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Application of a multi-market partial equilibrium model in the pig sector of Vietnam and Uganda

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CGIAR Research Program on Policies, Institutions, and Markets Workshop on Rural Transformation in the 21st Century (Vancouver, BC – 28 July 2018, 30th International Conference of Agricultural Economists). Presentation by Lucila Lapar, Emily Ouma, Peter Lule, Nguyen Que, Dang Khoi and Karl Rich.

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Application of a multi-market partial equilibrium model in the pig sector of Vietnam and Uganda

  1. 1. Application of a multi-market partial equilibrium model in the pig sector of Vietnam and Uganda Lucila Lapar, Emily Ouma, Peter Lule, Nguyen Que, Dang Khoi and Karl Rich ICAE PIM Pre-conference workshop on Rural Transformation in the 21st Century: The Challenges of Low-Income, Late-Transforming Countries Westin Hotel, Vancouver 28th July 2018
  2. 2. The Uganda and Vietnam pig sectors  Dynamic and rapidly expanding sector in both countries o Rising demand for pork o Pork per capita consumption 25 kg in Vietnam and 4 kg in Uganda  Important source of livelihood, especially for smallholder farmers: o 8 mn Vietnamese households (32% of households) o 2 mn Ugandan households (20% of households)  Smallholder backyard production systems (intensive to extensive)
  3. 3. Pig population trend 15000 20000 25000 30000 2000 2002 2004 2006 2008 2010 2012 Animalsx1000 Pig population in Vietnam (2000 – 2012) 0 1000 2000 3000 4000 1970 1980 1990 2000 2008 2014 Animalsx1000 Pig population in Uganda (1970 - 2014)
  4. 4.  Largely informal sector  Markets and products  Selected countries and value chains under Livestock CRP Markets and products
  5. 5. Study rationale  Growth in the sector portend a bright outlook for smallholder pig sector development in both countries  However, the trajectory of growth may differ due to: o Varying socio-economic and policy contexts o How the sector responds to emerging rural and agri-food systems transformation o Revolution in food retail systems: demand for traceability, supply consistency and food safety
  6. 6. Research questions  How will rising income affect total pork demand and the composition of pork demand?  How will shifts in pork demand influence pig producers, particularly small-scale producers i.e. will small-scale pig producers be squeezed out of the market?  How will the growth of pig production affect maize markets – specifically, will imports grow?
  7. 7. Methodology  Apply a multi-market model framework to conduct two- country case studies to assess the impact of the trajectories of change on smallholder domestic market shares in supply of pork.  Partial equilibrium o Focussed only on the maize and pig sectors, does not capture all other sectors in the economy  Spatial o Simulates market dynamics and interregional trade in eight regions in Vietnam and five in Uganda o Inter-regional trade is defined endogenously in the model following the rules of spatial arbitrage
  8. 8. Model characteristics  Recursive and dynamic o Simulates impacts over a 10 year period based on growth in income, population, and production technology (2014-25) o Baseline data from various sources (mainly, National Statistics Bureau)  Disaggregation of chosen commodities o Maize as a feed product o Specific pork products  Fresh pork sold in rural wet markets produced by traditional smallholder producers  Fresh pork sold in urban/peri-urban wet markets produced by commercially- oriented producers,  Processed pork sold in formal market outlets including supermarkets produced by large, modern producers  System of equations/inequalities solved using MCP in GAMS
  9. 9. Baseline scenario - assumptions Parameters Vietnam Uganda Per capita income growth rate 5% per year 5% per year Population growth rate 1.05% per year 1% per year Technological growth rate Maize 2% per year 5% per year Traditional smallholder pig sector 2% per year 5% per year Commercial oriented pig sector 2.5% per year 5% per year Modern pig sector 3% per year 5% per year Income elasticities of demand Maize 0.39 0.25 Traditional smallholder pig sector 1.25 0.90 Commercial oriented pig sector 1.38 1.80 Modern pig sector 1.51 1.80
