COMPETITION BETWEEN DOMESTIC AND IMPORTED FARMED FISH A DEMAND SYSTEM ANALYSIS

Transcription

1 COMPETITION BETWEEN DOMESTIC AND IMPORTED FARMED FISH A DEMAND SYSTEM ANALYSIS Except where reference s made to the work of others, the work descrbed n ths thess s my own or was done n collaboraton wth my advsory commttee. Ths thess does not nclude propretary or classfed nformaton. To Th Km Hong Certfcate of Approval: Patrca Duffy Professor Agrcultural Economcs and Rural Socology Henry W. Knnucan, Char Professor Agrcultural Economcs and Rural Socology Norbert Wlson Assocate Professor Agrcultural Economcs and Rural Socology George T. Flowers Dean Graduate School

2 COMPETITION BETWEEN DOMESTIC AND IMPORTED FARMED FISH A DEMAND SYSTEM ANALYSIS To Th Km Hong A Thess Submtted to the Graduate Faculty of Auburn Unversty n Partal Fulfllment of the Requrements for the Degree of Master of Scence Auburn, Alabama August 9, 2008 v

3 COMPETITION BETWEEN DOMESTIC AND IMPORTED FARMED FISH - A DEMAND SYSTEM ANALYSIS To Th Km Hong Permsson s granted to Auburn Unversty to make copes of ths thess at ts dscreton, upon the request of ndvduals or nsttutons and at ther expense. The author reserves all publcaton rghts. Sgnature of Author Date of Graduaton

4 VITA To Th Km Hong s the oldest chld to her parents, a sster of two brothers, and mother of two kds. She graduated from Nong Lam Unversty, Thuduc, Hochmnh Cty n She had worked for the Department of Agrculture and Rural Development, Hochmnh Cty, Vetnam before she went to the Unted Stated wth her husband. She has receved a graduate research assstantshp from the Department of Agrcultural Economcs and Rural Socology (Auburn Unversty) snce August 2006 n order to complete her master study. v

5 THESIS ABSTRACT COMPETITION BETWEEN DOMESTIC AND IMPORTED FARMED FISH - A DEMAND SYSTEM ANALYIS To Th Km Hong Master of Scence, August 9, 2008 (B.S., Nong Lam Unversty Hochmnh Cty, 2001) 56 Typed Pages Drected by Henry W. Knnucan Monthly data from 1999 through 2007 are used to estmate demand nterrelatonshps between domestc and mported farmed fsh. Specfcally, a demand model s estmated for four products: mported frozen tlapa fllets, mported frozen salmon fllets, mported frozen catfsh fllets, and US-produced frozen catfsh fllets. The demand model used n ths analyss s the Lnear Approxmate Almost Ideal Demand System (LA/AIDS), whch s extended to nclude dummy varables to ndcate the effect of a labelng law and US ant-dumpng dutes. The system s estmated wth and wthout symmetry and homogenety mposed to assess the senstvty of results to restrctons mpled by demand theory. In addton, the model s estmated by Seemngly Unrelated v

6 Regresson and by Three Stage Least Squares to assess the senstvty of results to estmaton procedure. Own-prce elastctes estmated from the preferred models are sgnfcant and negatve as expected. The demand for mported frozen catfsh fllets s prce elastc at -.22 whle the demand for domestc frozen catfsh fllets s nelastc at Opposte to tlapa mports, the demand for salmon mports s estmated to be prce elastc at The demand for mports of catfsh, tlapa, and salmon are expendture elastc at 2.90, 2.08, and 1.4 respectvely whle the demand for domestc frozen catfsh fllets s expendture nelastc at 0.8. Thus, the demand for mported farmed fsh s more senstve to changes n the US busness cycle than demand for the domestc product. Allen elastctes are calculated to determne the degree of substtutablty among the four products. The closest substtute for domestc frozen catfsh fllets s mported frozen catfsh fllets (Allen elastcty = 5.11), followed by mported tlapa (1.09). Imported salmon s found to be a weak substtute (0.45) for domestc catfsh. Imported salmon competes more closely wth mported catfsh (12.) than wth mported tlapa (2.80). Imported tlapa and mported catfsh show a strong complementary relatonshp (-18.95), whch means a rse n the prce of ether product causes the demand for the other product to fall. The US antdumpng tarff aganst catfsh mports from Vetnam s shown to postvely affect the market shares of salmon and tlapa mports and to negatvely the market shares of mported and domestc catfsh. However, the effects are small n absolute value wth the largest for mported catfsh (-0.08) and the smallest for domestc catfsh (-0.0). The labelng law, passed by the US Congress n 2001 to dfferentate Vetnamese frozen catfsh fllets from domestc frozen catfsh fllets, has no sgnfcant effect on the demand curves for the two products based on the SLS estmates. v

7 ACKNOWLEDGEMENTS I would lke to express my grattude to my major professor, Dr. Henry Knnucan for hs expertse, patence, gudance on academc work, and support throughout the tme I have been n the Unted States. I also apprecate my commttee members, Dr. Patrca Duffy and Dr. Norbert Wlson, for ther help n completng the thess. I apprecate the Department of Agrcultural Economcs and Rural Socology for the opportunty to study wth a graduate research assstantshp. Other thanks are to my husband, Dr. Nguyen Mnh Duc and my relatves who have encouraged and supported me whle I have done my graduate work and have completed ths thess. v

8 Style manual or journal used Amercan Journal of Agrcultural Economcs. Computer software used Mcrosoft Word 200, Mcrosoft Excel 200, SAS 9.1, NLOGIT.0 (LIMDEP Verson 200), E-VIEW 6.0 v

9 TABLE OF CONTENTS LIST OF TABLES...x LIST OF FIGURES... x I. INTRODUCTION...1 II. LITERATURE REVIEW Internatonal trade for agrcultural products Prevous studes related to US catfsh ndustry and fsh mports The Almost Ideal Demand System (AIDS) Labelng law Antdumpng tarff...1 III. MODEL SPECIFICATION Model specfcaton Data descrpton Estmaton strategy...19 IV. RESULTS Own prce and expendture elastctes from the fve models Elastcty estmates from models C and E Seasonal effect Tarff effect Labelng law effect...24 V. CONCLUSION...26 REFERENCES...28 APPENDIX...4 x

