08 nelgen asean_dairy_integration


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  • This presentation is based on an extension of a paper by Steve Staal and others on dairy trade and regional integration in the southeast asian region, presented at the world milk day celebration this year in bangkok. The paper gives an overview of the dairy market developments in the south east asian region and our extension uses them to focus on model and data challenges to address policy implications arising from these developments.
  • The SEA region is in process of establishing the ASEAN Economic Community (AEC) and commitments are made for it to fully be in place by 2015. The idea is to eliminate barriers of trade such as tariffs and other trade distorting measures and instruments in the region. This gives scope for policy modellers to analyse different scenarios that emerge from such trade liberalization in the region for the dairy sector. This can be done for individual countries, regions and also globally. However, international dairy trade features certain non-tariff barriers and other characteristics that make it difficult to model the sector. This leads us to the second questions about the challenges for modellers that arise from the trends in the dairy industry and the characteristics specific to the dairy sector.
  • What are the historical developments within the dairy sector of the South East Asian Region, looking at production, consumption and trade patterns?
    The following section will give a brief overview of the elements of the ASEAN economic community. This will help to identify questions that could potentially be addressed through economic modeling to anticipate developments of the sector when the AEC is fully in place.
    There has been little work on modeling the dairy sectors, and hardly any that focuses on the Asian or African region. The little work that has been done is not very convincing yet (confirmed by the researchers that worked on it). We will therefore point out some ideas on what can be thought about in the future.
    However, this is not an easy task and this part of the presentation will point out why. What are the challenges that modelers face when addressing the dairy sector, not only in this particular region but in general. What are specific characteristics of the dairy sector that make it difficult to take of in a model?
    Some examples from the literature of what has been done.
  • Globally there has been a steady 1.4% annual increase in milk production. In 2011 world milk output was 727 million tons which is a 36% change from the previous decade. Much of this increase came from Asia, with India being the major player in production (not in international trade though). Share of total world milk output of Asia increased from 15.5% in 1981 to 37% in 2011.
  • South East Asia more than doubled its production in the last two decades mainly due to higher production in Myanmar, Indonesia and Thailand. But the region still accounts for a very small share of the total world milk output. The region does lack a history of tradition of dairy production. Heat has a significant negative effect on cow’s performance and SEA’s hot and humid climate poses constraints on dairy productivity. The climate also poses challenges in regard to diseases control, like foot-and-mouth disease (exists in 8 out of 10 SEA countries, exceptions Philippines and Indonesia). Farm sizes, practices and technologies in the region are diverse and imply large differences in productivities.
  • World per capita consumption has seen a slight increase over the past decades, and this is the case for the Asian region, although mainly for Eastern and Southern Asia and less for SEA. Although growth of consumption in SEA has been minimal and fluctuating, the gap between production and consumption remains with a supply gap and large import dependence in the region.
  • Trade in milk has some restrictions due to its characteristics. International trade in dairy is mainly in butter, cheese and dry milk powders, not much in fluid milk products, ice creams, yogurt etc. Resource endowments, comparative advantages, changing consumer tastes and preferences, government policies aimed to protect local markets. However, there is an increase dairy trade. Net importing regions are Asia, Africa and America while Europe and Oceania are net exporters. Despite low shares of global dairy production, New Zealand and Australia are among the world’s top dairy exporters.
  • Production and processing technologies differ across the different countries and so do the prices and the composition of the prices. Factors that are having an effect on the market price are input prices, processing facilities, storage facilities, delivery infrastructure. But also policies that are in place. Many of them aim to support smallholder producers and rural development. Many of the countries in the region also try to promote milk consumption for nutritional purposes too (Thailand, Indonesia and the Philippines have done so, mainly focusing on school children). With the AEC being in place, the prices and policies will be interlinked much more than in the past. Over the next few slides, I will give an overview of the structure of the AEC.
  • There are four core elements of the AEC, listed on this slide.
    Free flow of goods, services, investments, capital, labor: reduction or elimination of tariffs, non-tariff barriers, customs integration, mutual agreements on certain parts, etc. Additionally there will be a harmonization and application of quality standards for food safety and technology transfers.
    Adoption of best practices as capacity building in the region. Infrastructure Development (Road, Air, Power, Roads etc).
    SME development, Capacity Building
    Coherent approach towards external economic relations, enhanced participation in global supply networks.
  • ASEAN has also forged FTAs with other non-ASEAN economies in the Asia-Pacific region. There are existing FTAs with China, Japan, South Korea, India, Australia and NZ (tariff reduction and trade facilitation). This has lowered the tariff rates for dairy products. Only Malaysia imposes tariff rate quotas with in-quota tariffs at 20% and out-of-quota tariffs of 45%.
    Non-tariff barriers might be more important in the region, such as technical barriers to trade (like labeling, quality standards, quarantine measures, health and food safety reasons), sanitary standards, customs related measures, quantitative restrictions, licensing, prohibitions, foreign exchange market restrictions etc.
  • Growing production and stagnant per capita consumption. Is there a need to stimulate consumption? Why and how? Nutritional perspective?
    Should regional and national policy promote self-sufficiency, or continue to depend significantly on imports under an argument of differential comparative advantage?
    Smallholder production predominates in many countries, while significant scaling up in others. Should there be a regional position on those trends?
    Some countries still maintain trade barriers imports to protect their domestic industries.Can or should these be maintained?
    Can AEC contribute to ‘equitable socio-economic development’?
