Trade Diversion and High Food Prices: The Impact of the Russian Pig Meat Import Ban Ivan Djuric, Linde Götz, and Thomas Glauben Selected Paper prepared for presentation at the International Agricultural Trade Research Consortium s (IATRC s) 215 Annual Meeting: Trade and Societal Well-Being, December 13-15, 215, Clearwater Beach, FL. Copyright 215 by Ivan Djuric, Linde Götz, and Thomas Glauben. All rights reserved. Readers may make verbatim copies of this document for non-commercial purposes by any means, provided that this copyright notice appears on all such copies.
Trade diversion and high food prices The impact of the Russian pig meat import ban Ivan Djuric, Linde Götz, and Thomas Glauben Leibniz Institute of Agricultural Development in Transition Economies Department Agricultural Markets
Research background RUSSIAN FOOD IMPORT 5% OF DOMESTIC CONSUMPTION 2.7% OF THE GLOBAL TRADE 42 BILLION $ IATRC Annual Meeting Trade and Societal Well-Being Clearwater Beach, Florida - USA December 13-15, 215 1
Research background RUSSIAN FOOD IMPORT 5% OF DOMESTIC CONSUMPTION 2.7% OF THE GLOBAL TRADE 42 BILLION $ 13% OF THE EU EXPORT IATRC Annual Meeting Trade and Societal Well-Being Clearwater Beach, Florida - USA December 13-15, 215 2
Research background RUSSIAN MEAT IMPORT 35% BEEF http://greece.greekreporter.com 1/4 OF DOMESTIC CONSUMPTION 25% PORK http://oldcastlelabs.ie.s2566.gridserver.com 15% POULTRY http://www.scotmas.com IATRC Annual Meeting Trade and Societal Well-Being Clearwater Beach, Florida - USA December 13-15, 215 3
Research background RUSSIAN PORK IMPORT TOTAL 2.1 21billion $ CIS.1 billion $ REST.8 billion $ EU 1.2 billion $ 1 % 3 % 38 % 59 % http://oldcastlelabs.ie.s2566.gridserver.com 62, t 18,6 t 235,6 t 365,8 t IATRC Annual Meeting Trade and Societal Well-Being Clearwater Beach, Florida - USA December 13-15, 215 4
Research background PIG MEAT IMPORT REGULATION: TARIFF-RATE QUOTA (TRQ) in-quota tariff: 4% Out-of-quota tariff: 68.3% BEFORE 212 quota: 45, t total pig meat import in-quota tariff: 5% Out-of-quota tariff: 65% AFTER 212 (WTO ACCESSION) quota: 45, t total pig meat import in-quota tariff: % Out-of-quota tariff: 65% FROM 214 quota: 43, t total pig meat import IATRC Annual Meeting Trade and Societal Well-Being Clearwater Beach, Florida - USA December 13-15, 215 5
Research background Agricultural import ban extension November 215 Agricultural import ban towards Turkey Cause: Russian-Turkish conflict Cause: extension of the Western economic sanctions Countries effected: + Iceland, Lichtenstein, Albania and Montenegro July 215 August 214 Agricultural import ban Cause: Western economic sanctions towards Russia Countries effected: EU, USA, Canada, Australia and Norway Pig meat import ban towards EU Cause: 4 cases of AFS in Lithuania and Poland February 214 Country specific import restrictions Copyright: www.showeet.com before 214 Cause: FS measures, quality standards, etc. (e.g. pig meat import bans towards USA in 29 and Brazil in 27/28) IATRC Annual Meeting Trade and Societal Well-Being Clearwater Beach, Florida - USA December 13-15, 215 6