10 LIST OF TABLES Table 1: Varable descrpton...7 Table 2: Coeffcent Estmates of Lnear Approxmate Almost Ideal Demand System for Domestc and Imported Farmed Fsh...8 Table : Comparson of Marshallan Own-prce and Expendture Elastctes Estmated from Fve Alternatve Demand Models...9 Table 4: Marshallan Prce Elastctes...40 Table 5: Hcksan Prce Elastctes...41 Table 6. Allen Elastctes...42 x

11 LIST OF FIGURES Fgure 1. Quanttes of U.S mport fsh and domestc catfsh...4 Fgure 2. Budget shares of the four products of frozen fsh fllets...4 Fgure. Prces of mported salmon and tlapa...44 Fgure 4. Prces of mported and domestc catfsh...44 Fgure 5. Changes n mport structure of frozen catfsh fllets mports to the U.S x

12 I. INTRODUCTION In the past, some natons operated a closed economy; however, ths operaton caused low economc growth. Trade has played an mportant role n the economc growth of many countres. In the Unted States, t has created more jobs and has rased standard of lvng as well as has kept the economy open, dynamc and compettve. So trade s necessary for natonal economc growth. So far, the Unted States has been the best place for dong busness and the bggest tradng country n the world. If export stmulates domestc producton, mport also has an essental role for consumers because t rases detary varety, keeps retal prces low when domestc producton declnes, and makes food products avalable year-round (Kantor and Malanosk, 1997). Fsh s consdered healthy for humans and an essental product for trade, about 40% of all fsh produced are traded nternatonally (Josupet, Lem and Lupn, 2001). Also fsh plays an mportant role n the economcs of many developng countres. The growth of aquaculture for hgh value speces (shrmp, seabass, seabream, salmon) has had an mportant mpact on nternatonal fsh trade whle speces of lower value (tlapa and catfsh) have successfully entered nternatonal trade n recent years (Globefsh, 2005). The value of edble fshery products to the U.S. was 1.7 bllon dollars n 2007, a 1% ncrease compared to 2006 and a 52% ncrease compared to The value of exported fsh was $4.2 bllon n 2007, a 50% ncrease compared to 1999, and re-export n 2007 was worth $256 mllon dollars (NMFS, 2007). 1

13 Salmon s a hgh value fsh. Large ncreases n supples, especally from Norway and Chle, have had a sgnfcant effect on world trade of salmon (Globefsh, 2005). Between 1976 and 200, salmon exports worldwde grew from 100,000 metrc tons to over 1.7 mllon metrc tons, and unt export value decreased from $6.20/kg n 1990 to $.20/kg n Chle s the leadng exporter of salmon to the U.S. wth an mport value of $86 mllon n 2007, whch s twce the mport value n 2000 (FAO, 2005). Tlapa has become one of the most successful aquaculture products enterng nternatonal trade after salmon and shrmp (Globefsh, 2005). Between 1995 and 2005 producton of tlapa from farms has trpled from 0.55 mllon to 1.67 mllon metrc tons. Exports of tlapa have been growng and unt values have held steady or even ncreased n recent years. The Unted States s a major market for tlapa-exportng countres (Ftzsmmons, 2000), especally Chna (FAO, 2008). Catfsh rased on domestc farms s the ffth most consumed fsh speces n the Unted States (Josupet et al., 2001). The most popular product form s frozen fllets (Harvey, 2005). In 2005, 124 mllon pounds of frozen catfsh fllets were sold by domestc processors, an ncrease of 1.5% over 2004 (Harvey, 2006). Although the U.S. s the bggest producer of catfsh n the world, t mported 2 thousand tons n the frst ten months of 2007, a 2% ncrease from Most of the mported catfsh s from Chna, Vetnam, Thaland and Malaysa. Whle Ictalurus catfsh mports are mostly from Chna, Pangasus catfsh mports are from Vetnam. The prce of Vetnamese catfsh s $ /lb, $.10/lb hgher than Chnese catfsh mports (FAO, 2007). Prevously, the low prce of Vetnamese frozen catfsh fllets durng has lowered the prce of domestc frozen catfsh fllets n the same perod. 2 Snce 200, Vetnamese catfsh

14 mports have been mposed wth an antdumpng tarff up to 64% and the Chnese catfsh has taken advantage of ths by offsettng the defcency. The Chnese catfsh has then become a man source of mported catfsh n the U.S. market (FAO, 2008). There are varous studes dscussng about the compettveness between the U.S. domestc catfsh and mported catfsh wth an estmaton of demand prce elastctes of the fsh. In the crcumstance of an ncreasngly mportant role of mported tlapa and salmon, none of these studes nvolves salmon, tlapa, and catfsh n an estmaton of the fsh demand system. The objectve of ths research s to determne the effect of the above mported fsh on the domestc catfsh ndustry, especally the relatonshp between mported catfsh prce and domestc catfsh demand. Usng an Almost Ideal Demand system, ths study also examnes possble effects of the antdumpng measures and labelng law on these goods. Ths research would gve valuable nformaton and nsght to fsh farmers, traders, and polcy makers.

15 II. LITERATURES REVIEW 2.1. Internatonal trade for agrcultural products The role of trade s apprecated n numerous producton ndustres worldwde. Agrcultural products are essental for human exstence. Many studes have dscussed mpacts of nternatonal trade on agrcultural producton for the past several years. Cramer et al. (199), examnng the effect of trade lberalzaton on the world rce market, predcted a large ncrease n both trade volumes and prces for rce products. Most rce exporters and mporters would gan a sgnfcant welfare and trade lberalzaton whch would ncrease the total welfare. For nstance, total U.S. export revenue has grown up by 109% under trade lberalzaton mpact. Another study related to trade agrcultural subject s of Wales et al. (1998) wth dscusson on the constrants and potental of blateral trade between the U.S. and Chna. They stated that Chna has become one of the most rapdly growng countres n the world after conductng open economy n the late 1970s. Its agrcultural trade has expanded tremendously despte U.S. restrctons for competng wth U.S. food and agrcultural products. The authors also mentoned that Chna has been ncreasngly changng from raw agrcultural producton to valued-added processed and manufactured producton. On the other hand, the U.S. has exported many agrcultural products, especally soybean, cotton, wheat and poultry to Chna. Stll whle the Chna s share n U.S. farm exports s not bg, t has hgh upward trend. 4