    2) What are the potential mechanisms towards realizing that goal?
    3) What about SMEs in the value chain? Can they comply with non- tariff requirements? SPS, TBT?
    4) Implications of increasing resource scarcity and increasing price
  • Data requirements are often one of the main limitations to modelling efforts in the region and the sector. Dependent on structural, institutional and governance issues, quantitative data on animal location, number, employment, wages, processing, consumption, prices margins, qualitative data on practices of actors in the value chain, regulations, controls, knowledge
  • Dairy industry might have different price responses to other industries.
    Non tariff barriers such as transportation, storage, quantitative restrictions etc. can play a role
    Delays between production level investment for example in breeds and the response. Even after the delay in response there could be measurement problems if the additional milk is consumed on household level without reaching the formal market.
    Especially in regard to investments in the processing sector
    Technological change has to be addressed differently when focusing on small or large scale producers
    Simulation of dairy consumption might be different to model.
  • American Journal of Ag Ecomomics in 2009. Dairy Tariff Quota Liberalization. Contrasting Bilateral and most favored Nation Reform options. PE model, mainly on cheese. Addressing issue of policy aggregation using export differentiated source differentiated data. Considering the problem of GE being to aggregated and PE models not accounting for economy wide effects.
    David: data problems. We had difficulty in getting good data from Indonesia. More over, the GTAP IO tables seemed inconsistent. Specifically, the output of the cattle sector did not seem to be sold directly to dairy or beef, but other processed food. Model attempt of shift in preferences insufficient for the sector.
    FAPRI (Food and Ag Policy research institute). Multi market PE model. Divides data into five dairy commodity groups dependent on data availability.
  • 1) Can AEC contribute to ‘equitable socio-economic development’?
    2) What are the potential mechanisms towards realizing that goal?
    3) What about SMEs in the value chain? Can they comply with non- tariff requirements? SPS, TBT?
    4) Implications of increasing resource scarcity and increasing price
  • 08 nelgen asean_dairy_integration

    1. 1. Integration of ASEAN’s dairy industry: Multi-market modelling to guide policy and investment choices Signe Nelgen and Steve Staal International Livestock Research Institute Mainstreaming Livestock Value Chains Accra, 5 November 2013 The presented work is based on a paper by Steve Staal, Richard Daite and Paul Ramirez (2013), which was presented at the Wold Milk Day Celebration in Bangkok
    2. 2. Key questions • What is the task set confronting policy modellers leading up to the establishment of the AEC? • What are the challenges for modellers arising from trends in and specific characteristics of SEA’s dairy production, consumption and trade?
    3. 3. Outline SEA’s dairy industry Elements of the AEC Questions for consideration Challenges for modelers Dairy sector modeling attempts
    4. 4. Overview of SEA’s dairy industry Growing share of Asia in Milk Production 800 700 600 Oceania Europe Africa Asia Americ a 500 400 300 200 100 0 37.0% 15.5% 1981 Source: FAOSTAT 1991 2001 2011
    5. 5. Overview of SEA’s dairy industry Whole milk production by SEA country, 1981-2011 Source: FAOSTAT
    6. 6. Overview of SEA’s dairy industry Milk consumption per capita, 1981-2009 Source: FAOSTAT
    7. 7. Overview of SEA’s dairy industry Net Imports, milk equivalents 15 10 5 0 -5 1995 2000 2005 2010 1 0 -20 1 5 Americas Southeast Asia Oceania Source: FAOSTAT Africa South Asia East Asia Europe
    8. 8. Overview of SEA’s dairy industry Looking at and beyond market prices 2.5 2 1.5 Va t Processor share Farm gate price 1 0.5 0 Indonesi a India Source: FAOSTAT Thailand Vietnam China New Zealand Malaysia Philippines
    9. 9. Elements of the AEC Core elements of the ASEAN Economic Community • • • • Single market and production base Competitive economic region Equitable economic development Integration into the global economy.
    10. 10. Elements of the AEC • Regional integration • ASEAN • ASEA N– China, Korea, Japan, India, Australia & New Zealand • Existing non-tariff barriers • • • • Technical barriers Sanitary standards Customs related measures Quantitative restrictions
    11. 11. Questions for consideration • Is there a need to stimulate consumption? • Regional or national self-sufficiency in dairy as a goal? • Smallholder production vs. larger scale production • What about trade barriers to protect domestic industries? • Is equitable socio-economic development achievable?
    12. 12. Challenges for modellers: data Trade flows NTB Wages in ag and non-ag sector Processing costs Consumption Price margins Regulations Trade Policies Domestic Policies Asset ownership
    13. 13. Challenges for modellers: model specifications Price responses Non-tariff barriers Investment reactions Economies of scale Small vs. large scale producers Marketing and policies in specific countries and effects on consumption and nutrition Self-sufficiency goals
    14. 14. Dairy sector modeling attempts • J.H. Grant, T. Hertel, T.F. Rutherford (2009): Identification of the dairy specific challenges for the US dairy sector • D. Vanzetti, N. R. Setyoko, R. Oktaviani (2013): Using GTAP to model Indonesian policy addressed to promote milk consumption: data problems, inconsistent IO tables in GTAP • FAPRI International Dairy Model: data limitations for SEA region
    15. 15. Thank you for your attention!
    16. 16. Questions for consideration • Mechanisms towards realizing that goal? • Can SMEs comply with non-tariff requirements? • Implications of resource scarcity and increasing price