Research background FOOD PRODUCTS AFFECTED BY THE RUSSIA S IMPORT BANS IATRC Annual Meeting Trade and Societal Well-Being Clearwater Beach, Florida - USA December 13-15, 215 7
Research background PIG MEAT IMPORT AFFECTED BY THE RUSSIA S IMPORT BANS 7% OF THE TOTAL RUSSIAN PIG MEAT IMPORTS 8% OF THE GLOBAL PIG MEAT TRADE 25% OF THE EU TOTAL PIG MEAT EXPORT IATRC Annual Meeting Trade and Societal Well-Being Clearwater Beach, Florida - USA December 13-15, 215 8
Research questions 1 2 3 4 How did the composition of Russian pig meat suppliers change due to the import ban? How did the import ban affect price transmission between Russia and its main non-eu trading partners? What are the effects on domestic pig meat prices in Russia? Did the price behavior of actors along the pig meat supply chain changed due to the import ban? IATRC Annual Meeting Trade and Societal Well-Being Clearwater Beach, Florida - USA December 13-15, 215 9
Price transmission approach PRICE TRANSMISSION Changes in one price causes the change in another price HORIZONTAL PRICE TRANSMISSION World RUSSIA PIG MEAT PRODUCERS LIVE ANIMAL PRICES VERTICAL PRICE TRANSMISSION PRODUCER (LIVE ANIMALS) BUTCHER WHOLESALER PROCESSOR CONSUMER CARCAS PRICES PORK PRICES (SPECIFIC PRODUCTS) IATRC Annual Meeting Trade and Societal Well-Being Clearwater Beach, Florida - USA December 13-15, 215 1
Price transmission model NON-LINEAR REGIME-DEPENDANT MODEL: = + + + + - domestic producer prices (domestic consumer prices in VPT) - reference market prices (domestic wholesale prices in VPT) - intercept (free trade regime) - long-run price transmission coefficient (free trade regime) - dummy variable indicating the import ban period - error term IATRC Annual Meeting Trade and Societal Well-Being Clearwater Beach, Florida - USA December 13-15, 215 11
Price transmission model NON-LINEAR REGIME-DEPENDANT MODEL: = + + + + 6 1 5.9.8 4 3 2.7.6.5.4.3 Import ban (EU) Brazil Russia 1.2.1 12 22/11/28 31/1/29 11/4/29 2/6/29 29/8/29 7/11/29 16/1/21 27/3/21 5/6/21 14/8/21 23/1/21 1/1/211 12/3/211 21/5/211 3/7/211 8/1/211 17/12/211 25/2/212 5/5/212 14/7/212 22/9/212 1/12/212 9/2/213 2/4/213 29/6/213 7/9/213 16/11/213 25/1/214 5/4/214 14/6/214 23/8/214 1/11/214 1/1/215 21/3/215 3/5/215 in USD/kg IATRC Annual Meeting Trade and Societal Well-Being Clearwater Beach, Florida - USA December 13-15, 215
Data Introduction Methodology and data Empirical results Conclusions WEEKLY PORK PRICES IN SELECTED COUNTRIES, 28-215 6 1.9 5.8.7 4 Import ban (EU) Brazil USA Germany.6 3.5.4 2.3 1.2.1 13 22/11/28 17/1/29 14/3/29 9/5/29 4/7/29 29/8/29 24/1/29 19/12/29 13/2/21 1/4/21 5/6/21 31/7/21 25/9/21 2/11/21 15/1/211 12/3/211 7/5/211 2/7/211 27/8/211 22/1/211 17/12/211 11/2/212 7/4/212 2/6/212 28/7/212 22/9/212 17/11/212 12/1/213 9/3/213 4/5/213 29/6/213 24/8/213 19/1/213 14/12/213 8/2/214 5/4/214 31/5/214 26/7/214 2/9/214 15/11/214 1/1/215 7/3/215 2/5/215 27/6/215 in USD/kg Denmark Russia Canada import ban (world) IATRC Annual Meeting Trade and Societal Well-Being Clearwater Beach, Florida - USA December 13-15, 215