16 2.2 Prevous studes related to US catfsh ndustry and fsh mports Although the domestc producton of catfsh declned over 220 mllon pounds between 200 and 2007 n the Unted States, t s stll the most mportant producer of catfsh n the world. Reasons for ths decrease are a rsng demand of agrcultural crops for bo-fuels producton, leadng to rsng costs of nputs and an mprovement n catfsh producton of other countres (FAO, 2007). By the end of 2007, 252 mllon pounds of domestc catfsh were sold by U.S. processors, an 11% decrease relatve to the prevous year. Average prce receved by processor was $2.44/lb, declnng by 1% from There are numerous studes dscussng the U.S. catfsh ndustry. One of these studes s of Quagrane (200) who uses a dynamc almost deal demand system model to examne the U.S. catfsh demand. As ndcated, adjustment coeffcents ndcate how rapdly consumers of catfsh adjust toward long-run equlbrum when real prce and expendture fluctuate. Whle full adjustment s fnshed wthn the subsequent two-month perod, about 16% of the adjustment occurs nstantaneously. Wth a low cost of adjustment, purchasers of catfsh change quckly toward a new equlbrum after dsequlbrum movements. Often, the market demand for catfsh s n equlbrum. The dynamc AIDS model behaved well for catfsh products. As reported, the uncompensated own-prce elastctes are for whole fsh and for fllets. Based on uncompensated form, whole fsh s less own-prce nelastc; fllets are own-prce elastc. Expendture elastctes are for whole fsh and for fllets. Ths s dfferent from the results Quagrane (2006) obtaned, whch estmated coeffcent of personal dsposable ncome s The result gves suggestons to processors. They need to more 5

17 concerned wth effcent producton and marketng processes to make whole fsh and fllets more prce-compettve. Studyng on the U.S. catfsh ndustry n the perod of , Kalba et al. (2007) evaluated the effcency of catfsh processng plants. They found that new nnovatons were not adopted by processors. When plant managers changed resources, techncal effcency change was unstable. In the perod of , techncal effcency change had a negatve relaton wth the optmal fsh sze. Techncal effcency change had a postve sgn from Fllets prce and nventory accumulaton ncreased n relaton to techncal effcency gans. Based on ths, plant managers can make short-term decsons to get hgher prces or get rd of nventores. Market competton ncreases and relates postvely to techncal effcency change. The catfsh processng sector should be concerned wth the development of new techncal nnovatons to ncrease both domestc and nternatonal compettveness. Another study of Quagrane and Engle (2006) determned catfsh preferences of Arkansas restaurateurs from stated choce data. Wth respect to dfferent attrbutes and buyer preferences, the threat of mport competton presents unque marketng challenges to the catfsh ndustry. Restaurant managers were grouped nto some latent class segments based on ther preferences. The managers n both classes were concerned wth the prces of catfsh products and preferred mld flavor and soft texture catfsh. In addton, the managers were grouped nto other classes. One class segment was not concerned wth color but was very senstve to prce. The second class segment was concerned not only wth color but also wth the prce. They were assumed that selectons for dryness, flavor and texture were equal for both classes. The study reveals that the 6

18 percentage of catfsh products purchased from food dstrbutors ncreases wth the lkelhood of the class segment unconcerned about color of products. One of the studes on the effects of mported catfsh on domestc catfsh s the study of Lgeon et al. (1996). Wth Ordnary Least Squares regresson for double-log functons, they examned the effects of catfsh mports from NAFTA member countres to the U.S. domestc catfsh. They found that the quantty of mported catfsh wll decrease when the domestc prce declnes whch s assocated wth a lower mport prce. Ther regresson ndcated that mported catfsh s an nferor good. When the real U.S. GDP ncreased by 1%, the rato of mported to domestc catfsh declned by 0.1%. They also estmated that mported catfsh n the perod from 1970 to 1991 dd not predct mports n the year of 1996, and catfsh mports dd not affect U.S. catfsh ndustry. Quagrane and Engle (2002) appled a co-ntegraton procedure on domestc and mported catfsh. The purpose was to estmate the long-run relatonshps and prce transmsson between these goods. As reported, producer prce, frozen fllets and mports prce were unfed. Between pars of these prces, there exsts a long-run equlbrum relatonshp. The producer prce and the prce of domestc frozen fllets have a postve prce transmsson. Ths means an ncrease n the prce of one product correlates wth an ncrease n prce of the other. Also there s a postve prce transmsson between the prce of mported fllets and domestc frozen fllets. However, the producer and mport prces have negatve prce transmsson. Producer s long-run prce transmsson elastcty for frozen fllets s Frozen fllets - mported fllets long-run prce transmsson elastcty s.56 and producer-frozen fllets short-run prce transmsson elastcty s 0.2. Moreover, the market for domestc frozen fllets has an mportant role n the prce 7

19 determnaton of mported catfsh. The relatonshp between the mport prce and prce of domestc frozen fllets s strong and the prce transmsson elastcty for frozen fllets to mported fllets s large. Hgh levels of fllets prce have affected the level of catfsh mports. If restaurateurs and dstrbutors purchase the lower prce mported catfsh, the consequence s an ncrease n catfsh mports. Quagranne (2006) used alternatve logt methods to predct market share of U.S frozen farm-rased catfsh fllets. Hs study ndcates that log nverse power transformaton (IPT) formulaton gves better results than smple logt and IPT logt models, when predctng market share of U.S. frozen, farm-rased catfsh fllet. The log- IPT formulaton shows that hgher prce premums and market shares of U.S. catfsh fllets have a negatve relatonshp. Imported catfsh s substtuted for domestc snce t s assumed to be an undfferentated product. Ths means that when the prce of domestc fllets wholesale ncreases relatve to prce of mported fllets, consumers would buy mported catfsh. The market shares of catfsh and ncome have negatve relatonshp as consumer expendture s stable. Ths study found that catfsh s a necessary product. In addton, whle the economy changes, total demand of catfsh remans stable. There also exst other studes consderng changes n domestc catfsh ndustry whch has been mpacted by other mported fsh and meats. Such a study was conducted by Asche et al. (2001) whch determned market nteractons among three groups of fsh: salmon, catfsh, and sea bass/sea bream. The study found that f the prce of new aquaculture speces declned strongly, the relatons between markets for these speces and market for other products would be not strong. The relatve prce between farmed fsh and most other goods changed substantally f any other goods changed smlarly n prce. 8

