GTAP Resources: Resource Display
| GTAP Resource #1263 |
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"Birds in a Coop: Looking at the Regional Broiler Market" by Salin, Delmy, William Hahn and Agapi Somwaru Abstract The Doha agreement addresses the reduction or elimination of 3 pillars: market access, export subsidies, and domestic support. The question is if trade barriers such as sanitary and phytosanitary (SPS) measures and safeguards will eventually replace the 3 pillars? SPS measures are impediments to trade, affecting both its flow and magnitude. Newcastle disease (ND) and highly pathogenic avian influenza (HPAI), included in List A of the International Organization for Epizootics (OIE) classification of transmissible animal diseases, are two highly infections diseases that restrict poultry trade (Salin et al, 2002). Countries in which exotic Newcastle disease (END) exists can export only processed poultry meat but not fresh, chilled, or frozen poultry. Currently, only 18 countries are allowed to ship fresh poultry to the U.S. as the U.S. Animal and Inspection Service (APHIS) has declared them END-free. Countries establish sanitary measures to ensure plant and animal health and food safety throughout the supply chain. However, animal production systems are dynamic, evolving over time in response to technological, economic, and market conditions. Consequently, a country's disease status can change, thereby impacting production, consumption, trade flows, and trade strategies. Currently, END-free status gives the U.S. a temporary advantage in global poultry trade. However, changes in END status of potential large poultry suppliers could have a major impact in world poultry exports, especially in the high value white meat. Since 1999, Mexico (the sixth world largest broiler importer) has intensified efforts to gain more END free states and eligibility to export fresh, chilled, and frozen poultry to the U.S. Effective August 1, 2002 Canada recognized Brazil's poultry inspection system. Eight Brazilian states were recognized free of END by the Canadian Food Inspection Agency (CFIA). Brazil is the second largest world exporter. Understanding the economic impact of changes in sanitary requirements in poultry trade in North America is crucial because these could alter government policies that might unite the three markets in a regional response rather than an individual country supply-side response. In 2001, the NAFTA Partnership association was formed. This is a voluntary association consisting of U.S. and Mexican poultry interests working together to make a smooth transition after January 1, 2003, when tariffs and quotas will be zero for U.S. poultry exports to Mexico. The Partnership consists of: the Mexican Poultry Union, USA Poultry & Egg Export Council, National Chicken Council, National Turkey Federation and United Egg Producers. Canada is on the verge of being invited (Write, 2002). This study has the following objectives: 1. Measure how broiler prices, production, and trade will change (over the intermediate/long run) as a result of allowing Mexico's and Brazil's END-free regions to ship poultry to the U.S. and Canada. 2. Analyze the impact on broiler markets and trade in the Western Hemisphere as sanitary regulations are satisfied and the region becomes END free. 3. Measure the sensitivity of these results to alternative estimates of supply and demand elasticities. Analytical Approach: The potential effects of allowing relatively low-risk of END transmission Mexican and Brazilian states to ship poultry to the U.S. and Canada were evaluated using a product market model of Canada, U.S., Mexico and Brazil poultry industries. The model captures the economics of production and marketing over different trade patterns and incorporates different SPS measures affecting Canada, U.S., Mexico and Brazil poultry and poultry-product trade. It also accommodates changes in sanitary policies. The model is a mathematical programming model, with a structure similar to the NATMAP model (Hahn, 1993) of the North American animal product market. The broiler trade model eliminates other animal products from NATMAP products, expands the poultry section, and "regionalizes" the countries in North America. In NATMAP, poultry production was modeled as whole-bird production. In the broiler-trade model, poultry production is divided into whole chickens, white meat, dark meat, and other chicken products, including backs, necks, and mechanically deboned meat (MDM). The model treats each country's poultry as a perfect substitute for every other country's poultry products instead of differentiated products. As END and food safety requirements prevent poultry from Brazil or Mexico from being shipped to the U.S. or Canada, estimating the substitutability of Brazilian or Mexican chicken with U.S. or Canadian chicken in the region is not possible. The perfect-substitutability assumption allows for upper boundary estimates of trade and price effects of sanitary barrier changes. Further, in the case of poultry trade, differences in consumer tastes and prices for poultry cuts drive a large part of the trade. For example, dark meat prices are relatively low in the U.S. and Canada compared to other countries. By accounting for consumer taste, we can differentiate a country's imports and exports. Conclusions: Model results indicate that price differences between markets are the most important factors driving post-reform trade changes. Current sanitary barriers prevent Brazil and Mexico from exporting chicken to the U.S. and Canada, while allowing the U.S. and Canada to ship chicken parts south. Canada's supply control program makes its poultry sector not competitive in world markets. Canada's Tariff Rate Quota (TRQ) is mostly filled by the U.S. and as a result indirectly protects the Canadian poultry market from other competitors. Mexico imports mostly dark meat and MDM from the U.S. This suggests that these products are competitive in Mexican markets and complement Mexico's poultry production, whereas U.S. whole birds and white meat production do not. Brazil competes with the U.S. in the world poultry market. Domestic wholesale Brazilian prices for whole chickens are lower than those in the U.S.; however, given Brazil's infrastructure problems, the two countries' port prices (CIF) for whole chickens would likely be similar. Allowing either Brazil or Mexico or both to ship poultry to North America had little effect on U.S. prices and production. Higher U.S. prices for white meat are transmitted to the exporting countries. Dark meat prices in exporting countries tended to decrease as dark meat, a remnant from white meat production, was released into the Brazilian and Mexican local markets. U.S. bird production shifted south as increased white meat imports simultaneously decreased U.S. dark-meat export demand. |
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- Agricultural policies |
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Last Modified: 9/15/2023 2:05:45 PM
