivity increase than under any of the previous quota regulations).

Keywords: Luenberger indicator, productivity, quota system