policy implications of trade liberalization: the case of meat products in taiwan and south korea

Policy Implications of Trade Liberalization: The Case of Meat Products in Taiwan and South Korea

Patrick J. Byrm Oral Capps, Jr. Reyjong Tsai

Gary JK Williams

The Pacific Rim region can be characterized as the highest growth region for international meat markets. The process of internationalization that has brought South Korea and Japan into the pic- ture is resulting in the removal of most nontariff barriers for beef imp0rts.l Japan has become the second largest market for imported beef in the world, behind the United States, and flows of beef from Oceania and North America to Japan have added substantially to total beef import demand in the Pacific region.

Several events are taking shape that are likely to encourage growth in foreign demand for US beef in other Pacific Rim countries, notably South Ko- rea and Taiwan. First, economic growth in Taiwan and South Korea has induced a notable shift in their food consumption patterns away from tradi- tional, low-value products like rice, toward higher

quality, value-added products like beef. Second, the marginal costs of market development of enter- ing the markets of South Korea and Taiwan are lower as a consequence of the emerging Japanese market.2 Third, the perceived costs of overcoming explicit trade barriers has decreased. The Japanese and Koreans, for example, agreed to a phased re- duction of their long-standing restrictions on beef imports. Similarly, the Taiwanese government has consistently lowered their beef import tariff.

To understand their potential demands for US beef, as well as those for other meat products, an analysis of meat demand in these potentially high growth Pacific Rim markets is essential. This analysis would provide public and private decision makers with guidelines in ongoing efforts to pene- trate Korean and Taiwanese markets. Little previous work has been done concerning the inves- tigation of meat demands in Taiwan and South Korea. Hayes, Wahl and Williams3 as well as Lam-

mand relationships for meat products in Japan.

...................................................... Requests for reprints should be sent to Dr. Oral Capps, Jr., Dept. bert4 used the mOdels to estimate de-

of Agricultural Economics, Agricultural Building, Texas A&M University, College Station, TX 77843-2124. The Rotterdam model is employed in this article

............................................................................................................... Support for this research came from the Texas Agricultural Experiment Station. We gra.?ejdly acknowledge comments made by three anonymous reviewers. Any remaining errors or omissions are the sole responsibility of the auihors. I? J. Byrne is Assistant Professor, Food and Resource Economics Department, University of Florida. The other authors are, respectively, Professor, Graduate Research Assistant, and Professor, Department of

Agricultural Economics, Texas A&M University.

Agribusiness, Vol. 11, No. 4, 297-307 (1995) ...............................................................................................................

0 1995 by John Wiley 81 Sons, Inc. ccc 0742-4477/95/040297-11

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to explore the demand relationships for meat products, with emphasis on beef, in Taiwan and South Korea.

Purpose

This study has two related purposes: develop a demand system model for meat products in Korea and Taiwan; and establish projections of consumption and imports for beef for the year 2000 in Tai- wan and South Korea under the assumption of trade liberalization. The use of demand system models permits the exploration of interdependen- cies among products. Results may be used to analyze the nature and differences of demands for different meat products among these countries. Assuming that people living in different regions might develop different tastes and preferences for meat products, there may be different consumption patterns for meat products among the Pacific Rim countries.

Consumption and Import Trends

This section describes historical trends of consumption of meat products and historical trends in beef imports in the Pacific Rim over the last 20 to 25 years. Although emphasis in this article centers on Taiwan and South Korea, some discussion of trends in Japan adds perspective to the situation in the Pacific Rim region.

gion is unequivocally fish. Over the period 1960 to 1988, marine products comprised nearly 85% of the meat budget in South Korea, compared to nearly 60% of the meat budget in Japan, and nearly 45% in Taiwan. The Taiwanese spent roughly 40% of the meat budget on pork compared to 7% in South Korea and 19% in Japan. Beef and chicken comprised a relatively small share of the meat budget in the PacXic Rim. The budget shares for beef were slightly less than 4% in Taiwan, 6% in South Korea, and almost 3% in Japan. The relatively small budget share for beef may be attributable in part to trade barriers. The budget shares for chicken were 13% in Taiwan, 2% in South Korea, and roughly 10% in Japan.