Data Introduction Methodology and data Empirical results Conclusions WEEKLY PORK PRICES IN RUSSIA, 28-215 3 1.9 25.8 2.7.6 Import ban (EU) Producer consumer Import ban (world) 15.5.4 1.3 5.2.1 14 in RUB/kg 29/11/28 7/2/29 18/4/29 27/6/29 5/9/29 14/11/29 23/1/21 3/4/21 12/6/21 21/8/21 3/1/21 8/1/211 19/3/211 28/5/211 6/8/211 15/1/211 24/12/211 3/3/212 12/5/212 21/7/212 29/9/212 8/12/212 16/2/213 27/4/213 6/7/213 14/9/213 23/11/213 1/2/214 12/4/214 21/6/214 3/8/214 8/11/214 17/1/215 28/3/215 6/6/215 IATRC Annual Meeting Trade and Societal Well-Being Clearwater Beach, Florida - USA December 13-15, 215
Price transmission results PRICE TRANSMISSION RESULTS (1 ST IMPORT BAN FEBRUARY 214) Regime Free trade regime (264 observations) Country EU World Denmark Germany Brazil Canada USA Russia intercept 4.269*** 4.44*** 5.77*** 4.669*** 4.572*** 3.269*** slope.274***.311***.112***.24***.217***.528*** Import ban regime (26 observations) intercept - -.291 2.1*** 1.688*** 3.616*** slope - - 1.93***.737***.779***.455*** IATRC Annual Meeting Trade and Societal Well-Being Clearwater Beach, Florida - USA December 13-15, 215 15
Trade diversion NUMBER OF COMPANIES LICENSED FOR PIG MEAT IMPORT TO RUSSIA (SELECTED COUNTRIES) Additional number of enterprises Country until 214 1 st ban 2 nd ban Total February August 214 After August 214 Canada 27 +5 +4 36 USA 169 +9 +1 179 Brazil 3 +5 +2 28 Chile 2 +4 +3 9 Serbia 3 +1 +3 7 IATRC Annual Meeting Trade and Societal Well-Being Clearwater Beach, Florida - USA December 13-15, 215 16
Trade diversion SHARE OF PIG MEAT IMPORTS TO RUSSIA BY TRADE PARTNERS: January 213 1 st import ban (February 214) 2 nd import ban (August 214) EU 59% Brazil 21% Canada 13% Chile 2.8% USA 1% EU <1% Brazil 38% Canada 4% Chile 3.2% USA 4% IATRC Annual Meeting Trade and Societal Well-Being Clearwater Beach, Florida - USA December 13-15, 215 17
Import substitution RUSSIAN PORK IMPORT AND PRICES (AUG. 213 AUG. 214) 7 1 st import ban (February 214) 2 nd import ban (August 214) 3 6 25 5 2 in 1, t 4 3 2 1 15 1 5 in RUB/kg pig meat import wholesale prices consumer prices IATRC Annual Meeting Trade and Societal Well-Being Clearwater Beach, Florida - USA December 13-15, 215 18
Import substitution RUSSIAN PORK IMPORT AND PRICES (AUG. 213 AUG. 214) 7 1 st import ban (February 214) 2 nd import ban (August 214) 3 6 25 5 2 in 1, t 4 3 2 1 INTENSIVE IMPORT FROM BRAZIL 15 1 5 in RUB/kg pig meat import wholesale prices consumer prices IATRC Annual Meeting Trade and Societal Well-Being Clearwater Beach, Florida - USA December 13-15, 215 18
Effects on the EU THE EFFECTS ON THE EU AGRICULTURAL EXPORT http://juzmoney.com IATRC Annual Meeting Trade and Societal Well-Being Clearwater Beach, Florida - USA December 13-15, 215 19
Effects on the EU http://www.foodnavigator.com http://www.freightworld.com.au http://cdn.trend.az http://static.guim.co.uk IATRC Annual Meeting Trade and Societal Well-Being Clearwater Beach, Florida - USA December 13-15, 215 2
