Imperfect competition in the Italian dairy chain: consequences for price transmission and welfare distribution

Since 1984 when milk quotas were introduced in Italy, the dairy chain has evolved with relevant consequences for the market competition. The Aglink-Cosimo simulations predict after the phasing out period, a growing milk market competition, driven by a fairly optimistic demand outlook among the EU-27 economies; for Italy it is expected a milk supply exceeding the present level by about 3%, and milk deliveries increasing at a slightly higher rate. Purpose of this paper is to examine the present situation of the dairy chain in Italy characterized by asymmetries at various levels in structures (number of competitors, size of the farm/firms, collusion among participants), affecting the market efficiency. Evidences are provided by six simulations for the price transmission and ten simulations for welfare distribution using different conjectural hypotheses. The results show that the price transmission from the farm gate to the retail level are lower when the concentration is higher, while the welfare distribution depends on the price set at the farm gate. The conclusion recommend to reconsider the price support, otherwise most of the farmers will leave the sector because on unbearable production costs and unequal margin distribution.