Domestic Policy Interdependence: Analysis of Dairy Policies in the USA and EC

This paper compares domestic dairy policies in the USA and EC and examines the impact of these policies on each dairy industry to explore domestic policy interdependence. The EC and USA have similar goals ofimproving farm income and use similar price support policies to achieve these goals. These policies have encouraged overproduction, generated surpluses and government stocks, and resulted in large government expenditures. Both have followed a mixed surplus disposal strategy with one key differencethe EC has used export subsidies to dispose of part of its surplus on the world market. In the mid-1980s, both the USA and EC took strong action to confront these problems. The EC's use of marketing quotas and commitment to reducing its stockpiles ultimately affected the world market as its exports fell in 1989. As a result, US stocks virtually disappeared, US prices increased substantially, and US surplus disposal programmes ended. By recognizing the policy linkage of EC domestic policy through the international market on us stockpiles, policy makers can choose policy instruments more precisely.