20 Moreover, close substtutes get a hghly relatve prce and perfect substtutes get a constant correlated prce. Therefore, farmed fsh and other goods dd not have a closely compettve relatonshp. The market nteractons between farmed fsh and other fsh and meats were small, except for wld supples of the speces whch are farm-rased. Wth an ncreasng demand for fsh, these farmed speces had ganed substantal producton and taken some market share. Comparng OLS and SUR methods, Kennedy and Lee (2005) also concerned wth effects of mports of catfsh, crawfsh, and shrmp on domestc prces. They found that mports of catfsh and shrmp had a negatve effect on domestc prces. However, mported crawfsh and domestc prce were postvely related. Ther study ndcated that consumpton of catfsh and shrmp declned as ther prce ncreased. Income and consumpton of catfsh, crawfsh, and shrmp had a postve relatonshp. Therefore catfsh and shrmp are normal products. Ths result s opposte to the prevous study of Lgeon et al. (1996) whch concluded that mported catfsh s an nferor good. An ncrease n ncome corresponded wth decrease domestc crawfsh prces. Ther fndngs also confrm that trout, clam, chcken, and pork mpacted domestc prces of catfsh, crawfsh and shrmp. The decrease of catfsh prce was affected by ncrease of trout, clam, and chcken supples. The result reveals that drect prce flexbltes of catfsh range from to based on fve models. As mentoned, salmon s a hgh value fsh. A prevous study workng on ths knd of product s the one of Knnucan and Myrland (2005) who appled an equlbrum dsplacement model for the world salmon market to estmate effects of tarffs and ncome growth on salmon prces, producton, and trade flows. They estmated that the average of 9

21 long-run total ncome elastcty for U.S salmon mports s 1.06 wth the partal elastcty s The total ncome elastcty n world trade for salmon was estmated at 1.02, mplyng that mports worldwde grow at about the same rate as world ncome. In addton, domestc producton s less senstve to prce change than mport supply. Fxng supply affects total ncome elastcty for the U.S, whch decreases from 1.06 to The study also suggested that US tarffs on mports from Norway and Chle are neffectve. 2. The Almost Ideal Demand System (AIDS) Methods and models used n estmaton are mportant ssues n emprcal research. An napproprate model can gve based results. Some of recent studes use equaton systems to estmate demand for food. One of these s the study by Eales et al. (1997) that estmated Japanese demand for fsh and concluded that the ordnary demand system s domnated by the nverse demand system n non-nested tests and forecastng performance. Another study s by Alston and Chalfant (199) that compares two versons of the Lnear Approxmate Almost Ideal Demand System (LA/AIDS) wth the Rotterdam model. They found that LA/AIDS s domnant when t s appled to meats. The Almost Ideal Demand System (AIDS) had ts orgns n early work by Rchard Stone (Deaton and Muellbauer, 1980). The AIDS has proved popularly n emprcal word due to several advantages. It gves an arbtrary frst-order approxmaton to any demand system and a second-order local approxmaton to any cost functon, permts exact aggregaton over consumers wth dfferent ncomes, satsfes restrctons mposed by the consumer allocaton problem, and permts testng of the general restrctons of homogenety and symmetry. Applcatons of the AIDS to studes on food 10

22 and agrcultural products nclude Lee and Ptt (1986), Green and Alston (1990), Knnucan et al., (1997), and Fouseks and Revell (2000). Applcatons of the AIDS to studes on fshery products can be seen n those of Wellman (1992), Lgeon, Jolly and Jackson (1996), Eales, Durham and Wessells (1997), Salvanes and Devoretz (1997), and Holt and Bshop (2002). Green and Alston (1991) also dscussed formulas and corrected formulas used to calculate prce and expendture elastctes for the LA/AIDS. Gven the foregong advantages, n ths study the LA/AIDS model was selected to estmate the demand for U.S. fsh mports Labelng Law Labelng was consdered a techncal barrer to restrct mports. In July 1991, the U.S. passed a law to restrct fsh mports from countres that permtted large-scale drftnet fshng because the drftnet fshng system for tuna also leads to kllng of dolphns. Ths law also banned mported tuna from thrd-world countres that purchase the fshed tuna. As ths case was taken to GATT, eco-labelng s approved by GATT and named a better program to solve the problem than trade restrctons. Ths s good because the consumer can have some choce and may be happy to pay a premum. Labelng has been preferred to use as a trade barrer. After Dolphn-safe was labeled, the unsafe tuna s dffcult to be sold n the U.S. market (Hogendorn, 1996). In the U.S., seafood mports, recently gan 50%-70% of total seafood supply; mported catfsh s named a new phenomenon to the catfsh ndustry (Hanson, 2005). Catfsh rased popularly n U.S. Southern states are from the Ictalurdae famly, mostly channel catfsh (Ictalurus punctatus) and blue catfsh (Ictalurus furcatus) farmed n 11

23 closed ponds, whle Vetnamese catfshes are basa (Pangasus bocourt) and tra (Pangasus pangasus) belongng to Pangasus famly and cultured popularly n cages and pens along the Mekong Rver. Imports of frozen catfsh fllets from Vetnam had ncreased strongly durng , and the country was the largest exporter of frozen fllets to the U.S. catfsh market (Quagrane and Engle, 2006). To protect domestc catfsh ndustry, the US Congress passed a law n December 2001 restrctng the use of the word catfsh for labelng to only those Ictalurdae varetes farmed n US (Narog, 200). Accordng to Duval-Dop et al. (2005), the labelng law s an effectvely techncal trade barrer whch s supported by the farm lobby and other nterests. For some agro-products, exporters are more successful when labelng favorte products and marketng them to the world such as French champagne, Florda oranges, or Kobe beef. These products are labeled by a geographcal locaton because they have dfferent qualtes from the others (Duval-Dop and Grmes, 2005). However, t s dffcult to dstngush between U.S. and Vetnamese catfsh. The texture and taste of the products are smlar, but the prce of Vetnamese catfsh s lower (ITC, 2002). Ths s consstent wth a statement of Knnucan (200) that mport and domestc catfsh fllets are not totally dfferentable. In addton, decson of consumer s medate factor whch affects the competton between these catfsh products. If so, consumer must adjon labels and other product nformaton besde background about the products. It s confusng to U.S. consumers to see the label basa on mported catfsh from Vetnam at the frst tme they purchase t (Duval-Dop and Grmes, 2005). Yet, as quoted by Nalley (2007), basa mported from Vetnam and domestc frozen catfsh fllet are dfferentable products based on texture, color, taste, and name recognton. After the label law has been mposed 12

