In discussing the idea of perfectly competitive markets we have used the dairy industry as an example. Looking at the dairy industry in Europe provides some interesting background to the theories and models we have considered so far. In a report by the European Commission on Dairy Products published in June 2018 (see ec.europa.eu/agriculture /sites/agriculture/files/markets-and-prices/price-monitoring/market-prices-dairy-products_en.pdf), the price of raw milk hovered between €25 and €40 per 100 kg between 1990 and 2018. Prices fluctuated more after 2007 but the average price was around €30 per 100 kg throughout most of the period shown. Prices in individual countries appeared to fluctuate more, but figures are only given after the first quarter of 2004.
One factor which has changed the dairy industry across the EU has been the phasing out of milk quotas, which was completed in 2015. Milk output rose after the quotas disappeared and Eurostat, the EU official statistics agency, notes that there has been a growth in the most productive herds and a contraction in the less productive ones. Overall, however, the number of cows has been decreasing. Across the EU in 2016, around 168 million tonnes of milk were produced, almost all from cows. Milk yields per cow varied across the EU states with parts of Bulgaria, Romania and Hungary being the lowest and parts of Italy, Denmark and Finland having the highest.
Across the EU, the size of dairy farms and herds varies considerably. Variations in output are often due to technical reasons. Most dairy farmers across the EU sell their milk to dairy processors with a relatively small number selling direct to consumers. If the latter does occur, it tends to be through farmer-owned cooperatives.

Critical Thinking Questions
1 From the information provided in the article, would you characterize the EU dairy industry as a good example of a perfectly competitive market? Give reasons for your judgement.
2 Why do you think that the average revenue in the milk industry across the EU is relatively stable?
3 Why do you think quotas were introduced in the dairy industry? Were quotas designed to protect producers, consumers, or both? Explain.
4 Differences in milk yields are largely due to technical factors and dairy farms and herds vary in their size. Use the concepts of returns to scale to explain this.
5 If you conducted an interview with a number of dairy farmers, do you think that the profit maximization explanation given in this chapter would be something they would recognize? Explain your reasoning.