Effects on the EU EU28 AGRI-FOOD EXPORTS PER PRODUCT SECTOR EU28 agri-food exports (in million EUR) Extra-EU28 Russia Aug. 213 -July 214 Aug. 214 July 215 % Aug. 213 -July 214 Aug. 214 July 215 % Bovine sector (total) 1,374 1,685 23 221 95-57 Pig sector (total) 5,729 5,753 81 42-95 Poultry sector (total) 2,15 2,121 5 132 44-67 Butter 653 671 3 164 2-99 Cheese 3,892 3,346-14 964 34-97 Skimmed milk powder 1,825 1,645-1 58-1 Whole milk powder 1,657 1,259-24 13-1 Fruit and vegetables 6,991 6,16-12 1,9 21-89 Source: European Commission IATRC Annual Meeting Trade and Societal Well-Being Clearwater Beach, Florida - USA December 13-15, 215 21
Effects on the EU EU28 PORK PRODUCER PRICES, JULY 213 JULY 214 2.2 1 st import ban (February 214) 2. in EUR/kg 1.8 1.6 1.4 1.2 Germany Denmark Spain EU 1. IATRC Annual Meeting Trade and Societal Well-Being Clearwater Beach, Florida - USA December 13-15, 215 22
Effects on the EU EU28 PORK PRODUCER PRICES, JULY 213 JULY 214 2.2 1 st import ban (February 214) 2. in EUR/kg 1.8 1.6 1.4 1.2 Germany Denmark Spain EU 1. IATRC Annual Meeting Trade and Societal Well-Being Clearwater Beach, Florida - USA December 13-15, 215 22
Effects on the EU EU28 GAINS IN EXPORT VALUE, AUG. 214 JULY 215 35 Asia 3 25 2 15 1 5 Egypt US Switzerland China Republic of Korea Source: European Commission Hong Kong United Arab Emirates Saudi Arabia IATRC Annual Meeting Trade and Societal Well-Being Clearwater Beach, Florida - USA December 13-15, 215 23
Domestic price effects in Russia RUSSIAN DOMESTIC PIG MEAT MARKET IATRC Annual Meeting Trade and Societal Well-Being Clearwater Beach, Florida - USA December 13-15, 215 24
Domestic price effects in Russia CRUDE OIL PRICES AND DOLLAR/RUBLE EXCHANGE RATE 12 1 8 6 4 2 TASS 1.9.8.7.6.5.4.3.2.1 25 29/11/28 7/2/29 18/4/29 27/6/29 5/9/29 14/11/29 23/1/21 3/4/21 12/6/21 21/8/21 3/1/21 8/1/211 19/3/211 28/5/211 6/8/211 15/1/211 24/12/211 3/3/212 12/5/212 21/7/212 29/9/212 8/12/212 16/2/213 27/4/213 6/7/213 14/9/213 23/11/213 1/2/214 12/4/214 21/6/214 3/8/214 8/11/214 17/1/215 28/3/215 6/6/215 in RUB http://www.careeranna.com import ban (EU) crude oil exchange rate (USD/RUB) Import ban (world) IATRC Annual Meeting Trade and Societal Well-Being Clearwater Beach, Florida - USA December 13-15, 215
3 25 2 15 1 5 Introduction Methodology and data Empirical results Conclusions Domestic price effects in Russia NOMINAL WHOLESALE AND RETAIL PORK PRICES NOMINAL AND REAL WHOLESALE PORK PRICES NOMINAL AND REAL RETAIL PORK PRICES 1 3 1 3.9 25.8.9 25.8.7.7 2 2.6.5.4 15 1 1.3.3.6.5.4 15.2 5.1.2 5.1 1.9.8.7.6.5.4.3.2.1 26 in RUB/kg 5/1/213 9/3/213 11/5/213 13/7/213 14/9/213 16/11/213 18/1/214 22/3/214 24/5/214 26/7/214 27/9/214 29/11/214 31/1/215 4/4/215 6/6/215 5/1/213 9/3/213 11/5/213 13/7/213 14/9/213 16/11/213 18/1/214 22/3/214 24/5/214 26/7/214 27/9/214 29/11/214 31/1/215 4/4/215 6/6/215 in RUB/kg 5/1/213 2/3/213 27/4/213 22/6/213 17/8/213 12/1/213 7/12/213 1/2/214 29/3/214 24/5/214 19/7/214 13/9/214 8/11/214 3/1/215 28/2/215 25/4/215 2/6/215 in RUB/kg nominal wholesale prices nominal retail prices real wholesale prices real retail prices import ban (EU) import ban (world) IATRC Annual Meeting Trade and Societal Well-Being Clearwater Beach, Florida - USA December 13-15, 215