24 on Vetnamese catfsh, t creates new market, whch has favorable dfference that ncreases demand for Vetnamese catfsh and reduces demand for the US catfsh. 2.5 Antdumpng Tarff Whle many countres try to lberalze ther economy toward a free trade, less compettve domestc ndustres often seek protecton n the form of mport restrctons. Antdumpng dutes s one of the more popular tools allowed by the GATT/WTO to assure trade prncples and to protect domestc ndustry from a dumpng of low-prce mports. Accordng to Prusa (2005), antdumpng has been ncreasngly used by more countres and on more products. Tradtonally, hgh-ncome countres, such as the Unted States and EU natons, have been the domnant users of antdumpng provsons. In recent years, the trade tool has used by more and more mddle- and lower-ncome countres. However, because antdumpng measures typcally are not mposed on all exporters (Asche, 2001, and Prusa, 1996), ther ablty to beneft domestc producers s problematc. The reason s that declnes n mports from the targeted countres are often offset by ncreases n mports from non-targeted countres. In addton, mport demand tends to more elastc than export supply, whch means most the tarff s borne by foregn producers rather than domestc consumers (Knnucan 200). A number of studes have nvested the effect of antdumpng dutes on domestc prces and trade flows. One of these s by Asche (2001) who examned changes n prce and market shares when an antdumpng duty was mposed on Norwegan salmon mports n Another s study of Knnucan and Myrland (2005), whch examned effects of 1

25 the U.S. antdumpng tarff on Norwegan and Chlean salmon mports. In both of these studes the tarffs were found to have lttle mpact on prces n the U.S. market. In the case of catfsh, the Unted States have mposed an antdumpng tarff on Vetnamese frozen catfsh fllets snce 200 wth ranges between 7 and 64% of mport values. The expectaton of ths antdumpng tarff s to protect domestc catfsh ndustry by ncreasng domestc prce and domestc sell. Several studes have examned the effect of ths antdumpng tarff on domestc and mported catfsh. Accordng to Knnucan (200), the tarff punshes Vetnamese exporters but does not gve a sgnfcant beneft to U.S. catfsh producers. Moreover, the tarff motves an ncrease n catfsh mports from non-taxed countres. The concluson s affrmed by Duval-Dop (2005) who found that although catfsh mports from Vetnam declned 70% n the two years followng the duty (from 2001 to 200) U.S. farm prces dd not strengthen apprecably. However, Nalley (2007) stated that the tarff ntally had an mpact on the budget share of domestc frozen catfsh fllets n the month after the mposton and then decreased to no more effect. 14

26 III. MODEL SPECIFICATION.1 Model specfcaton Assumng frozen fllets mports of salmon, tlapa, and catfsh consttute a separable group, ths study uses the Lnear Approxmate Almost Ideal Demand System of Deaton and Muellbauer (1980) to estmate mport curves for these products. Frozen catfsh fllets produced n the Unted States were added to the system to explore the possble effects of mports on the demand for the domestc product. The Lnear Approxmate Almost Ideal Demand System (LA-AIDS) model has the followng basc form: (1) Rt = α + θj ln P 4 j= 1 jt + β ln( Y t P * t ) + ε t where = 1,, 4 ndex the product (1 = salmon, 2 = tlapa, = catfsh mports, and 4 = domestc catfsh); R t s the expendture share for the th product at tme t: P jt s the prce of the j th product at tme t; Y t s total US consumer expendture on the four products at tme t; P s the Stone prce ndex at tme t calculated as ln P * t * t = 4 = 1 R ln P, and ε t s a t t random dsturbance term. Prevous research ndcates the demand for catfsh s seasonal wth demand peaks occurrng durng the Lenten season and late summer or early fall (see, e.g., Knnucan and 15

27 Mao, 1999). Therefore, dummy varables were added to the model to account for seasonal shfts n preferences: 4 (2) Rt α + θj ln Pjt + β ln( Yt P * t ) + φqqrtqt + εt = j= 1 q= 1 where QRT qt equals one n calendar quarter q and zero otherwse. Snce 200 the Unted States has mposed ant-dumpng dutes on mports of frozen catfsh fllets from Vetnam (Knnucan, 200; Zanard, 2004; Prusa, 2005). The dutes ranged between 7 and 64% of mport value (Duc and Knnucan, 2007). To determne the effect of the tarff a dummy varable was added to the model as follows: 4 () Rt α + βj ln Pjt + λ ln( Yt P * t ) + φqqrtqt + δtarifft + εt = j = 1 q= 1 where TARIFF t equals one for the tarff perod (January 200 through December 2007) and zero otherwse. Another tool used to restrct catfsh mports s labelng (for a general dscusson, see Duval-Dop and Grmes (2005)). Specfcally, n 2001 the U.S. Congress passed a law that does not allow catfsh mported from Vetnam to be labeled catfsh lke the channel catfsh produced n the Unted States (Narog, 200). To determne whether the labelng law had the ntended effect, an nteracton term was added to the model as follows: (4) R 4 * t = α + θj ln Pjt + β ln( Yt Pt ) + φq j= 1 q= 1 + ϕ (ln P LABEL ) + ε t t QRT qt + δ TARIFF t 16

28 where LABEL t equals one durng the label perod (December 2001 through December 2007) and zero otherwse. The coeffcent of the nteracton term, φ, reflects the effect of the labelng strategy on the senstvty of budget share to changes n the prce of mported catfsh. Thus, for example, f φ > 0, the labelng strategy has made the budget share for mported catfsh less senstve to changes n the prce of mported catfsh. In general, one would expect the labelng to make demand for mported catfsh less elastc, and to reduce the substtutablty between domestc and mported catfsh. These hypotheses are tested later n the study. restrctons: To satsfy theory the coeffcents n equaton (4) must satsfy the followng (5a) 4 j= 1 θ = 0 for all (homogenety) j (5b) θ = θ for all and j (symmetry) j j (5c) 4 = 1 4 = β = = 1 = 1 4 α = 1; θ = φ = δ = ϕ = 0 (addng up). j = 1 4 = 1 In estmaton, addng up s treated as a mantaned hypothess; homogenety and symmetry can be tested for ther compatblty wth the data. Condtonal elastctes are computed from the estmated coeffcents as follows: (6a) e = 1 + θ R β (Marshallan own prce) (6b) ( θ R β ) e j = j R j (Marshallan cross-prce) 17