  10. 10. Simulations Scenario Change relative to baseline (% p.a.) Higher income growth Income growth rate increased to 10% Higher productivity growth in modern pig sector Technological growth rate in sector increased to 10% Higher productivity growth in traditional pig sector Technological growth rate in sector increased to 10% No productivity growth in traditional pig sector Technological growth rate in sector reduced to 0% No productivity growth in maize Technological growth rate in sector reduced to 0% Higher income elasticities for commercial and modern pig products Income elasticities increased to 2.7 Higher income elasticities + higher productivity growth in commercial and modern pig sector Income elasticities increased to 2.7 and technological growth in commercial and modern pig sector increased to 10% Worst case for traditional sector High technological growth in modern/no technological growth in traditional/increase in income elasticity modern/reduction in income elasticity for traditional
  11. 11. Results – changes in pig sector market share under different scenarios, Uganda 0 10 20 30 40 50 60 70 80 90 100 2014 Base scenario Higher income No prod growth traditional sector High productivity growth traditional sector High productivity growth in the commercial sector No productivity growth in the maize sector High income elasticity commercial and modern pig products High income elasticity commercial & modern pig products+productivity growth Worst case scenario % Traditional sector Commercial sector Modern sector
  12. 12. Results – changes in pig sector market share under different scenarios, Vietnam 0 10 20 30 40 50 60 70 80 90 100 2014 Base scenario Higher income No prod growth traditional sector High productivity growth traditional sector High productivity growth in the commercial sector No productivity growth in the maize sector High income elasticity commercial and modern pig products High income elasticity commercial & modern pig products+productivity growth Worst case scenario % Traditional sector Commercial sector Modern sector
  13. 13. Pork export under different scenarios in Vietnam (‘000’ tons) Scenarios 2020 2021 2022 2023 2024 2025 Baseline 9.6 9.7 9.7 9.6 9.5 9.3 High income growth 0 -4 -19 -38 -62 -92 No productivity growth in traditional pig sector 5.3 4.3 3.1 1.8 0.2 0 Higher productivity growth - traditional pig sector 17.7 19.6 21.6 23.8 162 419 Higher productivity growth - modern pig sector 52.1 63.2 76 90.7 107 127 Higher income elasticity - modern pork sector 0.0 0.0 0.0 0.0 0.0 0.0 Higher income elasticity & productivity growth modern pork sector 23.9 27.5 31.6 36.2 41.4 47.5 Worst case scenario in traditional pork sector -20 -54 -101 -166 -254 -372
  14. 14. Maize export under different scenarios (‘000’ tons) -9000 -8000 -7000 -6000 -5000 -4000 -3000 -2000 -1000 0 Base scenario Higher income No prod growth traditional sector High productivity growth traditional sector High productivity growth in the commercial sector No productivity growth in the maize sector High income elasticity commercial and modern pig products High income elasticity commercial & modern pig products+productivity growth Worst case scenario '000' tons Uganda Vietnam
  15. 15. Conclusions  Traditional smallholder sector will still account for the bulk of the pig market share in the coming decade  Technology breakthroughs present a win-win for developing both the traditional and modern commercial pig sectors in the 2 countries  Technology is the most significant driver to improve production of the commercial/modern pig sub-sector o Productivity enhancing technologies may include feeds, animal health, and breeds  Rising pork demand without technological development will lead to imports rather than growing domestic production  Impact of technological changes in the traditional sector: o Reduce production cost and consumer price, o Maintain market shares, and have pro-poor impacts
  16. 16. This work was financed by ACIAR, EC-IFAD, Irish Aid, and Livestock CRP It is implemented in a partnership with Center for Agricultural Policy – Institute of Policy and Strategy for Agriculture and Rural Development, Vietnam It contributes to the CGIAR Research Program on Livestock, and PIM Acknowledgements
  17. 17. This presentation is licensed for use under the Creative Commons Attribution 4.0 International Licence. better lives through livestock ilri.org ILRI thanks all donors and organizations who globally supported its work through their contributions to the CGIAR system

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