Abstract

RAMIREZ-JASPEADO, R; GARCIA-SALAZAR, JA; JS, Mora-Flores  and  GARCIA-MATA, R. Effects of the North American Free Trade Agreement on milk production in Mexico. Universidad y ciencia [online]. 2010, vol.26, n.3, pp.283-292. ISSN 0186-2979.

Since 1994, the Mexican government declared that liberating the prices of agricultural products included in the North American Free Trade Agreement (NAFTA) would benefit the dairy production sector, by softening the negative effects caused by the fall in the international prices of dairy products. With the purpose of demonstrating whether the NAFTA has benefitted or harmed milk productors, the price elasticity of the milk supply and the price elasticity of sorghum (Sorghum vulgare Pers) and alfalfa (Medicago sativa L.) were calculated through the estimation of a model of simultaneous equations composed of a demand equation, a supply equation, three equations for price transmission and one identity of foreign trade balance. Results indicated that the supply of milk responds in a non-elastic manner to changes in the international price, the price of sorghum and the price of alfalfa, with long term elasticities recorded as 0.159, -0.522 and -0.664. These elasticities and the price changes during 1994-2005 indicate that milk production decreased annually by 1.0% due to a decrease in the international price, and increased annually by 3.0 and 2.5 % due to the change in the price of alfalfa and sorghum. It may thus be concluded that the NAFTA has had a positive effect on milk production, as the effect generated by the price of alfalfa and sorghum has been greater than that generated by the international price of the dairy product.

Keywords : Free trade; sorghum; alfalfa; simultaneous equations model; elasticities.