29 (6c) e β R = 1 + (expendture) (6d) e = e + R * j j j e (Hcksan own and cross prce) (6e) a j * ej = (Allen substtuton) R After the labelng law goes nto effect, the Marshallan prce elastctes are calculated as follows n (6f) and (6g). The detal formulas are ndcated n appendx A. (6f) e ( γ R β + ϕ ) = (Marshallan cross-prce) R (6g) e = ( γ R β + ϕ R ) R = (Marshallan own-prce) Followng Irwn (200), standard errors for elastctes were computed by dvdng the standard error of estmated coeffcents by ther respectve budget shares. (7) * se j = se R j Where se * s new standard errors of elastctes; se s standard error of estmated coeffcents..2 Data Descrpton Monthly mport data n the perod from January 1999 to December 2007 of salmon, tlapa, and catfsh are obtaned from Natonal Marne Fsheres Servce, whle domestc catfsh quantty s obtaned from the Department of Economcs, Msssspp State Unversty. All four products are n frozen fllet forms. The quanttes of the four products 18

30 are converted nto unts of pounds. Prces are represented n dollars per pound. Fgure 1 shows quanttes of frozen salmon, tlapa and catfsh fllets mported nto the Unted States and domestc frozen catfsh fllets. Fgure 2 shows the changes n budget shares whle fgure and 4 exhbt the prce fluctuaton of the products. Overall, mport products have many changes especally n the perod from , such as salmon whch has deep fall ponts and sharp rses n 200 (65%), 2005 (64%) and 2007 (48%); tlapa, whch fluctuates much n the perod Although labelng law and antdumpng tarff went nto effect on mported catfsh n December 2001 and January 200 respectvely, the quantty of mport catfsh has not been affected mmedately at that tme. Three years after the tarff mposton, catfsh mports ncreased to over 7 mllon pounds (from July October 2006). Then t experenced a deep declne n As can be seen, domestc catfsh vares less than the others; t fell off about 19% after 9 years ( ). In contrast to mported catfsh, tlapa has had an upward trend. By the end of 2007, tlapa was mported n over 22 mllon pounds nto the Untes States; t was 4 tmes hgher than mported catfsh.. Estmaton Strategy To determne the senstvty of results to estmaton procedure the model was estmated by seemngly unrelated regresson (SUR) wth NLOGIT (LIMDEP 200) and, alternatvely, by three-stage least squares (SLS) wth the Statstcal Analyss Software (SAS). In SLS estmaton, nstrument varables used are TARIFF, lnp.label, QRT 1, QRT 2, QRT and the frst lags of endogenous varables of lnp and ln(y/p * ). The endogenous varables are R, lnp j, and ln(y/p * ). Addtonally, the model was estmated 19

31 wth and wthout the theoretcal restrctons of homogenety and symmetry mposed. Altogether fve models were estmated: Model A: SUR wthout theoretcal restrctons Model B: SUR wth theoretcal restrctons Model C: SUR wth theoretcal restrctons and correcton for seral correlaton Model D: SLS wthout theoretcal restrctons Model E: SLS wth theoretcal restrctons. 20

32 IV. RESULTS Estmaton results based on January 1999 through December 2007 data are reported n Table 2. For brevty, only the results for models C and E are presented as these are ndcatve. The results suggest the LA/AIDS provdes a good ft to the data as R 2 s range from 0.80 n the salmon equaton to 0.98 n the domestc catfsh equaton n model C, from 0.69 n the mported catfsh equaton to 0.98 n the domestc catfsh equaton n model E. Most of the estmated coeffcents are sgnfcant at conventonal probablty levels. Pror to dscussng results wth respect to the polcy varables, we present ownprce and expendture elastctes estmated from the fve models. These are at average budget shares (0.56, 0.25, 0.15, and 0.04 respectvely for salmon, domestc catfsh, mported salmon, mported tlapa, and mported catfsh). 4.1 Own Prce and Expendture Elastctes from the Fve Models The Marshallan own-prce elastctes are lsted n Table. All are sgnfcant, all of the own prce elastctes are negatve as expected. Ths result s consstent wth the demand theory, whch states that demand for a product declnes wth ts hgher own prce. Whle mported catfsh has the bggest own prce elastctes (.22) n absolute value, domestc catfsh has the smallest own prce elastctes (0.69) n absolute value. The mported catfsh demand s confrmed to be prce elastc as the one way t-test rejects the null hypothess of unque prce elastcty at 95% sgnfcant level. In other words, f mported catfsh prce ncreases by 1%, ts demand declnes by.22%, ceters parbus. 21

33 The demand for domestc catfsh s shown to be prce nelastc at as the one way t-test rejects the null hypothess of unque prce elastcty at 95% sgnfcant level. The result somehow s smlar to the result of Zdack, Knnucan and Hatch (1992) whch stated catfsh supply s prce nelastc n the short run. The demand of salmon mports s also estmated to be prce elastc (P<0.05) as t decreases by 1.51% for a 1% ncrease n ts prce. The remanng fsh product, tlapa mports, seems to be prce nelastc wth calculated own prce elastcty of However the t-test can not reject the null hypothess of ts unque prce elastc at 95% sgnfcant level. As shown n Table, expendture elastctes of mports of catfsh, tlapa, and salmon, and domestc catfsh are 2.90, 2.08, 1.4, and 0.8, respectvely. It means the demand for the products ncreases by 29.0%, 20.8%, 14.%, and.9%, respectvely, f expendture for one of them grows by 10%, controllng the others factors. Expendture elastctes of the fsh mports and domestc catfsh are postve at the 95% level of statstcal sgnfcance. So all of goods are normal goods whch s relevant to prevous conclusons such as Zdack and Hatch (1991). However, t s opposte to study of Lgeon et al. (1996), whch found that mported catfsh s an nferor good. Furthermore, mports of salmon, tlapa, and catfsh are ncome elastc whch the elastctes are bgger than one; especally demand of mported catfsh has a bg change wth respect to a change n ts expendture. One of these results (for salmon) s not opposte to the concluson of Knnucan and Myrland (2005) that total ncome elastcty for U.S salmon mports s postve and just above one unt. Unlke fsh mports, domestc catfsh s shown expendture nelastc because the sze of mpact s small, less than one unt. 22