3 25 2 15 1 5 Introduction Methodology and data Empirical results Conclusions Domestic price effects in Russia NOMINAL WHOLESALE AND RETAIL PORK PRICES NOMINAL AND REAL WHOLESALE PORK PRICES NOMINAL AND REAL RETAIL PORK PRICES 1 3 1 3 +18%.9 25.8.9 25.8.7.7 2 2.6.5.4 15 1 1.3.3.6.5.4 15.2 5.1.2 5.1 1.9.8.7.6.5.4.3.2.1 26 in RUB/kg 5/1/213 9/3/213 11/5/213 13/7/213 14/9/213 16/11/213 18/1/214 22/3/214 24/5/214 26/7/214 27/9/214 29/11/214 31/1/215 4/4/215 6/6/215 5/1/213 9/3/213 11/5/213 13/7/213 14/9/213 16/11/213 18/1/214 22/3/214 24/5/214 26/7/214 27/9/214 29/11/214 31/1/215 4/4/215 6/6/215 in RUB/kg 5/1/213 2/3/213 27/4/213 22/6/213 17/8/213 12/1/213 7/12/213 1/2/214 29/3/214 24/5/214 19/7/214 13/9/214 8/11/214 3/1/215 28/2/215 25/4/215 2/6/215 in RUB/kg +47% nominal wholesale prices nominal retail prices real wholesale prices real retail prices import ban (EU) import ban (world) IATRC Annual Meeting Trade and Societal Well-Being Clearwater Beach, Florida - USA December 13-15, 215
3 25 2 15 1 5 Introduction Methodology and data Empirical results Conclusions Domestic price effects in Russia NOMINAL WHOLESALE AND RETAIL PORK PRICES NOMINAL AND REAL WHOLESALE PORK PRICES NOMINAL AND REAL RETAIL PORK PRICES 1 3 1 3 +18%.9 25.8.9 25.8.7.7 2 2.6.5.4 15 1 1.3.3.6.5.4 15.2 5.1.2 5.1 1.9.8.7.6.5.4.3.2.1 26 in RUB/kg 5/1/213 9/3/213 11/5/213 13/7/213 14/9/213 16/11/213 18/1/214 22/3/214 24/5/214 26/7/214 27/9/214 29/11/214 31/1/215 4/4/215 6/6/215 5/1/213 9/3/213 11/5/213 13/7/213 14/9/213 16/11/213 18/1/214 22/3/214 24/5/214 26/7/214 27/9/214 29/11/214 31/1/215 4/4/215 6/6/215 in RUB/kg 5/1/213 2/3/213 27/4/213 22/6/213 17/8/213 12/1/213 7/12/213 1/2/214 29/3/214 24/5/214 19/7/214 13/9/214 8/11/214 3/1/215 28/2/215 25/4/215 2/6/215 in RUB/kg +47% +4% nominal wholesale prices nominal retail prices real wholesale prices real retail prices import ban (EU) import ban (world) IATRC Annual Meeting Trade and Societal Well-Being Clearwater Beach, Florida - USA December 13-15, 215
3 25 2 15 1 5 Introduction Methodology and data Empirical results Conclusions Domestic price effects in Russia NOMINAL WHOLESALE AND RETAIL PORK PRICES NOMINAL AND REAL WHOLESALE PORK PRICES NOMINAL AND REAL RETAIL PORK PRICES 1 3 1 3 +18%.9 25.8.9 25.8.7.7 2 2.6.5.4 15 1 1.3.3.6.5.4 15 +14%.2 5.1.2 5.1 1.9.8.7.6.5.4.3.2.1 26 in RUB/kg 5/1/213 9/3/213 11/5/213 13/7/213 14/9/213 16/11/213 18/1/214 22/3/214 24/5/214 26/7/214 27/9/214 29/11/214 31/1/215 4/4/215 6/6/215 5/1/213 9/3/213 11/5/213 13/7/213 14/9/213 16/11/213 18/1/214 22/3/214 24/5/214 26/7/214 27/9/214 29/11/214 31/1/215 4/4/215 6/6/215 in RUB/kg 5/1/213 2/3/213 27/4/213 22/6/213 17/8/213 12/1/213 7/12/213 1/2/214 29/3/214 24/5/214 19/7/214 13/9/214 8/11/214 3/1/215 28/2/215 25/4/215 2/6/215 in RUB/kg +47% +4% nominal wholesale prices nominal retail prices real wholesale prices real retail prices import ban (EU) import ban (world) IATRC Annual Meeting Trade and Societal Well-Being Clearwater Beach, Florida - USA December 13-15, 215
