Abstract
This paper develops a structural market model for the Hungarian milk market. The results indicate that the abolition of export subsidies in 2004 led to considerable market distortions. The processors were able to exploit significant oligopsony power. However, the opportunities to benefit from this favourable market position eroded rather quickly with the development of alternative marketing channels for raw milk (exports to Italy). The authors conclude that export subsidies had a negative welfare effect due to foregone specialization gains since they postponed the development of these markets.
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