34 4.2 Elastcty Estmates from Models C and E There are some weak mpacts of catfsh and tlapa mports prce on salmon mports demand, but the effect of tlapa mports prce s not sgnfcant at 95% level (Table 4). The calculated Marshallan elastctes n ths table seem to be problematc because the same two goods get dfferent sgns n the elastcty matrx. So Allen elastctes are calculated to ndcate relatonshps between demand of the products and prce of the other substtutes and how strong they are (Table 6). Generally, Allen elastctes of Model E gve nterestng results and all cross prce elastctes are symmetrcal as expected. There are substtuton relatonshps between goods such as mported catfsh and domestc catfsh; domestc catfsh and tlapa; domestc catfsh and salmon; tlapa and salmon; salmon and mported catfsh. Moreover, Allen elastcty of domestc catfsh and mported catfsh s 5.11; they are the closest substtutes whch would make obvous sense. On the other hand, tlapa and mported catfsh are complements. Although, ths fndng s dfferent from assumpton, t s more reasonable f t s n the case the traders mport these 2 goods together. 4. Seasonal Effect Dummy varables represent for the frst three quarters of the year and the last quarter s used as the base. Overall, the bggest decrease takes place n the budget share of mported salmon and tlapa n the frst quarter. The budget share of mported salmon decreases at 5% level of statstcal sgnfcance n the frst and second quarters (Table 2), whle the shares of tlapa and catfsh mports declne n the months from January to March. On the other hand, the share of domestc catfsh ncreases n the frst three quarters relatve to the 2

35 fourth quarter wth the bggest peak happenng n the frst quarter. Ths result s relevant to the prevous fndng of Zdack, Knnucan and Hatch (1992) Tarff Effect The Unted States has mposed an antdumpng tarff on mported catfsh from Vetnam snce January 200. The dummy varable for the tarff represents a sngle shft on shares of products after the tarff mposton. As shown n Table 2, the tarff postvely affected shares of salmon and tlapa mports but negatvely affected mported and domestc catfsh. Before tarff went nto effect, share of frozen Vetnamese catfsh fllets was large above 95% (2002). After the tarff went nto effect, the share of Vetnamese catfsh has been declnng (fgure 5). It decreased to 65% (2004) and 4% (2007). However shares of catfsh mports from other countres as Chna and Thaland are ncreasng, and share of domestc catfsh has not ncreased (fgure 5). Moreover, although the effects of the tarff are statstcally sgnfcant (t-ratos exceed 2.5), they are small n absolute values wth the larger for catfsh mports (-0.068) and the smaller for domestc catfsh (-0.0). Consequently, these numbers do not seem to be economcally sgnfcant. The result s consstent wth conclusons of Knnucan (200), Duc and Knnucan (2007), and Nalley (2007). It s reasonable as domestc catfsh and mported catfsh are dfferentable because Vetnamese catfsh (basa or tra) are not perfect substtutes for domestc catfsh (Nalley, 2007). 4.5 Labelng Law Effect From December 2001, the Unted States Senate has not allowed mported catfsh from Vetnam to get the brand name of catfsh of the compettve catfsh rased n the 24

36 Msssspp Delta. In ths study, the label s consdered as a cause of a structural change n demand of catfsh mports. As reported n Table 4, the labelng law ncreases the substtute effect of catfsh mports prce on the demand of salmon mports but decreases the effects of catfsh mports prce on demands for tlapa mports, catfsh mports and domestc catfsh. Furthermore, the labelng law changes the relatonshp of domestc catfsh and mported catfsh as substtutes before the law went nto effect but became complements after t was nsttuted. However, the labelng effects are not sgnfcant statstcally because ther t-ratos are small. 25

37 V. CONCLUSION The LA/AIDS models gve prce elastctes and expendture elastctes relevant to theory wth sgns as expected. Whle mported catfsh has the bggest own prce elastcty (-.22), domestc catfsh has the smallest own prce elastcty (-0.69) n absolute values. Opposte to the demand for tlapa mports, the demand of salmon mports s estmated to be prce elastc at Expendture elastctes of mports of catfsh, tlapa, salmon, and domestc catfsh are estmated to be 2.90, 2.08, 1.4, and 0.9, respectvely. It ndcates that the fsh mports are ncome elastc whle domestc catfsh s ncome nelastc. Wth Allen elastctes calculated, the study estmates a substtuton between mported catfsh and domestc catfsh. Substtutons are also shown between domestc catfsh and tlapa mports, between domestc catfsh and salmon mports, between tlapa mports and salmon mports, and between salmon mports and catfsh mports. Whle domestc frozen catfsh fllets and mported frozen catfsh fllets are estmated to be close substtutes (Allen elastcty = 5.11), frozen fllets mports of tlapa and catfsh are lkely to be complements (-18.95). Although ths fndng s dfferent from the assumptons made n the model, t s more reasonable f traders do mport these two products together. The U.S. antdumpng tarff s shown to postvely affect the market shares of salmon and tlapa mports, but to negatvely mpact the shares of mported and domestc catfsh. However, these are very small n ther magntudes and therefore, have 26

38 nsgnfcant economc mplcatons. The SLS regresson estmates that the 2001 labelng law on catfsh brand name had no statstcally sgnfcant effect on the demand for the two products of catfsh. The antdumpng measures and labelng law appear not to be effcent polces to support domestc catfsh ndustry as expected because they do not ncrease the market share or demand for domestc frozen catfsh fllets. To enhance the compettveness for domestc catfsh, market promoton mght be consdered as an alternatve tool to support the domestc catfsh ndustry. 27

39 REFERENCES Alston, J. M. and J. A. Chalfant, 199. The Slence of the Lambdas: A Test of the Almost Ideal and Rotterdam Models. Amercan Journal of Agrcultural Economcs. 75(2): Asche, F. (2001). Testng the Effect of an Ant-Dumpng Duty: The US Salmon Market. Emprcal Economcs (2001) 26:4-55. Asche, F., T. Bjorndal and J. A. Young, Market Interactons for Aquaculture Products. Aquaculture Economcs and Management. 5(5-6): Buguk, C., D. Hudson and T. Hanson, 200. Prce Volatlty Spllover n Agrcultural Market: An Examnaton of US Catfsh Markets. Journal of Agrcultural and Resource Economcs. 28(1): Cramer, G. L., E. J. Wales and S. Shu, 199. Impacts of Lberalzng Trade n the World Rce Market. Amercan Journal of Agrcultural Economcs. 75(1): Deaton, A. S. and J. Muellbauer, An Almost Ideal Demand System. Amercan Economc Revew. 70(): Duc, N.M. and H. W. Knnucan, Effects of Antdumpng Dutes wth Bertrand Competton: Some Evdence for Frozen Catfsh Fllets. Selected Paper prepared for presentaton at the Amercan Agrcultural Economcs Assocaton Annual Meetng, Portland, OR, July 29-August 1,