Domestic price effects in Russia PRICE TRANSMISSION RESULTS (1 ST IMPORT BAN) Regime Free trade regime (264 observations) Country EU World Denmark Germany Brazil Canada USA Russia intercept 4.269*** 4.44*** 5.77*** 4.669*** 4.572*** 3.269*** slope.274***.311***.112***.24***.217***.528*** Import ban regime (26 observations) intercept - -.291 2.1*** 1.688*** 3.616*** slope - - 1.93***.737***.779***.455*** IATRC Annual Meeting Trade and Societal Well-Being Clearwater Beach, Florida - USA December 13-15, 215 27
Domestic price effects in Russia DOMESTIC PRODUCER, WHOLESALE, RETAIL AND IMPORT PORK PRICES IN RUSSIA 3 1 % SHARE OF PORK IMPORT PRICES IN DOMESTIC WHOLESALE AND RETAIL PRICES 25.9 1.8 RUB/kg 2 15 1.7.6.5.4.3 8 6 4 1 1 53 61 +8% 5.2.1 2 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 % share of import prices in wholesale prices 213 % share of import prices in wholesale prices 214 % share of import prices in retail prices 213 % share of import prices in retail prices 214 import ban (EU) wholesale prices (carcass) retail prices producer prices import prices import ban (world) IATRC Annual Meeting Trade and Societal Well-Being Clearwater Beach, Florida - USA December 13-15, 215 28
Conclusions PIG MEAT IMPORTS AFTER THE BAN (FEB.-AUG. 214): Increase in pig meat import volumes from Brazil, Canada and USA; Significant reduction in transaction costs; Almost complete transmission of price shocks from the Brazilian pig meat markets. IMPORT BAN EFFECTS (EU): Short-run price effects (increased supply price decrease); Medium-run price effects were not identified (trade diversion towards Asia). IATRC Annual Meeting Trade and Societal Well-Being Clearwater Beach, Florida - USA December 13-15, 215 29
Conclusions IMPORT BAN EFFECTS (RUSSIA): Reduced domestic supply (import substitution was not complete); Import quota redistribution (existing + new importers); Reduced transmission of wholesale price changes to retail prices; Weekly increase in pig meat consumer prices. FURTHER RESEARCH Impact of the import ban in August 214 (SPT and VPT); Impact of the exchange rate (devaluation of the Russian Ruble); Asymmetry in price transmission (VPT for Russia). IATRC Annual Meeting Trade and Societal Well-Being Clearwater Beach, Florida - USA December 13-15, 215 3
Thank you for your attention! Contact: Dr. Ivan Djuric Senior Researcher Leibniz Institute of Agricultural Development in Transition Economies Tel: +49 345 29 28 241 Fax: +49 345 29 28 299 Address: Theodor-Lieser Str. 2, 612 Halle Saale, Germany email: djuric@iamo.de www.iamo.de IATRC Annual Meeting Trade and Societal Well-Being Clearwater Beach, Florida - USA December 13-15, 215