The principal meat product in the Pacific Rim re-

Nevertheless, in Taiwan, pork is the most popu- lar livestock product. On average, over the last 20 years, the per capita consumption of beef and chicken rose 6.2 and 7.3% per year, while per capita consumption of pork and fish grew 2.5 and 2.7% per year, respectively. Consumption of meat products in South Korea has been growing at rap- id rates. The higher meat consumption has been attributed to higher rates of personal income and to urbanization of the Korean popu la t i~n .~ For example, per capita beef consumption moved from a low of 0.52 kg in 1963, to a high of 3.65 kg in 1987. The South Korean government is very involved

in protecting the domestic beef industry. Over this period, domestic agricultural policy considerations drove Korea’s import policy. Beef imports were al- lowed in 1976 to 1979 and 1981 to 1984 only to fulfii domestic shortfalls. Of the imports permit- ted, 94% were from Australia and 4% were from New Zealand. A small, but stable, trade in grain- fed beef for tourist hotels was f i e d by US export-

Korea’s policy of self-sufficiency in beef has been carried out chiefly by means of import barriers and limits on market outlets.

Korea’s principal means of controlling beef trade are quotas and state-authorized monopoly trading by the Livestock Product Marketing Organization. Tariff levels have been bound at 20%.2 After much negotiation, Korea agreed to allow beef imports from the United States: 58,000 metric tons in 1990; 66,000 metric tons in 1991; and 62,000 metric tons in 1992.

In recent years, more than 85% of the beef sup- plied in Taiwan has been imported with the major- ity imported from Australia. Over the period 1975 to 1988, the share of imports was 75% from Aus- tralia; 12% from New Zealand; and 12% from the United States. The beef industry in Taiwan has been relatively free of direct government controls when compared to the situation in South Korea. Taiwan lifted beef import controls in 1972, but import tariffs remain in effect.

On the basis of per capita consumption and budget shares for meat products, we may expect the demands for the various products to differ across Taiwan and South Korea. To determine the demand relationships for the meat products in the

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Table 1. Descriptive Statistics of Variables Used in Analysis of Pacific Rim Country.

Taiwan (kg) Soith Korea (kg)

Per Capita Consumption

.............................................................................................................

~~

Mean SD Min Max Mean SD Mia Max ............................................................................................................. Beef 1.25 0.63 0.36 2.42 1.87 1.00 0.51 3.65 Pork 30.07 8.24 19.10 43.77 4.31 2.57 1.43 10.13 Chicken 10.21 5.47 3.17 19.23 1.78 0.94 0.50 3.55 Marine Products 37.53 4.94 29.69 48.37 38.03 16.18 13.85 63.99 ............................................................................................................

Nominal Prices

NT$I kg Wonlkg ............................................................................................................. Beef 197.4 87.7 51.6 288.1 2916.3 3023.6 116.0 8316.0 Pork 90.8 27.9 41.7 128.7 1403.4 1341.3 67.0 3838.0 Chicken 54.6 15.7 28.9 74.4 710.3 576.3 63.0 1629.0 Marine Products 70.6 29.0 25.2 112.5 2277.2 2872 .O 38.0 10092.0 ............................................................................................................

Average Budget Shares ............................................................................................................. Beef 0.0375 0.0158 0.0149 0.0618 0.0602 0.0166 0.0341 0.0949 Pork 0.4488 0.0271 0.3910 0.4981 0.0782 0.0302 0.0413 0.1990 Chicken 0.0848 0.0244 0.0446 0.1205 0.0215 0.0109 0.0064 0.0582 Marine Products 0.4287 0.0338 0.3571 0.4892 0.8399 0.0480 0.6658 0.9170

Pacifk Rim region, we employ the Rotterdam model. The data used in the ensuing empirical analysis consist of annual observations corre- sponding to the periods reported in Table I. A discussion of the Rotterdam model is given in the next section.

Rotterdam Model The absolute price version of the Rotterdam model may be written as:

n

wi dlog(qi) = Oi dlog(Q) + C IT^^ dlog(pj) (1) i= 1

where dog( Q) = Xi wi dog( qi) is the Divisia vol- ume index.

In this model, wi corresponds to the expenditure share of meat item i in time period t; qi denotes per capita consumption of meat item i in time period t; and pi corresponds to real price of meat item j in time period t. The subscripts i and j re- fer to beef, pork, chicken, and marine (fish) products. Unlike the studies for Japan conducted by Hayes et al.3 and by Lambert,4 import-quality beef and domestic beef were not able to be treated as separate commodities in this model specifica- tion.

Empirically, log differentials are approximated by log differences. Consequently, the Rotterdam model cannot be considered as an exact represen- tation of preferences without imposing classical restrictions such that demand coefficient estimates conform to theory. Still, the Rotterdam model is a flexible approximation to an unknown demand

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system. The restrictions for the Rotterdam model are as follows:

c Oi = 1 (adding up); c nij = 0 (homogeneity); i i

and nij = mji (symmetry). (2)

The demand equation for chicken is omitted for both Taiwan and South Korea to avoid singularity of the variance-covariance matrix of disturbance terms.

Separability

Hayes et al.3 suggest the possibility that fish be considered separable from beef, pork, and chicken, especially at an aggregate level. Consumers in South Korea spend considerably more on fish than on all other meat products combined, while Tai- wanese consumers allocate approximately the same proportion of the meat budget to pork and fish. In Taiwan, pork and fish account for approximately 90% of the budget on meat expenditures.

In analysis of the effects of trade liberalization for meat markets in the Pacific Rim, the inclusion of fish in a demand system for meats has been a con- troversial issue.3 In this hght, Hayes et aL3 estab- lished a test of separability of fish from other meat products in their M A I D S model, involving a test for quasiseparability of the cost function. Under this premise, they failed to reject the hypothesis of separability between meats and fish in Japan.

In this Rotterdam demand system analysis, the test of separability is based on the null hypothesis of weak separability in the direct utility function.

With the assumption of weak separability of the direct utility function, it can be shown that

where in this analysis, Z refers to the group of meat commodities (beef, pork, and chicken), and J refers to the single commodity fish (marine products). S , represents the Slutsky substitution term; d>IJ is a proportional constant or alter- natively a measure of the substitutability between commodities in group I and in group J; aqildy and

dqjlay represent derivatives of commodities i and j with respect to total meat expenditure.

shown that (3) is tantamount to With some algebraic manipulation, it can be

(4)

where E$ is the compensated cross-price elasticity between commodities in group Z and in group J; ni and nj represent expenditure elasticities of commodities in the two respective groups; and finally wj represents the average budget share of commodity j.

Now, for i, k E Z and j E J, using (4), it can be shown that

( 5 )

The ratio of compensated cross-price elasticities of two commodities within the same group (I), with respect to a third commodity in another group (J), is equal to the ratio of their expenditure elasticities.

From (5 ) , for the Rotterdam model, this result implies a nonlinear restriction on the parameters IT^, where i, k E Z and j E J. This restriction is given by

With this definition of the groups Z and J, there are two restrictions associated with this test of separability. Operationally, this test is based on a likelihood ratio test statistic (x2 statistic) with two degrees of freedom. The key feature of (6) is that the separability restrictions hold not only locally but also globally. This result sets the Rotterdam model apart from other functional forms such as the translog and AIDS.

meats were conducted for both Taiwan and South Korea. If this separability hypothesis is rejected, then the Rotterdam model must be estimated as a four-commodity system. Otherwise, the Rotterdam model is estimated using a three-commodity system (beef, pork, and chicken). Thus, this separability test can be used to determine whether a particular commodity, in this case fish, should be included in the demand system.

Tests of separability between fish and other

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Endogenity of Total Expenditure

One of the concerns in the literature on demand systems is that of endogeneity of the total expenditure variable, or put another way, simultaneous- equation bias in conditional demand models .6*7 Total expenditure is defined as the sum of expenditures on individual commodities. Because these individual commodity expenditures are assumed to be endogenous, then total expenditure may also be endogenous. If total expenditure, a right-hand side variable in demand models, is correlated with the equation errors, the parameter estimates will indeed be biased and inconsistent. In the absolute price version of the Rotterdam model, the endogeneity issue relates directly to dlog(Q) = Zjwj

The technique developed by Attfield7 was employed to circumvent this potentially problematic area. The procedure requires the regression of total expenditure on prices, in addition to those al- ready carried out in the standard estimation of demand equations. In the case of the Rotterdam model, we simply regress dlog(Q) as a function of dlog(p,), dlogb,), . . . dlogb,), where n refers to the number of commodities in question.

Thus, we augment the demand system with a regression of real expenditure on prices. The structural parameters of the system are estimated by standard maximum likelihood routines and estimates of the asymptotic standard errors are constructed from the negative of the inverse of the Hessian matrix. Given this augmentation of the demand system, a rejection of the test that the price coefficients in the regression of total expenditure are jointly equal to zero would suggest that the parameter estimates of both the price and expenditure coefficients in the demand system would have been biased and inconsistent had the correlation of total expenditure and the disturbance terms not been taken into account.

dl&qj)*

For South Korea, quantities and price for beef, pork, and chicken were obtained from Materials on Price, Demand, and Supply for Livestock

Products,a the Agricultural Cooperative Year- book,9 the Korean Statistical Yearbook,lo and the Economic Statistics Annual Book. l1 Quantities and price information for marine products were taken from the Yearbook of Fisheries Statistics12 and the Annual Statistics on Cooperative Sale of Fishery Products.13 For Taiwan, per capita consumption figures came from the Taiwan Food Bal- ance Sheet,l4 and retail prices came from Taiwan Agricultural Prices and Costs Monthly. l5 Retail and wholesale price indices were found in the Commodity Price Statistics Monthly. l6

For Taiwan and South Korea, representative prices for marine products were difficult to ob- tain. For Taiwan, a weighted average price of 18 marine products were used as the price of marine products.

South Korea was constructed by regressing the retail price for marine products in Japan as a function of the wholesale marine price index in South Korea, available annually. The predicted price from this relationship was converted to the retail price of marine products in South Korea by using the exchange rate of won to yen.

Descriptive statistics of per capita consumption, nominal prices, and the average budget shares are exhibited in Table I. In these Pacific Rim countries, on average, beef is the most expensive product, generally because of import quotas. Chicken, on the other hand, is the least expensive product. And beef prices are more volatile than chicken. In the respective analyses of the demand systems for the Pacific Rim countries, real prices are used. Real prices are estimated by dividing the nominal price series by the Consumer Price Index in the respective country.

The retail price series for marine products in

Emplrical Results

Test of Separability

Using the aforementioned procedure, a likelihood ratio test yielded x 2 statistics for Taiwan and South Korea of 3.45 and 2.10, respectively. The 5% s@- cance level of the x2 distribution with two degrees of freedom is 5.99; therefore, the hypothesis of separa-

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Table 11. Parameter Estimates of Rotterdam Model for Sonth Korea. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Price Coefficients Expendi tare Commodity latercept Coefficient Beef Pork Chicken R 2 . a DW ............................................................................................................. Beef 0.2662 -0.1678 0.1265 0.0412 0.4829 1.99

(4.52) (-3.65) (3.08) (1.41)

Pork 0 . u o (10.80)

-0.1387 0.0172 0.8536 1.68 (-2.98) (0.46)

Chicken 0.0697 -0.0535

Regression of Expen- 0.0668 diture of Pricesb (2.91)

-0.1721 0.0336 -0.3539 0.2094 2.12 (-0.89) (0.25) (- 1.82)

~~ ~~~

Estimates assume endogeneity of the expenditure variable, homogeneity, and Slutsky symmetry (t-statistics in Parentheses). Value of log-likelihood function = 148.961.

asquare of the correlation between observed and predicted values. bTest of the hypothesis that the price coefficients are jointly equal to zero in the regression of expenditure on prices (x' , = 5.24).

bility between meats and fish in these Pacific Rim countries is not rejected. This result corroborates the result of Hayes et aL3 for the case of Japan. Given that there exists sample evidence to support the separability between meats and fish, subse- quent analyses are based on the three-commodity system involving beef, pork, and chicken.

Estimates of Structural Parameters

Estimates of the structural parameters of the demand models with correction for simultaneous- equation bias are derived by using the maximum likelihood algorithm in the econometrics package SHAZAM.17 Serial correlation was not evident in

Table Ill. Parameter Estimates of Rotterdam Model for Taiwaa. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Price Coefficients Expendi t ire Commodity Coefficient Beef Pork Chicken R 2 . a DW ............................................................................................................. Beef 0.0815 -0.0653 0.0694 -0.0041 0.2088 1.99

(2.09) (-2.34) (1.98) (-0.18)

Pork 0.7744 (13.32)

-0.0142 0.0347 0.9382 2.12 ( - 1.68) (0.83)

Chicken 0.1439 - 0.0306

Regression of Expen- diture on Pricesb

- 0.0960 -0.693 0.1663 0.1046 2.27 (-0.61) (-0.38) (0.76)

Estimates assume endogeneity of the expenditure variable, homogeneity, and Slutsky symmetry (t-statistics in parentheses). Value of likelihood function: 168.554.

*Square of the correlation between observed and predicted values. bTest of the hypothesis that the price coefficients are jointly equal to zero in the regression of expenditure on prices (xi = 1.63).

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Table IV. Compeisated Price Elasticities for Meat Prodicts ii Sorth Korea aid Taiwan.

.................................................... Beef Pork Chicken

.................................................... South Korea

Beef -0.4365 0.3291 0.1074 Pork 0.2616 -0.2862 0.0252 Chicken 0.3156 0.0934 -0.4090

Beef - 1.0069 1.0707 -0.0638 Pork 0.0882 -0.1323 0.0441 Chicken -0.0281 0.2363 -0.2082

Taiwan

each of the system specifications. The estimated coefficients and associated asymptotic standard errors of the parameters in the respective demand systems for the two countries are exhibited in Ta- bles I1 and 111.

The critical x2 value for the hypothesis that the price coefficients are jointly equal to zero when expenditures are regressed on prices is 7.81. For South Korea and Taiwan, the aforementioned hypothesis is not rejected, suggesting there is no significant bias in the estimates of nii when expenditure is correlated with the disturbance

Compensated price elasticities are given in Table IV and uncompensated price elasticities as well as expenditure elasticities for meat products in South Korea and Taiwan are provided in Table V. The estimated elasticities for the Taiwanese and South Korean demand systems are, in general, in accor- dance with a priori expectations. All Marshallian own-price elasticities are negative, while most compensated cross-price elasticities are positive, indi- cating net substitutability between the three meat products.

-0.70 for South Korea and -1.09 for Taiwan. For pork, the own-price elasticities are similar at -0.91 for Taiwan and -0.95 for South Korea. Fi- nally, the own-price elasticities of demand for chicken are more inelastic at -0.35 for Taiwan and -0.48 for South Korea. The most notable difference in elasticity magnitude is for beef, which is also the commodity most affected by trade restrictions.

differ across both countries and also across commodities. For example, the expenditure elasticity range for beef is from 0.69 (South Korea) to 1.25 (Taiwan); for pork, the expenditure elasticity ranges from 0.98 (Taiwan) to 1.37 (South Korea); and finally, for chicken, the expenditure elasticity ranges from 0.53 (South Korea) to 0.98

Uncompensated own-price elasticities for beef are

The magnitudes of the expenditure elasticities

term. (Taiwan).

Table V. ~BCOWpeiSated Price Elasticities aid Exgelditire Elasticities for Meat Predicts ii Soitb Korea a i l Taiwai.

............................................................................................

Expenditire Beef Pork Chickei Elasticities

Uicoipeisated Price Elasticies

............................................................................................ South Korea

Beef -0.7027 -0.0066 0.0168 0.6925 Pork - 0.2656 - 0.9503 - 0.1540 1.3697 Chicken -0.1107 -0.1650 -0.4787 0.5330

Beef - 1.0884 0.0805 -0.2488 1.2566 Pork 0.0244 -0.9068 -0.1005 0.9828 Chicken -0.0916 -0.5344 -0.3521 0.9781

Taiwan

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Scenarios for Trade Liberalization

Given expenditure and price elasticities of demand, the next step in this analysis is to construct scenarios of consumption and trade over time. For simplicity, the domestic supply of beef is assumed to be held constant at 1988 levels. Given this assumption, the scenarios for trade liberalization are primarily dependent on three factors: own- price effects as retail price falls to world levels; cross-price effects from the other meat commodities; and income effects due to continued economic growth. The scenarios focus attention on percentage increases of consumption for each commodity and country in the years 1995 and 2000, depend- ing upon facilitation of liberalization programs. The scenarios use the elasticities previously derived from the Rotterdam model.

and South Korea averaged roughly 6 and 9% respectively, over the study period. Due to a weakening world economy and an attempt to maintain conservative projections, an average of only 3% growth was assumed for the libaralization scenarios.

Trade barriers for meat commodities have been in effect in Taiwan and South Korea for most of the post-World War I1 era. Consequently, there are no available data of what prices would be in a free trade scenario. Assuming that the United States is a reasonable approximation of world prices, a com- parison between the US and Pacific Rim prices may be used to measure distortion of price due to trade barriers. One concern to this approach is the difference in infrastructure between the United

Growth rates of real per capita GNP for Taiwan

States and the two Pacific Rim countries. Refrig- eration, transportation, and processing facilities in the United States are currently more highly developed and subsequently may operate more effi- ciently. If this efficiency is reflected in retail price, then the US retail price is not an attainable position for these less developed countries. So, different gap narrowing percentages were used for the scenarios (specifically, 0, 25, 50, 100).

Retail prices for the United States were converted to the respective Pacific rim currencies in real terms per kilogram. A summary of the information used for the scenario analysis is provided in Table VI.

Scenario Results

Percentage increases in Taiwan meat consumption are exhibited in Table VII. If there is no progress in bringing Taiwan retail prices closer to US levels, then meat consumption will increase between 20 and 30% by 1995. By the year 2000, beef consumption will increase by more than 50%, while pork and chicken consumption will increase about 42%. A 50% closure of the gap between US and Taiwan retail prices by 1995 will result in an 84.12% increase in beef consumption and pork and chicken consumption will rise by more than 60%. If 50% closure is achieved by 2000, then beef consumption will more than double, while an increase of more than 80% will occur for pork and chicken. Consumption of all meat products would more than double by the year 2000 if Tai- wan prices approximate US prices. Beef appears

Table VI. loformation Used for Policy Scenarios. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Taiwan South Korea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Real Per Capita GNP Growth Rate % 3 3 Average % Above US Retail Price for

Beef 88.41 83.98 Pork 78.48 74.43 Chicken 83.57 72.72

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Table VII. Potential Percentage Increases in Taiwan Meat Coisimptioi Die to Rediction of Retail Prices

Resiltiig from Trade Liberalization. ....................................................

Perceatage Narrowing between Taiwan aid US Retail Price

0 25 50 100 .................................................... 1995

Beef 28.78 56.45 84.12 139.46 Pork 22.51 41.86 61.21 99.91 Chicken 22.40 42.26 62.12 101.84

Beef 53.51 81.18 108.85 164.19 Pork 41.85 61.20 80.55 119.25 Chicken 41.65 61.51 81.37 121.09

2000

~~

to be the highest potential growth commodity, but consumption increases for pork and chicken are certainly substantial.

growth is pork (Table VIII). Even with no effect on the retail price gap, pork consumption would increase by 31.47% by the year 1995, compared to 15.86% and 12.21% increases for beef and

In South Korea, the most dramatic potential for

Table VIII. Poteitial Perceatage Increases in South Korea Meat Coisimptioi Die to Redictioi of Retail

Prices Resiltiag from Trade Liberalization. ....................................................

Perceitage Narrowirg between South Korea and US Retail Price

. . . . . . . . . . . 1995

Beef Pork Chicken

Beef Pork Chicken

2000

0 25 50 100 .........................................

15.86 30.43 45.00 74.14 31.37 57.43 83.49 135.61 12.21 26.31 40.41 68.61

29.49 44.06 58.63 87.77 58.32 84.38 110.44 162.56 22.70 36.80 50.90 79.10

chicken, respectively. Pork would increase by almost 60% by the year 2000, while beef would increase almost 30%. With a 50% narrowing of the gap between US and South Korean retail price, pork consumption would increase 83.49% by the year 1995 and more than double by the year 2000. With the same 50% narrowing, beef consumption would increase 45% for 1995 and almost 60% for the year 2000. Similarly, chicken consumption would increase about 40% for 1995 and about 50% for 2000. Only pork consumption would more than double if South Korea retail price ap- proximates US price for either 1995 or 2000.

Historically, Australia has been the major supplier of beef to Taiwan and to South Korea. This situation may be primarily due to the fact that Australian grass-fed beef is cheaper than US grain-fed beef. However, because the overall size of the Taiwanese and Korean beef markets is potentially large, there are indeed incentives for US firms and the US government to develop prospects of grain-fed beef in these Pacific Rim nations as well as to encourage the removal of trade barriers.

Concluding Remarks

A Rotterdam model was used to estimate demand relationships for meat products in Taiwan and South Korea. Similar to previous findings for Ja- pan,3 beef, pork, and chicken were found to be weakly separable from marine products for each nation. The Rotterdam model in this study takes into account simultaneous-equation bias, using the procedure developed by Attfield7 to account for endogeneity of total expenditure.

Demand elasticities for beef, pork, and chicken differ among South Korea and Taiwan. The own- price elasticity estimates for beef are somewhat inelastic for South Korea and slightly elastic for Tai- wan. Own-price elasticities for pork were similar between South Korea and Taiwan at -0.95 and -0.91, respectively. Own-price elasticity for chicken was -0.48 for South Korea and -0.35 for Taiwan.

Given that Hayes et al.3 reject the hypothesis that in Japan domestic (Waygu) and import- quality beef are perfect substitutes, future anal-

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yses in the Pacific Rim region may need to consid- er treating each type of beef as a separate commodity in order to analyze more appropriately the effects of beef import policies. In sum, the demand systems work not only to provide information in regard to meat products in the Pacific Rim region but also to provide valuable information for analysis of alternative international trade scenarios.

Developing marketing programs for meat products in international markets is currently of great interest to US domestic producers. In a recent survey of livestock and meat industry leaders nearly 75% of the respondents believed that events in international markets are now as impor- tant as events in domestic markets in determining potential profitability. Nearly 90% of the respondents believed that this scenario will hold in the future. l8 Although seemingly conservative assump- tions were implemented, it has been demonstrated that Taiwanese and Korean meat imports are potentially large under the auspices of trade liberalization. The elasticities derived from the Rotterdam model were crucial to this analysis. With somewhat elastic expenditure elasticities and near unitary own-price elasticities, specific meat potentials are greater for pork in South Korea

and beef in Taiwan. The higher the magnitude of the own-price elasticity, the more responsive the quantity adjustments will be to decreases in price. If trade liberalization results in the gap between domestic retail price and US price is narrow by 5096, then beef consumption in Taiwan and pork consumption in South Korea will more than double by the year 2000.

position to capture a sizable share of these imports. Historically, Australia has been the chief supplier of beef to Taiwan and South Korea. The costs, especially to US firms selling beef to the Pa- cific Rim, have fallen in the last decade due to the development of the Japanese market. To secure a foothold in the Pacific Rim trade, US firms and the US government need to develop marketing efforts for grain-fed beef as well as to encourage the removal of trade barriers.

The range of possible trade outcomes admittedly is wide. A next step is to integrate the estimates of the Rotterdam model with livestock supply models in Taiwan and South Korea. Future research efforts are likely to pay dividends to US firms and the US government in trade opportunities with Pa- cific Rim nations.

Both the United States and Australia may be in a

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cifk Context,” selected paper at the AAEA Annual Meet- ing, Manhattan, KS, August, 1991.

3. D.J. Hayes, T.I. Wahl, and G.W. Williams. “Testing Restrictions on a Model of Japanese Meat Demand,” American Journal of Agricultural Economics, 556 (1990).

Department of Agricultural Economics and Agribusiness, Louisiana State University, February, 1991.

5. J.H. Dyck and D. Sillers, South Korea: An Export Mar- ket Profile, US Department of Agriculture, Economic Re- search Service, 1986.

6. J.T. LaFrance, “When Is Expenditure ‘Exogenous’ in Separable Demand Models?” Western Journal of Agri- cultural Economics, 16, 49 (1991).

2. J. Jones and J.H. Dyck, “Korea’s Beef Market in a Pa-

4. B. Lambert, Demand Estimates for U.S. Beef in Japan,

7. C.L.F. Attfield, “Homogeneity and Endogeneity in Sys- tems of Demand Equations,” Journal of Econometrics, 27, 197 (1985).

8. National Livestock Cooperatives Federation, Seoul, South Korea, Materials on Price, Demand, and Supply for Livestock Products, various issues.

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cal Yearbook, various issues.

n w l Book, various issues.

Yearbook of Fisheries Statistics, various issues.

South Korea, Annual Statistics on Cooperative Sale of Fishery Products, various issues.

Taiwan Food Balance Sheet, various issues.

9. Agricultural Cooperative Federation, Seoul, South Korea,

10. Economic Planning Board, South Korea, Korea Statisti-

11. The Bank of Korea, South Korea, Economic Statistic An-

12. Ministry of Agricultural Fisheries, Seoul, South Korea,

13. National Federation of Fisheries Cooperatives, Seoul,

14. Council of Agriculture, Executive Yuan, Taipei, Taiwan,

Trade

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16. Directorate-General of Budget, Accounting and Statistics, Executive Yuan, Commodity-Price Statistics Monthly, Taiwan Area, various issues.

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18. Special Report to Texas Beef Industry Council, “Survey of US Livestock Procedures on International Livestock and Meat Marketing,” Fall, 1989.

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policy implications of trade liberalization: the case of meat products in taiwan and south korea

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