40 Duval-Dop, D. M. and J. R. Grmes, Tales from Two Deltas: Catfsh Fllets, Hgh- Value Foods, and Globalzaton. Economc Geography. 81(2): Eales, J., C. Durham and C. R. Wessells, Generalzed Models of Japanese Demand for Fsh. Amercan Journal of Agrcultural Economcs. 79(4): Ftzsmmons, K., Future Trends of Tlapa Aquaculture n the Amercas. In B.A. Costa-Perce and J. E. Rakocy (eds.) Tlapa Aquaculture n the Amercas, Vol. 2. The World Aquaculture Socety, Baton Rouge, Lousana, Unted States, pages Fouseks, P. and B. J. Revell, Meat Demand n the UK: a Dfferental Approach. Journal of Agrcultural and Appled Economcs. 2(1): GLOBEFISH, Catfsh Market Report January Avalable onlne: GLOBEFISH, Salmon and Trout Aprl 2008 Chle. Avalable onlne: GLOBEFISH, Tlapa Market Report Aprl Avalable onlne: Green, R. and J. M. Alston, Elastctes n AIDS Models: A Clarfcaton and Extenson. Amercan Agrcultural Economcs Assocaton. Vol. 7. pp Hanson, T., U.S. Farm-Rased Catfsh Industry 2004 Revew and 2005 Outlook. Avalable onlne: 29

41 Harvey, D.J., Aquaculture Outlook. LDP-AQS-21. Mar Electrc Outlook Report from the Economc Research Servce. Avalable URL: Harvey, D.J., Aquaculture Outlook. LDP-AQS-21. Mar Electrc Outlook Report from the Economc Research Servce. Avalable URL: Hogendorn, J. S., Economc Development. Thrd Edton. HarperCollns College Publshers Holt, M. T., and R. C. Bshop, A Semflexble Normalzed Quadratc Inverse Demand System: An Applcaton to the Prce Formaton of Fsh. Emprcal Economcs. 27(1): Irwn, D. A. (200). The Optmal Tax on Antebellum US Cotton Exports. Journal of Internatonal Economcs. Vol. 60, pp Josupet, H. A. Lem and H. Lupn, (2001). Aquaculture Products: Qualty, Safety, Marketng and Trade. In R.P. Subasnghe, P. Bueno, M.J. Phllps, C. Hough, S.E. McGladdery & J.R. Arthur, eds. Aquaculture n the Thrd Mllennum. Techncal Proceedngs of the Conference on Aquaculture n the Thrd Mllennum, Bangkok, Thaland, February pp NACA, Bangkok and FAO, Rome. Kalba A. R., C. R. Engle and L. Dorman, Effcency Change and Technologcal Progress n the U.S. Catfsh-Processng Sector, 1986 to Aquaculture Economcs and Management. 11: 5-72 Kantor, L. S. and M. Malanosk, Imports play a growng role n the Amercan det. Foodrevew. 20():

42 Kennedy, P.L and C. Lee (2005). Effects of Catfsh, Crawfsh, and Shrmp Imports on U.S. Domestc Prces. Selected Paper prepared for presentaton at the Southern Agrcultural Economcs Assocaton Annual Meetngs. February, Knnucan, H.W Futlty of Targeted Fsh Tarffs and an Alternatve. Marne Resource Economcs. 18: Knnucan H.W. and Y. Mao, 1999, Meda-Specfc Returns to Generc Advertsng: The Case of Catfsh, Agrbusness, 15 (1): Knnucan, H.W., O. Myrland, Effects of Income Growth and Tarff on the World Salmon Market. Appled economcs. 7(17): Knnucan, H.W., H. Xao, C.J. Hsa, and J. D. Jackson, Effects of health nformaton and generc advertsng on U.S. meat demand. Amercan Journal of Agrcultural Economcs. 79(1): 1-2. Lee, L.-F., and M. M. Ptt, Mcroeconometrc Demand System wth Bndng Nonnegatvty Constrants: The Dual Approach. The Econometrc Socety. 54(5): Lgeon, C., C.M. Jolly and J. D. Jackson, Evaluaton of Possble Threat of NAFTA on U.S. Catfsh Industry Usng a Tradtonal Import Demand Functon. Journal of Food Dstrbuton Research. July Nalley, L. L., Modelng the Structural Change n Amercan Frozen Catfsh Fllet Demand: An Analyss of Country of Orgn Labelng and the Implementaton of 1

43 an Import Tarff. Selected Paper prepared for presentaton at the Southern Agrcultural Economcs Assocaton Annual Meetngs. February, Narog, B.J., 200. Past Present Future Catfsh n Vetnam and the US. Aquaculture Magazne. May/June 200. Pollak, A. Robert and T. J. Wales, Demand System Specfcaton and Estmaton. Journal of Agrcultural and Appled Economcs. 2(1): Prusa, T. J., The Trade Effects of U.S. Antdumpng Actons. NBER Workng Paper No. W5440. Avalable at SSRN: Prusa, T. J. (2005). Ant-Dumpng: A Growng Problem n Internatonal Trade. The World Economy. 28(5): Quagrane, K. K A Dynamc Almost Ideal Demand Model for US Catfsh. Aquaculture Economcs and Management. 7: Quagrane, K.K., Analyss of U.S. Catfsh Fllet Market Share Usng a Flexble Logstc Model. Marne Resource Economcs. 21: -44. Quagrane, K. K. and C. R. Engle, Analyss of Catfsh Prcng and Market Dynamcs: the Role of Imported Catfsh. Journal of the World Aquaculture Socety. (4). Quagrane, K. K. and C. R. Engle, A Latent Class Model for Analyzng Preferences for Catfsh. Aquaculture Economcs and Management. 10: