the effects of thailand-australia free …econ.tu.ac.th/thesis/2548/eng/nattapol.pdfthe effects of...

THE EFFECTS OF THAILAND-AUSTRALIA FREE TRADE

AGREEMENT: THE CASE STUDY OF BEEF

AND DAIRY PRODUCTS

NATTAPOL SRIPHOTCHANAT

MASTER OF ECONOMICS

(ENGLISH LANGUAGE PROGRAM)

FACULTY OF ECONOMICS, THAMMASAT UNIVERSITY

BANGKOK, THAILAND

MAY 2006

THE EFFECTS OF THAILAND-AUSTRALIA FREE TRADE

AGREEMENT: THE CASE STUDY OF BEEF

AND DAIRY PRODUCTS

by

Nattapol Sriphotchanat

A Thesis submitted in partial fulfillment of

the requirement for the degree of

Master of Economics

(English Language Program)

Faculty of Economics, Thammasat University

Bangkok, Thailand

May 2006

ISBN 974-9731-24-7

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AANNDD DDAAIIRRYY PPRROODDUUCCTTSS

by

Nattapol Sriphotchanat

A thesis submitted in partial fulfillment of

the requirement for the degree of

Master of Economics

(English Language Program)

Faculty of Economics, Thammasat University

31 May 2006

Is hereby approved:

Chairman, Thesis Committee : ________________________________ _________

(Assoc. Prof. Dr. Thamavit Terdudomtham) (Date)

Member, Thesis Committee : ________________________________ _________

(Assoc. Prof. Dr. Kriengkrai Techakanont) (Date)

Member, Thesis Committee : ________________________________ _________

(Arjarn Puree Sirasoontorn) (Date)

Dean : ________________________________ _________

(Assoc. Prof. Dr. Nipon Poapongsakorn) (Date)

(1)

ABSTRACT

Australia is considered as one of the Thailand's important trading partners.

The total trade between Thailand and Australia has significantly and continuously

increased from last decade. Both countries already approved Thailand-Australia

Free Trade Agreement and already effective since last year. Under the

implementation of TAFTA, beef and dairy products are expected to be affected from

the TAFTA. This study aims to estimate the effects of a reduction in the tariff rate

on import demand of beef and dairy products.

This study estimate the effects of TAFTA on beef and dairy products import

quantity by using the elasticity of import price which can be obtained from import

demand estimation. The Seemingly Unrelated Regression (SUR) is utilized to

estimate the import demand function for selected beef and dairy products.

The estimated percentage change of beef and dairy products import quantity

are obtained from the multiplication of elasticity of import price and trading partner's

import tariff reduction, under assumption of small country and perfect competition.

The estimation result indicates that the trading partner's import tariff

reduction leads to an increase in all selected beef and dairy products. However, the

actual import quantity of some products changes in the opposite direction.

Indeed, after the TAFTA has been in effect, there has been a decline in

the import quantity of some products, for instance the category of frozen beef

and buttermilk imported from Australia.

The documentary research suggests the following reasons. First, an

increase in the domestic production of high-quality beef and the smuggling of

various beef products from Thai boarders reduce the dependence of imports

from Australia. The other is that the changes in the tariff rate for some dairy

products seem insignificant for the first few years and the change occurred in only

some categories. Thus, total demand for some dairy products might not increase

immediately after the implementation of TAFTA.

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ACKNOWLEDGEMENT

I sincerely acknowledge the contribution to people and organizations

who had helped me accomplish this thesis. I wish to express my deepest

gratitude to Dr. Thamavit Terdudomtham, the advisor and chairman of the thesis

committee, for his invaluable guidance and time devotion throughout the period

of the study.

I am grateful to Dr. Kriengkrai Techakanont and Dr. Puree Sirasoontorn,

member of the thesis committee, for their constructive comments and suggestions.

I wish to acknowledge my gratitude of the Diethelm Company for granting

me the two-year scholarship throughout the course of M.A. programme.

I am grateful to Mr. Steven at the Language Institute, Thammasat University

for editing sentences and grammar.

Finally, I am greatly grateful to my beloved parents and my younger brother

for their invaluable love and their moral support.

I alone retain responsibility for all deficiencies in this thesis.

Thammasat University Nattapol Sriphotchanat

Bangkok, Thailand May 2006

(3)

LISTS OF ABBREVIATIONS

ABS Australian Bureau of Statistics

ACT Australian Capital Territory

BSE Bovine Spongiform Encephalopathy

CEP Closer Economic Partnership

CIF Cost Instance Freight

FTA Free Trade Agreement

GDP Gross Domestic Product

GLS Generalized Least Square

HS Harmonized Commodity Description and Coding System Kg Kilogram

NSW New South Wales

NT Northern Territory

OAE Official of Agricultural Economics

OLS Ordinary Least Squares

PPI Producer Price Index

Qld Queensland

SA South Australia

SUR Seemingly Unrelated Regression

Tas. Tasmania

TAFTA Thailand-Australia Free Trade Agreement

Vic. Victoria

WA Western Australia

WTO World Trade Organization

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CONTENTS

PAGE

ABSTRACT…………………………………………………………………… (1)

ACKNOWLEDGEMENT………………………………………..….………. (2)

LISTS OF ABBREVIATION…………………………….…….……………. (3)

CONTENTS…………………………………………………………………… (4)

LIST OF TABLES……………………………………………………………. (6)

LIST OF FIGURES………………………………………………………….. (9)

CHAPTER

1. INTRODUCTION……………………………………………………… 1

1.1 Statement of the problem………………………………………… 1

1.2 Objective of the study……………………………………………. 9

1.3 Scope of the study………………………………………………... 9

2. OVERVIEW OF THAI AND AUSTRALIAN BEEF AND DAIRY

INDUSTRIES…………………………………………………………… 11

2.1 The Structure of Thailand Beef Cattle and Dairy Cattle Industry…… 11

2.2 Thai import of beef and dairy products from Australia…………… 22

2.3 The Structure of Australia Beef Cattle and Dairy Cow Industry…….... 36

2.4 Tariff and non-tariff Measures in TAFTA………………………… 51

2.5 The Possible Effect of FTA on Thailand Beef Cattle and Dairy

Industries…………………………………………………………………………………………………………………… 54

2.6 Summary and Conclusions………………………………………. 57

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3. REVIEW OF LITERATURE…………………………………………. 58

3.1 Review of Free Trade Area Theory……………………………… 58

3.2 Empirical studies of the effects of Thailand – Australia FTA…… 68


4. METHODOLOGY…………………………………………………….. 73

4.1 Import Demand Function………………………………………… 73

4.2 The Estimation Method………………………………………….. 76

4.3 The Interpretation of the Model…………………………………. 81

4.4 Hypothesis and Data description………………………………… 84

5. EMPIRICAL RESULTS………………………………………………. 85

5.1 The Revising of the Model………………………………………. 85

5.2 The Analysis of the Effect of a Free Trade Agreement on Beef

and Dairy products………………………………………………. 94


6. SUMMARY AND CONCLUSION…………………………………… 119

6.1 Summary and conclusion………………………………………… 119

6.2 Policy Implications………………………………………………. 121

6.3 Limitations and suggestion for further study…………………….. 122

APPENDICES

Appendix A Thailand’s Tariff Schedule…………………………….. 124

Appendix B Thailand’s Special Safeguards Schedule………………. 129

BIBLIOGRAPHY……………………………………………………………. 133

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LIST OF TABLES

TABLE PAGE

2.1 Beef cattle numbers in Thailand by region (Head)…………………... 12

2.2 Change in number of beef cattle in Thailand………………….……… 12

2.3 Beef cattle production, beef consumption and the excess demand

of beef in Thailand, 1997-2005…………………….……….………… 14

2.4 Price of live beef cattle, wholesale and retail price in

Bangkok market……………………………………………………………………………………………………………….. 16

2.5 Dairy cattle numbers in Thailand by region (Head)………………….. 18

2.6 Change in number of dairy cattle in Thailand………………………… 19

2.7 Raw milk production in Thailand…………………………………….. 20

2.8 Demand for ready-to-drink milk and the shortage of raw milk

production in Thailand……………………………………….…..….... 21

2.9 Demand for ready-to-drink milk and the shortage of supply of

raw milk production in Thailand, 1997-2005…………….……..……. 21

2.10 Production cost, domestic farm price and factory gate prices of raw milk

in Thailand, 1997-2005…..….….…..….…..………………………… 22

2.11 Thai import quantity of “Fresh or chilled Meat”

of bovine animals (HS 02.01) by Country CIF (Baht)…… …….….. 24

2.12 Thai import value and quantity of “fresh or chilled Meat of

bovine animals” (HS 02.01) from Australia CIF………...…...…….. 25

2.13 Thai import quantity of “frozen meat of bovine animals”

(HS 02.02) by Country CIF (Baht)…………………….....….….….. 26

2.14 Thai Import value and quantity of “Meat of bovine animals

, frozen.” (HS 02.02) from Australia CIF…..…...…..…………........ 27

2.15 Thai import quantity of “milk and cream, concentrated or containing

added sugar or other sweetening matter” (HS 04.02) by country CIF

(Million Baht)………………………………………….………..…… 30

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2.16 Thai import value and quantity of “milk and cream, concentrated

or containing added sugar or other sweetening matter.” (HS 04.02)

from Australia CIF…………………………….…………….……… 31

2.17 Thai import quantity of “buttermilk, curdled milk and cream

, yogurt, kephir and other” (HS 04.03) by country CIF

(million Baht)……………………………………………………….. 32

2.18 Thai import value and quantity of “Butter milk, curdled milk and

cream, yogurt, kephir and other.” (HS 04.03) from Australia CIF… 33

2.19 Thai import quantity of “whey, whether or not concentrated or

containing added sugar” (HS 04.04) by Country CIF

(million Baht)………………………………………………………. 34

2.20 Thai import value and quantity of “whey, whether or not

concentrated or containing added sugar” (HS 04.04) from

Australia CIF…………………………………………………….….. 35

2.21 Beef cattle numbers in Australia by State (1,000 Head),

1997-2005…………………………………………………………… 37

2.22 Change in number of beef cattle in Australia,1997-2005…………… 37

2.23 Australian beef production in carcass weight (1,000 tonnes),

1997-2005…………………………………………………………... 38

2.24 Average retail price of beef at December quarter………………….. 39

2.25 Average retail price of beef, Canberra market, 1997-2005………… 40

2.26 Australian exports of beef and veal*, by destination, 1997-2005.…. 44

2.27 Dairy cow numbers in Australia by sate (1,000 head), 1997-2005…. 45

2.28 Change in number of dairy cattle in Australia (1,000 head),

1997-2005………………………………………………………...… 46

2.29 Financial year bulk milk production in Australia (1,000 tonnes),

1997-2005…………………………………………….…….............. 47

2.30 Calendar year bulk milk production in Australia (1,000 tonnes),

1997-2005............................................................................................ 47

2.31 Financial year average market milk prices in Australia (tonnes)..….. 48

2.32 Australian average retail milk prices in Sydney (tonnes)…………… 48

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2.33 Australian Exports of Dairy Products by destination

(1,000 tonnes), 1997-2005……….………..……….….……….......... 50

2.34 Tariff schedule for fresh or chilled beef and frozen beef for

Thailand………................................................................................... 51

3.35 Tariff schedule for dairy products for Thailand.……………..……... 52

3.1 Costs and effects of a tariff.….……..……….…….………..………… 62

3.2 Welfare effects of FTA formation trade creation case…...……..……. 64

3.3 Welfare effects of FTA formation trade diversionn case….…………. 67

5.1 Estimated change of Thai import quantity of fresh or chilled

beef (HS0201) under Tariff reduction……………….……….……… 96

5.2 Actual change in Thai import of fresh or chilled beef (HS0201)…….. 97

5.3 Estimated Change of Thai Import Quantity of frozen beef (HS0202)

under Tariff Reduction……………………….…..…………….…….. 100

5.4 Actual change in Thai import quantity of frozen beef (HS0202)…..… 100

5.5 Estimated change of Thai import quantity for milk and cream

(HS0402) under Tariff Reduction……….………………..…….......... 106

5.6 Actual change in Thai import of milk and cream (HS0402)….…….… 107

5.7 Estimated change of Thai import quantity for buttermilk

(HS0403) under tariff reduction……………….………………..….…. 109

5.8 Actual change in Thai import of buttermilk (HS0403)…....………….. 110

5.9 Estimated change of Thai import quantity for whey

(HS0404) under tariff reduction……………………….……………… 113

5.10 Actual change in Thai import of whey (HS0404)……………………. 114

A-1 Thailand’s tariff schedule ffoorr bbeeeeff pprroodduuccttss…………..……..…………………………………… 125

A-2 Thailand’s tariff schedule for dairy products…….…………….……... 126

B-1 Thailand’s special safeguards schedule for beef products….………… 130

B-2 Thailand’s special safeguards schedule ffoorr ddaaiirryy pprroodduuccttss..…………..……..…… 131

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LIST OF FIGURES

FIGURE PAGE

1.1 Total trade between Thailand and Australia (millions Baht)……........... 3

1.2 Major exporter of fresh or chilled beef (HS0201) to Thailand in 2005.. 5

1.3 Major exporter of frozen beef (HS0202) to Thailand in 2005………… 6

1.4 Major exporter of milk and cream (HS0402), buttermilk (HS0403), and

whey (HS0404) to Thailand in 2005…………………………………. 8

2.1 Comparison of import between fresh or chilled beef and frozen beef… 54

2.2 Import quantity of milk and cream………………….………………… 56

2.3 Comparison of import between butter milk and whey ……………….. 56

3.1 Partial equilibrium effects of a tariff…………………………………... 59

3.2 Effect of a tariff on consumer and producer surplus…………………... 60

3.3 Partial equilibrium costs and benefits of a tariff………………..……... 61

3.4 A trade-creating customs union………………..……………….………. 63

3.5 A trade-diverting customs union ………………..……….…………..… 66

4.1 The price effect of a Tariff reduction………………………………....... 75

5.1 Beef cattle production, beef consumption and excess demand of beef.... 103

1

CHAPTER 1

INTRODUCTION

1.1 Statement of the problem

Nowadays, there are already well over 250 Free Trade Agreements (FTA)

and Economic Partnership Agreements (EPA) in various parts of the world. With

difficulty achieving liberalization multilaterally, more countries have turned to

bilateral as well as regional EPAs. Besides, the larger number of FTAs include

conditions which global or multilateral agreements could never compete against. That

is due to most FTAs being negotiated on a bilateral basis and therefore render match-

making easier. In addition, multiparty organizations such as APEC can only issue

recommendations, whereas FTAs are legally binding agreements, and in many cases,

such as the multilateral ASEAN Free Area, offer dispute settlement mechanisms

which provide FTA-members with a certain psychological comfort.

With regards to Thailand, the Thai government believes that while we must

continue to actively participate in the current Doha round of trade talks, Thailand can

indeed play a contributing role in strengthening ASEAN and building up towards the

East Asian Community.

According to the slow trade liberalization progress at the World Trade

Organization (WTO), the Thai government has, over the past few years, pursued a

number of free trade agreements to aid Thai exporters with new opportunities. As a

result, the government has tried to explore the alternative liberalization paths that

have become an integral part of Thailand’s new trade strategies for this moment. The

Thai government believes that FTA could be the best option to link Thailand with

strategic partners such as the US, Japan, China, Japan, India, Australia and the Middle

East.

Therefore, the initiation of bilateral Free Trade Agreements (FTA) with

countries around the world has become one of the new foreign policy strategies of the

Thai government, headed by Prime Minister Thaksin Shinawatra.

2

Given that the Thai government has chosen to focus on pushing for bilateral

trade agreements, one should analyze some of the purposes and possible ramifications

of this policy initiative. First, the trade deals will present Thailand with unprecedented

market access to our counterpart’s economies.

Second, Thailand’s industries and consumers will gain from increased

imports; after all it is imports not exports that are the object of trade. Thailand’s FTA

endeavors with its trade partners will require that import duties of selected goods be

significantly lowered, if not abolished altogether. The expansion of bilateral free trade

agreements will effectively expand Thailand’s selection of imports. The ability to

import cheaper goods and services which are of a higher quality will not only increase

the purchasing power of Thai consumers but also free up the domestic labor market

and allow for increased specialization, and increase the innovation and

competitiveness of local industries through expanded foreign competition.

Third, as with many developing countries, Thailand is plagued with

numerous legislative, bureaucratic and institutional weaknesses that impede its ability

to advance economically. FTA’s could provide the external impulsion for Thailand to

transform some of its archaic procedures and systems that could not have otherwise

been changed due to vested domestic political interests.

Bilateral FTAs will present new opportunities for the kingdom to sell and

purchase goods as well as to open up to foreign businesses; Thailand will be

compelled to create stronger mechanisms and institutions to seize those opportunities.

In conclusion, bilateral FTAs present opportunities as well as risks. When

negotiating FTAs with counterparts that are more dominant politically, economically

and tactically, there is a great risk of the agenda being led and directed by the stronger

party. In any case, the present administration’s trade policy is indicative of its

willingness to embrace foreign trade, investment and cooperation. The government

realizes that a dynamic, open and interdependent trade policy is the best way to

maintain the country’s constant and continual growth, and that such policies are

possible because of the proliferation of bilateral trade policies, not inspite of it.

To date, FTA has also blended into the political agenda especially when it

involves trading of agricultural products. Thai dairy farmers earlier staged a protest

against Thai-Australian FTA by saying that they will suffer from the flood of cheaper

3

dairy products from Australia in 2020. Meanwhile, Thai rice farmers expressed their

strong disappointment when the Thai government decided to drop rice from the Thai-

Japanese FTA agreement.

Australia is one of the countries that have already completed a

comprehensive trade agreement with Thailand. The main accomplishment of this

agreement lies in the extensive market access that each country will afford one

another. The negotiations successfully concluded in July 2004 and were put into force

on 1 January 2005. The FTA with Australia is probably the most comprehensive of

all, covering all sectors and services while Thailand’s FTA with India, China, and

Bahrain are more limited in scope of study. In addition, Australia is also considered to

be one of Thailand’s important trading partners. According to the current trade data,

the total trade between Thailand and Australia has significantly and continuously

increased over the last decade as shown in Figure 1.1.

FIGURE 1.1

TOTAL TRADE BETWEEN THAILAND AND AUDTRALIA

(MILLIONS BAHT)

0100,000

200,000300,000

400,000500,000

600,000700,000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Total Trade Exports Imports

Source: Information and communication technology center with cooperation

of the customs department.

After the agreement became effective on January 1, 2005, 49 per cent of

import tariffs on 5,505 Thai products were reduced to zero percent while 44 per cent

of tariffs were set at zero percent within a period of five years. On the Australian side,

4

import taxes of 83 per cent on 6,108 items were reduced to zero percent while others

will be reduced by 13 per cent, such as canned tuna fish, in five years and the

remaining by 4 percent, including clothing, in ten years.

Thailand’s high tariff barriers will be eliminated immediately or phased out

over an agreed timeframe (2010, 2015 or 2020). Thailand has agreed to eliminate

import tariffs on beef products from Australia by 2020 under the Thailand-Australia

FTA pact, which took effect on January 1, 2005. Historically, Thailand’s tariff rates

on beef products were high in order to protect the domestic industry. Under TAFTA,

Thailand's current tariff for beef products have been initially cut from 51 per cent to

40 per cent and will be reduced gradually by 2.6 per cent each year beef until total

elimination in 2020 to give Thai cattle farmers time to adjust since they currently

cannot compete with Australian high quality.

For dairy products, Thailand’s current tariffs in quota initially range from 5

to 30 per cent. There are also very strict tariffs on milk powder. Milk and cream

concentrated, not containing added sugar for infant feeding (HS0402211) were

eliminated from 5 per cent to zero per cent in 2005 while whole milk powdered

(WMP) or fat dried milk (HS0402219 and HS040229) will be phased down from 5

per cent to 3 per cent in 2008 and eliminated in 2009. Meanwhile, milk and cream not

containing added sugar (HS040291) will be reduced from 30 per cent to 27 per cent in

2006 and will be reduced by 3 per cent each year thereafter until their total

elimination in 2013. Only containing added sugar (HS040299) was reduced from 30

per cent to 24 per cent in 2005 and will be reduced by 6 per cent each year until their

total elimination in 2010. And for skimmed milk powder (SMP) or non fat dried milk

(HS040210), the tariff rate did not immediately cut in the year 2005 as well. It will be

totally eliminated in 2020.

Beef and dairy cow industries are the industries that the Thai’s government

expects to be highly affected from TAFTA. Most Thai beef cattle farming are either

small scale farming or part time farming holding only a small number of beef cattle1

1 According to Thailand’s provincial livestock office, Thai farmer possess beef cattle and

dairy cows about 6.85 heads and 18.59 heads per family in 2004.

5

and farm area while Australian beef faming is large scale farming2 holding a huge

number of cattle and large-size farm area. Australia is also famous in their high

weight-to-meat rate, excellent quality of the meat, disease-free guarantee, and also the

variety of choices to suit each consumer’s need.

Nevertheless, we believe that TAFTA would lead to a significant increase of

beef and dairy products imports into Thailand. Thus, Australia will receive higher

significant market share in beef and dairy products. In 2005, the major import supplier

of fresh or chilled beef was Australia with 90 per cent of market share while

Argentina and New Zealand were the second and the third source of this product with

8 per cent and 2 per cent market share in Thailand as shown in Figure 1.2.

FIGURE 1.2

MAJOR EXPORTER OF FRESH OR CHILLED BEEF

(HS0201) TO THAILAND IN 2005

Australia89.2%

New Zealands

2.5%Argentina8.3%

Source: Department of trade negotiations, Ministry of commerce (data from

Table 2.11)

Australia, New Zealand and Argentina are the dominant suppliers of frozen

beef to the Thai market. Between them, they control approximately 99 per cent of the

total imports. In 2005, the biggest import supplier of frozen beef was Australia while

2 According to Australian Bureau of Statistics, the 2003–04 agricultural survey found that size

of the farm were between 100 and 499 hectares in size.

6

New Zealand was the second largest supplier of this item. Most Thai import of frozen

beef came from Australia. The proportions of this item from Australia took more than

71 per cent of total import in 2005 while New Zealand and Argentina took only 19 per

cent and 7 per cent of market share in Thailand as shown in Figure 1.3.

FIGURE 1.3

MAJOR EXPORTER OF FROZEN BEEF

(HS0202) TO THAILAND IN 2005

Others, 1.43%

New zealands,

19.81%

Argentina, 7.08%

Australia, 71.68%

Source: Department of trade negotiations, Ministry of commerce (data from

Table 2.13)

For milk and cream, New Zealand, Australia, the United Kingdom and the

Czech Republic are the dominant suppliers for the Thailand market. In 2002, the

largest import supplier of milk and cream (HS0402) was Australia while New Zealand

was the second largest supplier of this item. However, Thailand imports more milk

and cream from New Zealand which became the largest supplier of this item with

36.7 per cent of the total market share in 2003. In 2004, Australia lost their milk and

cream market share to New Zealand and took only 15 per cent of the market share.

Lastly in 2005, Australia became the second largest supplier of milk and cream while

New Zealand which is the largest supplier of milk and cream took about 54 per cent

of the market share as shown in Figure 1.4.

Buttermilk, curdled milk, and cream, yogurt (HS0403) contribute major food

ingredients which were not available or not produced in adequate quality or volume

7

within Thailand. New Zealand, Australia, Ireland and Netherlands are the dominant

suppliers for the Thai market. Australia is the third largest market for buttermilk with

about 10 per cent of the total market share as shown in Figure 1.4.

8

FIGURE 1.4

MAJOR EXPORTER OF MILK AND CREAM (HS0402), BUTTERMILK

(HS0403), AND WHEY (HS0404) TO THAILAND IN 2005

Australia , 54.82%

New Zealands , 33.43%

Netherlands , 6.8%

U.S.A. , 6.34%

Czech Republic , 7.73%

Others, 3.8%

Ireland , 10.42%

Netherlands , 14.46%

Belgium , 9.11%

Others, 13.22%

Australia , 11.72%

New Zealand , 41.07%

Australia , 21.86France , 23.42

U.S.A. , 35.04 Others, 13.5

Germany , 6.19

Source: Department of trade negotiations, Ministry of commerce (data from Table 2.15, 2.17, and 2.19)

9

There are many studies that assess the measurable economic effects arising

from a free trade agreement by using a computable general equilibrium model (CGE).

However, the results from the estimation might not reflect the true effects from the

FTA because the model uses a set of outdated trade data. In addition, the effects from

FTA which measure by using economic theory so that the effects might be only

assumptions that correspond with the theory. Moreover, the results from the TAFTA

might be insignificant because the measurement in this model applied the same period

of the tariff reduction in every item.

Therefore, the purpose of this study is to estimate the effects of tariff

reduction from TAFTA on demand of beef and dairy products from Australia by

using an applied partial equilibrium model of trade.

This study focus on specific products by using the estimation of the demand-

supply Zellner's Seemingly Unrelated Regression (SUR) models that are asymptotically

more efficient than equation-by-equation OLS estimates and circumvents the bias and

inconsistency problems.

1.2 Objective of the study

1. To estimate the effects of tariff reduction following Thailand-Australia

free trade agreement (TAFTA) on Thai import demand of beef and dairy products

from Australia by using the elasticity of import demand function.

2. To assess the impact of TAFTA on Thai farmers, processors by using

documentary research.

1.3 Scope of the study

1. Focusing on the impact of tariff reduction due to the Thailand-Australia

free trade agreement (TAFTA) on Thai imports of beef and dairy products from

Australia expressed in terms of the Customs Tariff, which is based on the Harmonized

Commodity Description and Coding System (HS).

- HS0201 Meat of bovine animals, fresh or chilled

- HS0202 Meat of bovine animals, frozen

10

- HS0402 Milk and cream, concentrated or containing added sugar

- HS0403 Buttermilk, curdled milk and cream, yogurt, kephir and other

- HS0404 Whey, whether or not concentrated or containing added sugar

2. Using the quarterly data during the first quarter of 1996 - the fourth

quarter of 2005 of Thai imports of beef and dairy products, import price per unit of

beef and dairy products from Australia.

4. Estimating the import demand elasticity by using quantitative method and

using Seemingly Unrelated Regression (SUR) model. The method of estimation is the

generalized least square (GLS) in the log-linear form.

11

CHAPTER 2

OVERVIEW OF THAI AND AUSTRALIAN BEEF

AND DAIRY INDUSTRIES

This chapter consists of six sections. An overview of Thai beef and dairy

cow industries is provided in the first section. The second section presents the import

structure of beef and dairy products from Australia. The third section reviews an

overview of Australian beef and dairy cow industries. The fourth section presents the

tariff and non-tariff measure in TAFTA on beef and dairy products. The fifth section

presents the possible effects of TAFTA on Thai beef and dairy industries. The sixth

section presents the summary and conclusions of this chapter.

2.1 The Structure of Thailand’s Beef Cattle and Dairy Cow Industries

2.1.1 Thai Beef Cattle Industries

During 1997-2005, the numbers of beef cattle in the Thailand increasing by

48 per cent or about 5.3 per cent per year from 5.2 million heads to 7.7 million heads

(See Table 2.1). The greatest proportionate increase occurred in the North-Eastern

region, where cattle numbers doubled, tripled and quadrupled the others region during

1997 to 2005 while the slowest growth occurred in the Southern region. About 55 per

cent of the beef cattle in 2005 were in the North-Eastern region of the country while

about 10 per cent were in the Southern region as shown in Table 2.1.

Beef cattle make up the cattle herd mostly. The changes in beef cattle

numbers across the region were almost the same as for cattle overall. There has been a

change in the relative importance of the regions between 1998 and 2002 with the

Northern region becoming more important, while the Central region has declined in

relative importance as a beef producing region.

12

TABLE 2.1

BEEF CATTLE NUMBERS IN THAILAND BY REGION (HEAD), 1997-2005

Year Central Part North-Eastern Part Northern Part Southern Part Total 1997 1,060,221 2,302,091 1,046,774 882,850 5,291,936 1998 904,957 2,027,597 887,236 748,160 4,567,950 1999 855,232 2,219,437 875,403 685,669 4,635,741 2000 849,237 2,522,961 943,251 585,165 4,900,614 2001 1,022,264 2,573,233 1,025,750 606,357 5,227,604 2002 936,075 2,910,823 1,132,292 570,995 5,550,185 2003 984,069 3,078,149 1,297,460 556,645 5,916,323 2004 1,001,425 3,693,782 1,326,987 646,138 6,668,332 2005 1,296,820 4,092,206 1,636,851 770,395 7,796,272

Average 990,033 2,824,475 1,130,223 672,486 5,617,217

Source: Provincial Livestock office, Thailand.

Due to the government promotion for beef farming1 after the financial crisis

in 1997 and the significantly increase in beef cattle price, to this day, there has been a

rise in the number of farms producing beef cattle as well as in the total number of

cattle (See Table 2.2).. TThheessee mmaakkee tthhee pprroodduuccttiioonn ooff bbeeeeff ccaattttllee rraaiissee aapppprrooxxiimmaatteellyy 55

ppeerr cceenntt eeaacchh yyeeaarr..

TABLE 2.2

CHANGE IN NUMBER OF BEEF CATTLE IN THAILAND, 1997-2005

Year Number of beef Cattle (Head) Change (Head) Percentage Change (%) 1997 5,291,936 - - 1998 4,567,950 -723,986 -13.68 1999 4,635,741 67,791 1.48 2000 4,900,614 264,873 5.71 2001 5,227,604 326,990 6.67 2002 5,550,185 322,581 6.17 2003 5,916,323 366,138 6.59 2004 6,668,332 752,009 12.71 2005 7,796,272 1,127,940 16.91

Average 5,617,217 313,042 5.32


1 Provincial of livestock office (2006). “Survey report of beef cattle in 2005 and outlook for

2006,” Official of agricultural economics, Ministry of agriculture and cooperatives.

13

2.1.2 Production and Consumption of Beef in Thailand

According to Thai provincial livestock office, the domestic consumption

was slightly increasing at the rate 0.16 per cent in 2005 increased to 1,242 thousand

heads from 1,240 thousand heads in the previous year. The demands of beef products

have been increasing yearly partly as a consequence of a continuous increase of

population and the government promotion for beef farming.

Generally, Thai beef trade is classified into 2 kinds; live beef cattle and

sliced beef with 3 levels of markets; the upper market2, middle beef market and lower

market3. Sliced beef in the upper market contain high quality beef with the average

market price at around 90-125 Baht per kg. Sliced beef in the middle market and

lower market contain moderate to low quality beef with the average market price at

around 60-85 Baht per kg.

According to Thai provincial of livestock office4, most Thai consumers buy

fresh or chilled beef from the middle to lower market such as fresh-food market or

supermarket, which is the biggest market segment of the beef products in Thailand

and consume many parts of beef cattle.

2 Fine restaurant, five-star hotel 3 Fresh-food market or supermarket 4Provincial of livestock office (2006). “Survey report of beef cattle in 2005 and outlook for

2006,” Official of agricultural economics, Ministry of agriculture and cooperatives.

14

TABLE 2.3

BEEF CATTLE PRODUCTION, BEEF CONSUMPTION AND THE EXCESS

DEMAND OF BEEF IN THAILAND, 1997-2005

Year Beef Cattle Production

(1,000 Heads) Beef Consumption

(1,000 Heads) Excess Demand (1,000 Heads)

1997 1,030 1,146 116 1998 917 1,150 233 1999 850 1,129 279 2000 837 1,133 296 2001 832 1,141 309 2002 896 1,224 328 2003 952 1,234 282 2004 1,022 1,240 218 2005 1,097 1,242 145

Average 937 1,182 245

Source: Provincial livestock office, Thailand.

In 2005, the domestic consumptions for beef exceeds the supply at around

145,000 heads. We noticed that excess demand emerges in Thai market with the

quantity demanded by the Thai buyers continuously exceeds the quantity supplied by

the sellers. However, the consumption of Thai was not as much as Australian because

of some cultural and religions beliefs such as indigestible meat and mad cows disease

(BSE).

2.1.3 Thai Beef Prices

During 1997-2004, the price of live cattle in Thailand that the farmer

received has continuously increasing. For instance, live cattle prices have remained

quite strong at 14,976 Baht per head in 2004 (See Table 2.4) while live cattle prices

dropped 3 per cent to 14,424 Baht per head.

However, the price of live cattle in Thailand that the farmers received

decreased 3.69 per cent in 2005. According to the official of agricultural economics5,

some farmers stop buying and selling cows since the government impose the “cows

5 Official of Agricultural Economics, “Survey Report of Cattle Year 2005 and Outlook for

2006.” Agricultural Statistics No. 404, March 2006.

15

for one million families” project resulting the prices that the farmers received is

reduced.

The Thai sliced beef prices have shown a steady trend in Bangkok during

1997 to 2005. The price of sirloin in Bangkok market is approximately 90-125 Baht

per kg while the price of tenderloin in Bangkok market is around 145-190 Baht per

kg. Meanwhile, the average live cattle price is about 11,455 Baht per head with the

wholesale price at around 50 Baht per kg. The wholesale price and the retail price in

Bangkok make a highest record in 2004. The retail price for sirloin and tenderloin in

Bangkok are 126 and 182 Baht per kg increased approximately 7 per cent from the

previous year

In 2005, the price of sirloin in Bangkok market increase 1.1 per cent to 127.5

Baht per kg while the price of tenderloin also increased about 1.1 per cent to 185 Baht

per kg. Meanwhile, domestic farm prices of middle size beef cattle (300 kg) in 2004

increased 5 per cent to 14,977 Baht per head from the previous year. The change in

beef price does not significantly alter in each year because demand for beef is lower

than the demand for others meat. Due to the religious belief, mad cow disease (BSE),

Thai consumers consume less beef than others meat. In addition, there is no maximum

price control on beef price while pork which more people admire to consume does

having the ceiling price.

16

TABLE 2.4

PRICE OF LIVE BEEF CATTLE, WHOLE SALE AND RETAIL PRICE IN

BANGKOK MARKET, 1997-2005

Bangkok market

Wholesale price (Baht/Kg.) Retail Price (Baht/Kg.) Year

Live beef cattle

(Baht/Head.) live cattle beef, bone in sirloin tenderloin

1997 7,443 48.50 63.44 87.32 145.00

1998 7,745 49.26 65.12 95.61 145.00

1999 8,785 49.50 67.25 106.25 147.50

2000 10,793 49.96 79.40 116.15 161.91

2001 11,850 50.50 91.00 117.50 170.00

2002 12,776 50.50 91.00 117.50 170.00

2003 14,275 50.50 91.00 117.50 170.04

2004 14,976 52.25 95.38 126.09 182.89

2005 14,456 50.50 96.00 127.50 185.00

Average 11,455 50.16 82.17 112.38 164.14

SSoouurrccee:: The Department of Internal Trade, Ministry of Commerce,, TThhaaiillaanndd..

2.1.4 Thai Dairy Cow Industry

Dairy farming involves more than 22,000 families in Thailand. Milk

production has been increasing steadily and is currently estimated to be around

900,000 tonnes produced by some 500,000 dairy cows including calves.

The average annual milk yield per cow would be around 2,100 kg, which is

relatively low compared to international standards (6,200 kg in the EU, 8,400 in the

US and 3,300 in New Zealand). To a certain extent this can be explained by the

tropical weather, the use of local grass, which is low in nutrition, the practice of

keeping cows years after their peak milk-production period has passed and the large

number of subsistence farmers with less productive management methods.

On specialized dairy farms with 20 cows or more, average annual milk yield

per cow can be up to 4,000 kg or more, but an estimated 70 per cent of all Thai dairy

farms have less than 10 dairy cows. Improved breeding, better farm management and

17

better feed are boosting overall productivity per cow in Thailand by some 4 per cent

per year.

Most Thai dairy farmers run small to medium-sized operations of between

11 and 20 cows, most of which are cross-bred between Holstein-Friesian and native

cattle, with the percentage of Holstein-Friesian ranging from 70 per cent to 80 per

cent. The daily feed ration is composed of two-thirds roughage6 and one-third

concentrate feed. Relative volumes of the ingredients in the composition of the

concentrate feed depend on local availability and price.

Similar to beef, dairy products are a vital food for Thai, especially when the

government launched the school milk programme7 which provides free milk for every

primary school students since 1998, dairy cow industry became more important. FFoorr

iinnssttaannccee,, Thailand had an estimated 478,836 dairy cow in 2005 or 175,964 over more

than in 1997. The greatest proportionate increase occurred in the Central region while

the slowest growth occurred in the Southern region.

6 Cattle feed is divided in to 2 groups, concentrates and roughage. Concentrates is a feed

used with another to improve the nutritive balance of the total and intended to be further diluted and

mixed to produce a supplement or a complete feed such as bran, corn, millet, etc. While roughage feed

is cheap prevailing feed providing ungestible nutrient for cattle leafage, vetch, straw, bagasse. 7 The establishment of the National Milk Drinking Campaign Board (NMDCB) by the

Cabinet decision in 1985 stems from the farmers protests of 1984 on unsold milk. A pilot programme

was implemented in selected areas of Bangkok and Chiangmai for parents to purchase milk at 25% less

the normal priced milk through monthly coupons for their children in Primary and Kindergarten

schools. This programme was the origin of the national School Milk Programme of Thailand. Over the

years, the programme was later expanded and today all school children in public schools are provided

with 200ml of free milk.

18

TABLE 2.5

DAIRY COW NUMBERS IN THAILAND BY REGION (HEAD) 1997-2005

Year Central Part North-Eastern Part Northern Part Southern Part Total 1997 206,337 70,261 21,659 4,615 302,872 1998 192,200 74,460 24,504 4,259 295,423 1999 186,210 67,536 24,622 4,287 282,655 2000 204,822 68,596 29,908 4,541 307,927 2001 233,523 74,434 27,821 7,901 343,679 2002 248,667 74,807 28,956 6,010 358,440 2003 255,302 84,354 34,282 6,265 380,203 2004 285,520 82,021 32,468 8,341 408,350 2005 335,718 96,747 39,397 6,974 478,836

Average 238,700 77,024 29,291 5,910 350,932

Source: Provincial livestock office, Thailand.

The Central part is most important area in terms of dairy cow productions

while the slowest growth occurred in the Southern region. About 70 per cent of the

dairy cows in 2005 were in the Central region of the country while about 1 per cent

was in the Southern region as shown in Table 2.5.

Thailand’s Central part, where the main demand centre Bangkok is located,

have traditionally been the dominant milk producing region with over 70 per cent of

the total number of dairy cow; followed by the north eastern with about 20 per cent. It

should be noted that although all areas have increased the number of diary cattle, the

central part has increased its number of dairy cow (from 68 to 70 per cent) while the

North Eastern have steady share at around 20 per cent during 1997 and 2005.

19

TABLE 2.6

CHANGES IN NUMBER OF DAIRY COW IN THAILAND, 1997-2005

Year Number of dairy cow

(Head) Change (Head)

Percentage Change (%)

1997 302,872 - - 1998 295,423 -7,449 -2.45 1999 282,655 -12,768 -4.32 2000 307,927 25,272 8.94 2001 343,679 35,752 11.61 2002 358,440 14,761 4.29 2003 380,203 21,763 6.07 2004 408,350 28,147 7.40 2005 478,836 70,486 17.26

Average 350,932 21,996 6.10 Source: Provincial livestock office, Thailand.

In 2005, there were 478,836 heads of dairy cow in Thailand raised by 70,486

farm households. The number of dairy cow increased from 2005 at the rate of 17 per

cent. According to the office of agricultural economics8 (2006), the average dairy

farm size is 21 heads, producing 11.42 kg of daily raw milk per cow. During 1997-

2005, the Thai raw milk production doubled the raw milk annual yield per cow or

increased by a factor of 10.3, the number of dairy cow rose approximately by 6 per

cent each year (See Table 2.6 and 2.7).

8 Office of agricultural economics (2006), “survey report of dairy year 2005 and outlook for

2006,” Ministry of agriculture and cooperatives.

20

TABLE 2.7

RAW MILK PRODUCTION IN THAILAND, 1997-2005

Year Production (Tonnes) Change (Tonnes) Percentage Change (%) 1997 410,433 - - 1998 437,116 26,683 6.50 1999 464,514 27,398 6.27 2000 520,115 55,601 11.97 2001 587,700 67,585 12.99 2002 660,297 72,597 12.35 2003 731,923 95,569 15.02 2004 842,611 93,093 12.72 2005 916,146 73,535 8.72

Average 613,725 61,015 10.31 Source: Office of agricultural economics, Ministry of agriculture and cooperatives.

Table 2.7 shows that the total milk productions in Thailand in 2005 were

916,146 tonnes raised by 73,535 tonnes from 2004 while the raw milk usage for the

factory was about 879,500 tonnes. Considering the raw milk usage for the factor of

the country, the domestic raw milk productions were still exceeding the demand.

Meanwhile, RTD milk consumption also increased rapidly due to the school milk

programme which providing children from kindergaeten up to including grade 4 with

ration of free milk. .

In 2005, the total milk production was about 916,146 tonnes while about

809,760 tonnes or approximately 88 per cent of Thai raw milk production is used in

these factories to produce “ready- to-drink” (RTD) milk. The rest 12 per cent is

processed into the other kinds of dairy products such as butter, skim milk powder

(SMP), casein, and whole milk powder (WMP) and cheddar cheese

21

TABLE 2.8

DEMAND FOR RAW MILK AND THE SHORTAGE SUPPLY OF RAW MILK

PRODUCTION IN THAILAND, 1997-2005

Year Demand for raw milk Raw Milk for Factory Shortage 1997 668,370 410,433 257,937 1998 511,405 437,116 74,289 1999 573,637 464,514 109,123 2000 596,895 499,310 97,585 2001 627,769 564,200 63,569 2002 679,740 633,885 45,855 2003 703,510 702,646 864 2004 796,120 808,905 -12,785 2005 833,350 879,500 -46,150

Average 665,644 600,057 65,587 Source: Bureau of livestock development and technology transfer,

TABLE 2.9

DEMAND FOR READY-TO-DRINK MILK AND THE EXCESS SUPPLY OF

RAW MILK PRODUCTION IN THAILAND, 1997-2005

Year RTD milk Production

(Tonnes) RTD milk Consumption

(Tonnes) Excess Supply

(Tonnes) 1997 649,455 641,000 8,455 1998 469,931 490,470 -20,539 1999 557,400 550,150 7,250 2000 580,000 572,460 7,540 2001 610,000 602,070 7,930 2002 660,500 651,910 8,590 2003 683,600 674,700 8,900 2004 773,582 763,526 10,056 2005 809,760 799,078 10,682

Average 643,803 638,374 5,429 Source: Bureau of livestock development and technology transfer,

Table 2.9 shows that the total demand for ready-to-drink milk in 2005 was

1,040,973 tonnes increased from 2004 at the rate of 15 per cent. In addition, the

demand for RTD milk was still only a fraction of the total raw milk production. The

total demand for RTD milk in 2005 was 799,078 tonnes. Table 2.8 and 2.9 show that

the productions of raw milk in 2005 was 916,146 tonnes while RTD milk

consumptions was 799,078 tonnes or about 87 per cent of the total demand for RTD

milk.

22

TABLE 2.10

PRODUCTION COST, DOMESTIC FARM PRICES AND FACTORY GATE

PRICES OF RAW MILK IN THAILAND

Year Production cost

(Bt/liter.) Domestic Farm Price

(Bt/liter.) Factory gate price

(Bt/liter.) 1997 7.74 9.39 12.5 1998 7.72 10.66 12.5 1999 7.47 10.94 12.5 2000 7.56 11.12 12.5 2001 8.03 11.31 12.5 2002 8.15 11.34 12.5 2003 8.24 11.59 12.5 2004 8.51 11.69 12.5 2005 8.24 11.49 12.5

Average 7.96 11.06 12.50 Source: Office of agricultural economics, Ministry of agriculture and cooperatives, Thailand

The cost of milk production in 2005 was about 8.24 Baht per liter. The

government dictated price of raw milk price was 12.50 Baht per liter at factory gate

while the domestic farm price was 11.49 Baht per liter at farm gate. As shown in

Table 2.10 it is clear that Thai dairy farmers achieve only a small return from cows or

about 3.25 Baht per liter.

2.2 Thai Import of beef and dairy products from Australia

2.2.1 Thai import of beef products from Australia

Thailand has imported beef from a number of countries, including Australia,

New Zealand, U.S.A. and Argentina. Australia is the main suppliers of beef for

Thailand with about 90 per cent of the total import (See Table 2.11 and 2.13) while

the rest 6 per cent come from USA. In this paper we will classify beef cattle by

Harmonized commodities coding system (HS code) where HS 0201 represents fresh

or chilled meat of bovine animals and HS 0202 represents frozen meat of bovine

animals.

During 1999-2005, we notice that Australia is the most dominant exporter

for fresh or chilled beef (HS0201) and frozen beef (HS0202) to Thailand. From Table

23

2.11, most imports of fresh or chilled beef is from Australia with 84 per cent of total

import in 2003 while the United States takes the rest 16 per cent of market share. In

2004, Australia take 96 per cent of market share from fresh or chilled beef market

while the second largest supplier is Argentina with about 4 per cent of market share.

In 2005, the largest supplier of fresh or chilled beef was Australia with 90 per cent of

market share while Argentina still remains as the second supplier of this product with

8 per cent market share.

On the export side, Thailand export fresh or chilled beef (HS0201) and

frozen beef (HS0202) to U.S.A., Philippines, Taiwan, Hong Kong and Laos in very

small quantity during 1997-2005. Moreover, we did not export these items to

Australia during these periods.

24

TABLE 2.11

THAI IMPORT QUANTITY OF “FRESH OR CHILLED MEAT OF BOVINE ANIMALS”

(HS 0201) BY COUNTRY (KG), 1997-2005

1999 2000 2001 2002 2003 2004 2005 Country Quantity % Quantity % Quantity % Quantity % Quantity % Quantity % Quantity % Australia 38,090 98.5 16,137 100 42,794 98.4 58,180 92.4 44,584 83.6 105,915 96.2 233,357 89.2U.S.A. 0 0 0 0 204 0.5 4,778 7.6 8,746 16.4 0 0 0 0 Sweden 0 0 0 0 475 1.1 0 0 0 0 0 0 0 0 Argentina 0 0 0 0 0 0 0 0 0 0 4,278 3.8 21,703 8.3 Netherlands 291 0.7 0 0 0 0 0 0 0 0 0 0 6 0 New Zealands 310 0.8 0 0 0 0 0 0 0 0 0 0 6,574 2.5 World/Total 38,691 100 16,137 100 43,473 100 62,958 100 53,330 100 110,193 100 261,640 100 Source: Department of Trade Negotiations, Ministry of Commerce

25

Table 2.12 shows that the import quantity of fresh or chilled beef (HS0201)

from Australia has increasing over time with the average change 55.58 per cent. In

2003, Thailand fresh or chilled beef import from Australia decreased 23 per cent, due

to the reduced demand for beef as a result of BSE and Anthrax scares in recent years

and the unprofitable return for producing cattle due to depressed beef prices and high

livestock costs.

However, Thai import of fresh or chilled beef from Australia in 2004 rise to

105,915 kg increased around 137 per cent from the previous year, with these imports

valued at around 16.3 million Baht. Meanwhile, the import quantities of fresh or

chilled beef from Australia after the implementation of TAFTA in 2005 increased 120

per cent to 233,357 kg.

TABLE 2.12

THAI IMPORT VALUE AND QUANTITY OF “FRESH OR CHILLED MEAT OF

BOVINE ANIMALS” (HS 0201) FROM AUSTRALIA CIF, 1997-2005

Year Quantity (kg) Value (Baht) Change in Quantity (%)

1997 46,379 5,152,203 -

1998 16,457 1,965,307 -64.52

1999 38,090 4,358,961 131.45

2000 16,137 4,426,489 -57.63

2001 42,794 9,069,277 165.19

2002 58,180 13,911,051 35.95

2003 44,584 6,283,011 -23.37

2004 105,915 16,337,657 137.56

2005 233,357 29,839,972 120.03

Average 66,877 10,149,325 55.58

Source: Department of Trade Negotiations, Ministry of Commerce, Thailand.

26

TABLE 2.13

THAI IMPORT QUANTITY OF “FROZEN MEAT OF BOVINE ANIMALS”

(HS 0202) BY COUNTRY (KG), 1999-2005

1999 2000 2001 2002 2003 2004 2005 Country Quantity % Quantity % Quantity % Quantity % Quantity % Quantity % Quantity % (kg) (kg) (kg) (kg) (kg) (kg) (kg) Australia 945,076 65.12 930,984 63.61 627,884 59.91 790,777 63.31 686,375 57.85 1,058,089 73.90 889,737 71.68U.S.A. 456161 31.43 243797 16.66 250092 23.86 293,977 23.54 271440 22.88 14111 0.99 0 0 France 22 0.00 0 0.00 0 0.00 0 0.00 0 0.00 0 0.00 0 0 Argentina 0 0.00 0 0.00 0 0.00 0 0.00 229 0.02 37184 2.60 87,818 7.08 India 0 0.00 50474 3.45 10000 0.95 0 0.00 0 0.00 0 0.00 0 0 New Zealands 48144 3.32 156808 10.71 105319 10.05 164,282 13.15 211097 17.79 321607 22.46 245,828 19.81Japan 1985 0.14 19625 1.34 16771 1.60 0 0.00 17280 1.46 0 0.00 16,440 1.32 Malaysia 0 0.00 62000 4.24 36000 3.43 0 0.00 0 0.00 790 0.06 60 0 Namibia 0 0.00 0 0.00 2018 0.19 0 0.00 0 0.00 0 0.00 0 0 Norway 0 0.00 0 0.00 0 0.00 0 0.00 0 0.00 0 0.00 1,314 0.11 Chile 0 0.00 0 0.00 0 0.00 0 0.00 0 0.00 0 0.00 23 0 1451388 100 1463688 100 1048084 100 1249036 100 1186421 100 1431781 0 World/Total 945,076 65.12 930,984 63.61 627,884 59.91 790,777 63.31 686,375 57.85 1,058,089 73.90 1,241,197 100 Source: Department of Trade Negotiations, Ministry of Commerce

27

Australia, New Zealand and Argentina are the main exporters of frozen beef

to Thailand. Between them, they control approximately 97 per cent of the total

imports market. In 2005, the biggest exporter of frozen beef was Australia while New

Zealand is the second largest suppliers of this item. From Table 2.13, we notice that

most Thai imports of frozen beef came from Australia. The proportions of this item

take more than 66 per cent of total import in 2005.

Table 2.14 show that Thailand imports quantity of frozen beef (HS0202)

from Australia was decreasing during the year 1999-2005. However, Thai imports

quantity of frozen beef from Australia in 2005 decreased 15 per cent from the

previous year, to total 889,737 kg increased 71 per cent of Thailand’s total frozen beef

imports. Meanwhile, the average annual import quantity of frozen beef from Australia

is about 896,602 kg or values at around 77.5 million Baht with the average change

4.32 per cent. We can conclude that Australia is the main exporter to Thailand of both

fresh or chilled and frozen beef for Thailand with the average values of import 7.6 and

77.5 million Baht. With these statistics, we realize how importance of trade between

Thailand and Australia in beef cattle industry.

TABLE 2.14

THAI IMPORT VALUE AND QUANTITY OF “MEAT OF BOVINES ANIMALS,

FROZEN” (HS 0202) FROM AUSTRALIA CIF, 1997-2005

Year Quantity (Kg.) Value (Baht) Change in Quantity

(%)

1997 882,804 56,366,926 -

1998 1,257,694 104,552,037 42.47

1999 945,076 74,212,440 -24.86

2000 930,984 73,697,178 -1.49

2001 627,884 56,375,987 -32.56

2002 790,777 73,650,368 25.94

2003 686,375 64,933,232 -13.20

2004 1,058,089 92,764,323 54.16

2005 889,737 100,669,928 -15.91

Average 896,602 77,469,158 4.32

Source: Department of Trade Negotiations, Ministry of Commerce

28

2.2.2 Thai Import of Dairy Products from Australia

The remainder of local milk is mainly sold to processors supplying the

commercial ready-to-drink (RTD) market, comprising all milk (ambient and chilled),

yoghurt and yoghurt products. In the process of making yoghurts and other cultured

dairy products, however, raw milk is rarely used because the prevalence of high levels

of antibiotics in Thai raw milk hampers the fermentation process. Other product

outlets using milk compounds like dry milk products, infant food, ice cream,

confectionery, bakery and other processed foods are mainly supplied through imports

of dairy ingredients.

In addition, the government's school milk programme1 together with greater

concern about health and nutrition has stimulated domestic consumption of milk

products. The average milk consumption rises from 9 liter per person per year in 1997

to 12 liter per person in 2005.

To support the government's school milk programme, Thai milk producers;

who win the bidding for producing milk dispensing to 31,000 schools over the

country from the government; import more dry milk products and whey from the

foreign country which cheaper than The domestic raw milk. And because the

producers have to bid at the lowest price to be the concessionaire, many producers

have to import more dry milk products and whey to reduce their cost of producing

RTD milk for the project.

For milk and cream, New Zealand, Australia, United Kingdom and Czech

Republic are the main exporters to Thailand. In 2002, the biggest exporter of milk and

cream (HS0402) was Australia while New Zealand is the second biggest exporter of

this item.

1 The establishment of the National Milk Drinking Campaign Board (NMDCB) by the

Cabinet decision in 1985 stems from the farmers protests of 1984 on unsold milk. A pilot programme

was implemented in selected areas of Bangkok and Chiangmai for parents to purchase milk at 25% less

the normal priced milk through monthly coupons for their children in Primary and Kindergarten

schools. This programme was the origin of the national School Milk Programme of Thailand. Over the

years, the programme was later expanded and today all school children in public schools are provided

with 200ml of free milk.

29

After the implementation of TAFTA, the current statistics shows that

Thailand import of milk and cream from Australia in 2005 was significantly increase

18 per cent from the previous year and takes around 54 per cent of total market share

for milk and cream.

30

TABLE 2.15

THAI IMPORT QUANTITY OF “MILK AND CREAM, CONCENTRATED OR CONTAINING ADDED OR OTHER

SWEETENING MATTER” (HS 04.02) BY COUNTRY

1999 2000 2001 2002 2003 2004 2005 Country Quantity % Quantity % Quantity % Quantity % Quantity % Quantity % Quantity % (Kg.) (Kg.) (Kg.) (Kg.) (Kg.) (Kg.) (Kg.) Australia 59,316,478 51.54 56,937,637 49.47 57,605,849 50.05 67,927,051 59.02 55,001,399 47.79 53,420,132 46.41 63,096,835 54.82 New Zealands 24,140,229 20.97 26,041,329 22.63 30,380,383 26.40 34,471,269 29.95 38,005,058 33.02 38,504,131 33.45 38,476,520 33.43 Ireland 3,328,757 2.89 5,627,925 4.89 9,706,026 8.43 11,279,536 9.80 0 0.00 0 0.00 0 0.00 Netherlands 5,891,144 5.12 6,964,371 6.05 5,185,267 4.51 5,261,469 4.57 7,320,342 6.36 6,166,841 5.36 7,820,746 6.80 U.S.A. 3,492,849 3.03 1,286,104 1.12 2,781,749 2.42 5,156,704 4.48 4,863,872 4.23 5,264,655 4.57 7,298,232 6.34 Switzerland 0 0.00 0 0.00 3,357,002 0.03 1,815,000 0.02 2,454,220 0.02 0 0.00 1,448,139 0.01 Czech Republic 5,763,200 5.01 6,678,000 5.80 0 0.00 0 0.00 12,134,029 10.54 8,572,040 7.45 8,895,819 7.73 Poland 1,150,000 1.00 555,010 0.48 4,361,002 3.79 4,170,700 3.62 0 0.00 0 0.00 0 0.00 United Kingdom 5,367,822 4.66 6,675,216 5.80 5,439,052 4.73 5,546,240 4.82 6,736,457 5.85 9,952,774 8.65 4,301,018 3.74 Denmark 0 0.00 0 0.00 0.00 0 0.00 390,752 0.00 1,040,909 0.01 2,625,013 0.02 Cannada 1,100,000 0.96 650,000 0.56 100,002 0.09 3,200,001 2.78 0 0.00 0 0.00 0 0.00 Germany 5,543,324 4.82 7,101,631 6.17 2,552,426 2.22 2,406,087 2.09 0 0.00 0 0.00 0 0.00 Indonesia 0 0 0 0 0 0 0 0 20 2E-07 10 9E-08 1,966,249 0.0171 Sweden 0 0 0 0 0 0 0 0 6 5E-08 791,399 0.0069 1,535,650 0.0133 World/Total 115,093,803 100 118,517,223 100 121,468,758 100 141,234,057 100 126,906,155 100 123,712,891 100 137,464,221 100 Source: Department of Trade Negotiations, Ministry of Commerce

Table 2.16 shows that Thai import of milk and cream (HS0402) from

Australia has decreasing during 1999-2000 and 2003-2004. However, Thailand

import milk and cream from Australia 63.09 million kg in 2005 increased 18 per cent

from the previous year, with these imports valued at around 5.6 million Baht.

TABLE 2.16

THAI IMPORT VALUE AND QUANTITY OF “MILK AND CREAM,

CONCENTRATED OR CONTAINING ADDED SUGAR OR OTHER

SWEETENING MATTER” (HS 04.02) FROM AUSTRALIA

Year

Quantity (1,000 Kg.)

Value (Million Baht)

Change in Quantity (%)

1997 59,324 4,314.7 -

1998 60,807 5,716.5 2.50

1999 59,316 4,532.6 -2.45

2000 56,937 4,405.4 -4.01

2001 57,605 5,717.3 1.17

2002 67,927 4,549.4 17.92

2003 55,001 3,916.7 -19.03

2004 53,420 4,266.0 -2.87

2005 63,096 5,641.5 18.11

Average 59,270 4,784.4 1.42


32

TABLE 2.17

THAI IMPORT QUANTITY OF “BUTTERMILK CURDLED MILK AND CREAM, YOGURT,

KEPHIR AND OTHER” (HS 04.03) BY COUNTRY

1999 2000 2001 2002 2003 2004 2005 Country Quantity % Quantity % Quantity % Quantity % Quantity % Quantity % Quantity %

(1,000 Kg.) (1,000 Kg.) (1,000 Kg.) (1,000 Kg.) (1,000 Kg.) (1,000 Kg.) (1,000 Kg.) Australia 563 13.69 1,624 21.71 1,373 11.58 3,133 29.71 2,203 17.95 2,313 15.35 1,544 11.72

New Zealand 1,318 32.06 1,221 16.32 4,232 35.68 5,326 50.51 6,168 50.26 7,991 53.03 5,409 41.07 Ireland 1,422 34.59 1,624 21.71 2,408 20.30 997 9.45 1,313 10.70 1,427 9.47 1,372 10.42

Netherlands 378 9.19 1,310 17.51 1,541 12.99 300 2.84 975 7.94 1,548 10.27 1,904 14.46 Spain 0 0 0 0 0 0 0 0 0 0 0 0 748 5.68

Belgium 0 0 0 0 0 0 0 0 100 0.81 609 4.04 1,200 9.11 United Kingdom 0 0 72 0.96 0 0 100 0.95 0 0 0 0 0 0

Japan 0 0 1 0.01 1 0.01 0 0 0 0 0 0 0 0 Denmark 72 1.75 321 4.29 525 4.43 280 2.66 467 3.81 73 0.48 478 3.63 Sweden 0 0 0 0 0 0 0 0 0 0 0 0 153 1.16 Cannada 0 0 0 0 0 0 0 0 0 0 0 0 362 2.75 Germany 350 8.51 522 6.98 1,100 9.27 200 1.90 0 0 0 0 0 0 France 0 0 102 1.36 378 3.19 185 1.75 652 5.31 479 3.18 0 0

Philippines 0 0 0 0 0 0 20 0.19 0 0 0 0 0 0

World/Total 4,111 100 7,480 100 11,860 100 10,545 100 12,272 100 15,070 100 13,170 100 Source: Department of Trade Negotiations, Ministry of Commerce

Buttermilk (HS0403) is one of major food ingredients which were not

available or not produced in adequate quality or volume within Thailand. From Table

2.17, we notice that New Zealand, Australia, Ireland and Netherlands are the

dominant suppliers for the Thai market. During 1997-2004, Australia is the second

biggest exporter of butter milk to Thailand with about 10 to 30 per cent of total

market share. However, buttermilk import from Australia has decreased 33 per cent

from the previous year to 1,544 thousand kg in 2005. Meanwhile, Netherlands

become the second largest exporter of buttermilk to Thailand instead of Australia in

this year.

TABLE2.18

THAI IMPORT VALUE AND QUANTITY OF “BUTTERMILK

CURDLED MILK AND CREAM, YOGURT, KEPHIR

AND OTHER” (HS 04.03) FROM AUSTRALIA

Year Quantity

(1,000 Kg.) Value

(Million Baht) Change in Quantity

(%)

1997 117 5.2 -

1998 432 28.8 269.23

1999 563 34.3 30.32

2000 1,624 112.6 188.45

2001 1,373 122.9 -15.46

2002 3,133 152.5 128.19

2003 2,203 125.5 -29.68

2004 2,313 157.8 4.99

2005 1,544 123.3 -33.25

Average 1478 95.87778 67.85


34

TABLE 2.19

THAI IMPORT QUANTITY OF “WHEY, WHETHER OR NOT CONCENTRATED

OR CONTAINING ADDED SUGAR” (HS 04.04) BY COUNTRY

1999 2000 2001 2002 2003 2004 2005

Country Quantity

(1000 kg.) % Quantity






(1000 kg.) % Australia 1,552 6.62 900 2.67 1,388 3.64 1,254 3.02 2,847 5.94 5,942 12.41 10,425 21.86 France 2,556 10.90 4,336 12.87 11,160 29.27 11,871 28.61 12,483 26.03 13,043 27.23 11,167 23.42 U.S.A. 12,417 52.93 15,552 46.17 12,700 33.31 14,238 34.32 16,412 34.22 13,190 27.54 16,711 35.04 Germany 2,550 10.87 3,232 9.60 3,631 9.52 3,766 9.08 7,042 14.68 5,843 12.20 2,951 6.19 Netherlands 3,483 14.85 6,514 19.34 5,888 15.44 6,118 14.75 2,356 4.91 4,458 9.31 2,525 5.29 Poland 600 2.56 1,450 4.30 750 1.97 1,533 3.70 3,125 6.52 2,818 5.88 2,032 4.26 Argentina 0 0 0 0 554 1.45 302 0.73 0 0 0 0 0 0.00 Czech Republic 0 0 0 0 225 0.59 399 0.96 1,375 2.87 385 0.80 725 1.52 Finland 0 0 25 0.07 844 2.21 700 1.69 350 0.73 450 0.94 375 0.79 Ireland 0 0 0 0 0 0 0 0 0 0 0 0 275 0.58 New Zealand 0 0 0 0 0 0 0 0 313 0.65 10 0.02 504 1.06 United Kingdom 0 0 0 0 0 0 0 0 0 0 0 0 0 0.00 Belgium 0 0 0 0 0 0 0 0 0 0 0 0 0 0.00 Singapore 0 0 200 0.59 0 0 346 0.83 0 0 0 0 0 0.00 100.00World/Total 23,460 100 33,682 100 38,127 100 41,486 100 47,955 100 47,893 100 47,690 21.86 Source: Department of Trade Negotiations, Ministry of Commerce

35

We can conclude that Australia is the main exporter of butter milk and whey

to Thailand with the average quantity of annual import of 1,544 and 10,425 thousand

kg. With these current statistics, we notice how importance of trade between Thailand

and Australia in dairy cow industry. Further, we believe that Thailand-Australia FTA

would lead to a significant increase of imports of some dairy products to Thailand.

Moreover, Australia will receive higher significant market share.

TABLE2.20

THAI IMPORT VALUE AND QUANTITY OF “WHEY, WHETHER

OR NOT CONCENTRATED OR CONTAINING

ADDED SUGAR” (HS 04.04) FROM AUSTRALIA

Year Quantity

(1,000 Kg.) Value

(Million Baht) Change in Quantity

(%)

1997 1,393 29.3 -

1998 2,282 69 63.82

1999 1,552 48.2 -31.99

2000 900 24.5 -42.01

2001 1,388 62.1 54.22

2002 1,254 46.7 -9.65

2003 2,847 70.7 127.03

2004 5,942 135.4 108.71

2005 10,425 295.5 75.44

Average 3,109 86.8 43.20


36

2.3 The Structure of Australian Beef Cattle and Dairy Cow Industry

2.3.1 Australian Beef Cattle Industry

The beef cattle’s farming in Australia is one of the most competitive

agricultural sectors of Australia. Because beef cattle’s farming occurs in all states and

territories. Australian beef cattle are famous for their high weight-to-meat rate,

excellent quality of the meat, disease-free guarantee, and also the variety of choices to

suit each customer’s need. Farmers in Australia also have an advantage of the cheaper

production cost due to the faster growing cattle and the perfection of pedigree itself. Australian beef producers have also the high quality of packing service for delivery.

Beef cattle numbers fell by 5 per cent to 23.6 million head at 30 June 2003,

as the effects of widespread drought took hold in many states. The main fall in cattle

numbers occurred in Queensland (QLD) which dropped 7 per cent to 10.5 million

(representing a decrease of just over three-quarters of a million head). Similarly

significant falls were reported in New South Wales (NSW) down 3 per cent to 5.4

million, Western Australia (WA) down 8 per cent to 1.8 million and the Northern

Territory (NT) down 5 per cent to 1.7 million. Numbers were little changed in both

Victoria (VIC) and South Australia (SA) but were up in Tasmania (TAS), which was

reported to have brought in some drought-affected stock from the mainland.

In 2004, beef cattle numbers increased by 2.1 per cent to 24.4 million after

the badly drought-affected season in 2003. Increases in beef cattle numbers were

reported in Queensland (QLD) up 7 per cent to 11.2 million head, Western Australia

(WA) up 8 per cent to 2.0 million, Northern Territory (NT) up 3 per cent to 1.7

million and Tasmania (TAS) up 3 per cent to 496,000. These were partly offset by

falls in Victoria (VIC) down 4 per cent to 2.4 million and South Australia (SA) down

4 per cent to 1.2 million. New South Wales (NSW) remained steady at 5.4 million.

While Beef cattle numbers in 2005 increased by 2.6 per cent to 24.7 million from the

previous year. Increases in meat cattle numbers were reported in Queensland (up 2.3

per cent to 11.5 million head), Victoria (up 4.8 per cent to 2.5 million), Northern

Territory (up 1.5 per cent to 1.75 million) and Tasmania (up 7.6 per cent to 534,000).

37

These were partly offset by falls in Western Australia (down 3.4 per cent to

1.8 million) and South Australia (down 4.8 per cent to 1.1 million). New South Wales

remained steady at 5.4 million.

TABLE 2.21

BEEF CATTLE NUMBERS IN AUSTRALIA BY STATE

(1,000 HEADS), 1997-2005

Year NSW VIC QLD SA WA TAS NT ACT AUSTRALIA 1997 6,118 2,627 10,130 1,024 1,787 515 1,609 13 23,736 1998 5,922 2,306 10,562 1,051 1,848 510 1,566 10 23,776 1999 5,846 2,180 10,444 1,006 1,817 491 1,566 9 23,358 2000 5,531 2,371 11,503 995 2,059 411 1,570 10 24,448 2001 5,786 2,435 11,088 1,050 2,001 426 1,707 11 24,504 2002 5,593 2,463 11,284 1,201 1,980 432 1,777 10 24,739 2003 5,419 2,491 10,507 1,209 1,815 482 1,683 8 23,615 2004 5,416 2,390 11,245 1,164 1,962 496 1,730 8 24,411 2005 5,428 2,505 11,511 1,107 1,889 534 1,756 9 24,739

Average 5,704 2,408 10,845 1,088 1,909 470 1,651 10 24,073 Source: ABS, Principal Agricultural Commodities, Australia (7121.0); ABARE

TABLE 2.22

CHANGE IN NUMBER OF BEEF CATTLE IN AUSTRALIA, 1997-2005

Year

Number of beef Cattle (1,000 heads)

Change


1997 23,736 - - 1998 23,776 40 0.17 1999 23,358 -416 -1.76 2000 24,448 1,090 4.67 2001 24,504 56 0.23 2002 24,739 235 0.96 2003 23,615 -1,124 -4.54 2004 24,110 495 2.10 2005 24,739 629 2.60

Average 24,035.75 53.71 0.26

Source: Agricultural Commodities, Australia (7121.0); ABARE.

38

2.3.2 Australian Beef Production

Beef cattle production is the most common enterprise on Australian farms.

Properties running beef cattle can be found in almost all parts of Australia, except for

the arid central area of Western Australia. Production is generally more intensive in

the higher rainfall regions of the southern states. In northern Australia, the number of

hectares needed per animal is much higher.

Drought resulted in a significant cut to the size of the Australian cattle herd

and reduced farm incomes. As drought affected pasture and water availability for the

majority of Australian beef farms, leading to an increase in beef cattle turnoff and a

reduction in herd productivity. Widespread drought during 2002-2003 resulted in an

increase in cattle slaughter and a reduction of 4 per cent in the Australian cattle herd

(See Table 2.22). Consequently, Production of beef in 2004 decreased 2 per cent to

1,998,000 tonnes from the previous year.

TABLE 2.23

AUSTRALIAN BEEF PRODUCTION IN CARCASS WEIGHT

(1,000 TONNES), 1997-2005

Year

Beef Production (1000 tonnes)

Change (1000 tonnes)


1997 1,911 - - 1998 1,973 62 3.24 1999 1,952 -21 -1.06 2000 2,086 134 6.86 2001 1,996 -90 -4.31 2002 2,035 39 1.95 2003 1,998 -37 -1.82 2004 2,079 81 4.05

Average 2,017 24 1.27 Source: AusStats, Livestock Products, Australia (7215.0) and Australia Commodity.

As recovery from drought proceeded in 2004, beef producers’ efforts to

rebuild herds limited their beef production and farm incomes. Australian beef

production increased by 4 per cent to 2,079,000 tonnes in 2004, reflecting both

expectations of lower prices in 2005 and continuing dry conditions for the remainder

39

of 2005. Since beef producers are expected to increase the number of cattle

slaughtered in anticipation of dry conditions and to take advantage of current high

beef prices.

2.3.3 Australian Beef Price

Australian beef prices have shown an upward trend in Canberra between

1997 and 2004, with much of this price rise occurring in the last eight years. At

December 2004, Canberra's average retail prices for both Rump steak ($17.18 per kg),

and roast beef ($11.84 per kg), were the highest for any capital city. Canberra

recorded the highest average retail price for any capital city for T-bone steak ($18.63

per kg).

TABLE 2.24

AVERAGE RETAIL PRICE OF BEEF AT DECEMBER QUARTER

Year

Roast Beef (AU$/kg)

Rump steak (AU$/kg)

T-bone steak, with fillet (AU$/kg)

Chuck steak (AU$/kg)

1997 7.31 11.23 10.49 5.52 1998 7.80 11.66 10.22 5.49 1999 8.41 12.46 11.68 6.69 2000 8.72 12.84 12.64 6.65 2001 11.58 16.00 16.54 9.19 2002 11.64 15.34 16.07 8.85 2003 11.71 17.15 19.08 9.73 2004 11.84 17.18 18.63 9.46 2005 12.77 17.88 20.38 9.77

Average 10.20 14.64 15.08 7.93 Source: ABS, Average Retail Prices of Selected Items, cat. No. 6403.0, Canberra

The average beef price in Canberra market was 14.85 Australian Dollar per

kg or approximately 430 Baht1 per kg as shown in Table 2.25 while the price of beef

(sirloin and tenderloin) in Bangkok market is around 90-190 Baht per kg.

Consequently, the average prices of beef for every item in Canberra market were 3-4

1 Converting by using web site “Currency Converter” on May 2006

< http://www.translatum.gr/converter/currency.htm>

40

times of prices of sirloin and tenderloin in Bangkok market since these Canberra

beef’s quality are much higher than beef in Bangkok market.

TABLE 2.25

AVERAGE RETAIL PRICE OF BEEF, CANBERRA MARKET, 1997-2005

Year AU$/Kg Change Percentage Change 1997 9.78 - - 1998 9.82 0.04 0.41 1999 10.11 0.29 2.93 2000 10.61 0.50 4.97 2001 12.26 1.65 15.57 2002 13.21 0.95 7.71 2003 13.67 0.47 3.54 2004 13.56 -0.12 -0.84 2005 14.85 1.29 9.54

Average 11.99 0.63 5.48

Source: ABS, Average Retail Prices of Selected Items, cat. No. 6403.0, Canberra

2.3.4 Major export markets for Australian beef and veal

Australia is the world’s largest exporter of beef and veal, with approximately

1.0 million tones of product being exported annually (Australia is expected to

continue as a major exporter of beef, with the largest trade volumes directed to the

Asia-Pacific region and the US market. Over 70 per cent of Australian exports are

bound for these two markets.

With almost two thirds of Australian beef production exported,

developments in key export markets will be important over both the short and

medium term. Since the discovery of BSE (bovine spongiform encephalopathy or

“mad cow” disease) in Canada and the United States in 2003, demand for Australian

beef has increased significantly in the United States and Japan. Assuming the removal

of embargoes on beef from both Canada and the United States by several key

importing nations, Australian beef exports are forecast to ease in 2005-06. This is

likely to be the case in Japan where demand for Australian beef is expected to fall

following an expected resumption of trade with the United States. The re-entry of

41

Canadian exports into the US market, traditionally Australia’s largest beef market,

coupled with strong competition from Uruguayan beef, and over the medium term

Argentinean and Brazilian beef, is expected to result in reduced Australian export

volumes to that country

a) Japan

Japan is the biggest export destination with approximately 279,300 tonnes of

beef was exported from Australia in 2003, with an export value of nearly $1.4 billion.

Following the exclusion of the United States from the Japanese market due to the

discovery of BSE in the United States in December 2003, Australian beef export

volumes increased by nearly 41 per cent to 393,500 tones in 2004, accounting for

around 90 per cent of total Japanese beef imports.

The discovery of BSE in the United States in December 2003, and the

subsequent bans on the import of US beef, resulted in significant increases in demand

for Australian beef in Japan. Over the same period, export prices for grass fed and

grain fed full sets increased by 20 per cent and 24 per cent respectively. In response to

strong demand for Australian beef in Japan, Australian lot feeders have placed more

cattle on feed. The exclusion of US beef from the Japanese market, which accounted

for around 45 per cent of total Japanese beef imports in 2003, resulted in a significant

increase in demand for Australian grain fed beef in Japan.

In 2004, the number of Australian cattle on feed destined for Japan increased

by around 27 per cent, to 1.63 million. Australian exports of grain fed beef, which

account for around 40 per cent of beef exports to Japan, increased by around 55 per

cent in the same year.

Beef demand in Japan has recovered reasonably strongly following the

discovery of BSE in the Japanese cattle herd on 10 September 2001. The initial

incidents of BSE resulted in a slump in domestic Japanese consumption of beef with

consumption falling by around 50 per cent after the first BSE case. However, the

more recent detected cases of BSE appear to have had little or no impact on demand.

This is because the Japanese government has gone to considerable lengths to

guarantee consumer safety with all slaughter cattle tested for BSE. With this more

stringent inspection regime, additional discoveries had been expected.

42

The recovery in domestic Japanese demand has also flowed into improved

demand for imported beef. Exports to Japan for 2003 were 18 per cent higher than

exports to Japan in 2002, but they were still 14 per cent below exports in 2000, the

year prior to the first BSE discoveries. This increase in imports led to the Japanese

“safeguard” tariff on imported product being invoked in August 2003 with the result

that the beef import tariff rose from 38.5 per cent to the WTO bound rate of 50 per

cent. For this to occur, cumulative quarterly imports had to have increased by more

than 17 per cent on the same period a year earlier.

The tariff increase applied from 1 August 2003 to the end of the Japanese

fiscal year on 31 March 2004. The safeguard measures can be applied separately to

chilled and frozen beef and on this occasion only chilled beef imports triggered the

safeguard measures, with imports of frozen beef coming in below the trigger level.

b) United States

The United States is the largest market in volume terms for Australian beef

with the majority of the trade being in frozen boneless beef for manufacturing. With

the downturn in beef demand in Japan, the United States also became the highest

value market for Australian beef in 2002. During the year, Australia exported 385,900

tones (shipped weight) of beef and veal to the United States (See Table 2.26), with

these exports valued at around $1.6 billion.

In 2003, Australian beef exports to the United States fell to 368,600 tones,

down 5 per cent from the previous year. With Australia recovering from the drought,

many producers would have been withholding cows from market to rebuild herds in

the latter part of the year, reducing beef supplies for export. There is likely to be some

disruption to the trade with the United States in the short term, however, with the

discovery of BSE in the US cattle herd in late December 2003.

With markets all over the world temporarily closed to US beef exports, US

demand for Australian beef imports is likely to fall as US beef previously destined for

export is diverted onto the US domestic market. However, Australian beef exports to

the United States fell to 345,400 tones in 2004, down 6.3 per cent from the previous

year.

43

c) Republic of Korea

Korea is the third largest export market for Australia beef – after Japan and

the United States. Exports to South Korea fell to 62,000 tonnes in 2003 (See Table

2.26). This was 23 per cent lower than the previous year. With reduced Australian

beef production constraining exports to all markets in 2003 and stronger demand from

Japan, product is likely to have been diverted to Japan as well as the Australian

domestic market. However, Australian beef exports to the Korea increased

significantly to 93,300 tones in 2004 due to the implementation of bans on imports of

US beef in that country

Australian export volumes in 2004 were nearly 50 per cent higher than in

2003, with record monthly exports of 13,500 tones in December 2004. With reduced

Korean domestic production in recent years, the volumes of beef imported has

increased significantly, to account for around two thirds of beef consumption.

However, with the assumed re-entry of US beef into the Korean market and increased

domestic production in 2005, Australian beef exports to Korea are forecast to decline

by around 6 per cent in 2005-06 to 79,000 tones. Over the medium term, Australia’s

export share of the Korean market is expected to decline as US beef imports increase

and economic growth moderates

d) Chinese Taipei

Chinese Taipei is Australia’s fourth largest beef export market and

accounted for 3 per cent of beef and veal exports in 2004. Australian exports to this

market fell by 15 per cent from to 31,100 tones exported in 2003, to around 26,500

tones in 2004. In April 2003, Australia formed an international beef alliance with the

United States, Canada and New Zealand to conduct a campaign aimed at increasing

beef consumption in Chinese Taipei

44

TABLE 2.26

AUSTRALIAN EXPORTS OF BEEF AND VEAL* BY DESTINATION

(SHIPPED WEIGHT, 1,000 TONNES), 1997-2004

1997 1998 1999 2000 2001 2002 2003 2004 Americas Canada 35 38.6 43.3 41.5 50.9 82.9 29 7.5 United States of America 220.9 285.2 291.1 352.3 397.7 385.9 368.6 347.2 Asia Chinese Taipei 35 33.7 34.7 28.6 29.1 34.4 31.1 25.5 Hong Kong, China 3.4 6.2 3.2 3.6 3.1 2.9 2.1 2.4 Indonesia 24.3 1.7 11.6 13.1 9.6 14.6 13 7.1 Japan 311.7 320.9 313.3 325.7 319.1 237 279.3 393.5 Korea, Republic of (South) 60.9 33.5 77.9 73.3 56.8 80.2 62.3 93.3 Malaysia and Singapore 12.7 11 10.6 9.4 8.8 11.3 10.2 6.9 Philippines 26.9 20.2 20.4 14.3 19.7 12.9 8.6 2.1 Thailand 0.9 1.1 1.0 0.8 0.6 0.8 0.6 1.2 Europe European Union 10.8 11 8.9 5.6 6.5 6.5 5.5 6.7 CIS 9.6 24.5 8.4 1.4 5.3 1.4 0.3 0.4 Eastern Europe 8.9 18.7 2.5 2.1 0.4 3 1.4 0.4 Middle East Kuwait 0.7 1.4 0.5 0.1 1.1 0.4 2.5 0.7 Saudi Arabia 1.1 2.6 1 0.5 5 2.3 1.8 0.7 United Arab Emirates (UAE) 0.9 1.6 0.6 0.9 2 1.7 1.2 1.2 Oceania New Zealand 1.8 1.8 1.6 3.1 1.4 6.8 3.5 2.3 Pacific Isles 3.1 3.1 2.1 2.3 2.5 2.7 2.1 1.7 Papua New Guinea 10.8 7 8.2 7.1 4.8 4.3 2.3 2.5 Total beef and veal 801.7 855.3 868 901.6 946.6 920.4 840.9 913.7 * Fresh, chilled or frozen, Source: Agriculture, Fisheries and Forestry - Australia, Red meat export statistics, Canberra.

45

2.3.5 Australian Dairy Cow Industry

The Australian dairy industry is a world-class producer of milk and dairy

products, using innovative technology through industry owned research and

development, and marketing programs. Dairy is one of Australia’s leading rural

industries in terms of adding value through further downstream processing. Much of

this processing occurs close to farming areas, thereby generating significant economic

activity and employment in country regions.

The number of milk cattle fell by 3 per cent to 3.0 million head at 30 June

2003. Most fall was in the number of cows in milk and dry since the number of other

milk cattle (which included bulls, heifers and calves) was little changed. The most

significant falls were reported in New South Wales (down 7 per cent to 398,000) and

Queensland (down 11 per cent to 233,000), as these states experienced the pressures

of the drought and ongoing effects of deregulation. Victoria had the majority of milk

cattle, with its herd of 1.9 million down 3 per cent from the previous year. While milk

cattle numbers at 30 June 2004 remained steady at 3 million heads. A small decrease

in milking cow numbers was offset by an increase in other milk cattle. The most

significant movements were reported in Queensland (up 10 per cent to 255,000), and

Tasmania (down 6 per cent to 189,000). Victoria had the majority of milk cattle, with

its herd steady at 1.8 million.

TABLE 2.27

DAIRY COW NUMBERS IN AUSTRALIA BY STATE

(1,000 HEADS), 1997-2005

Year NSW VIC QLD SA WA TAS AUSTRALIA 1997 393 1,784 292 157 122 211 2,958 1998 429 1,836 305 162 124 218 3,076 1999 445 1,945 304 177 114 233 3,220 2000 440 1,893 305 189 106 206 3,140 2001 428 1,971 288 192 126 210 3,217 2002 428 1,949 260 180 124 187 3,131 2003 398 1,896 233 191 130 200 3,049 2004 400 1,890 255 188 133 189 3,016 2005 405 1,897 223 159 118 187 2,988

Average 420 1,896 280 180 122 207 3,101 Source: ABS, Principal Agricultural Commodities, Australia; ABARE (cat. 7111.0)

46

TABLE 2.28

CHANGE IN NUMBER OF DAIRY COW IN AUSTRALIA

(1,000 HEADS), 1997-2005

Year

Number of dairy cow

Change


1997 2,958 - - 1998 3,076 118 3.99 1999 3,220 144 4.68 2000 3,140 -80 -2.48 2001 3,217 77 2.45 2002 3,131 -86 -2.67 2003 3,049 -82 -2.62 2004 3,016 -33 -1.08 2005 2,988 -28 -0.92

Average 3,101 8 0.32 Source: Agricultural Commodities, Australia (7121.0); ABARE.

In 2004, Victoria which is the majority of milk cattle state has 61 per cent of

the Australian dairy cow herd (1.8 million), most of it occurring in eastern Victoria.

New South Wales and Queensland together account for a further 13 per cent, followed

by Tasmania with about 5 per cent of the herd. Dairying requires relatively high

rainfall (or access to irrigation), and fertile soils which are capable of carrying high

numbers of cattle. In addition to good quality pastures and crops, cattle are fed

supplementary food, including grain, to maintain protein levels in milk.

2.3.6 Milk Production in Australia

Most dairy production in occurs in high rainfall coastal fringe areas where

climate and natural resources allow production to be based on year-round pasture

grazing. This enables efficient, low-cost milk production. With the exception of

several inland river schemes, pasture growth generally depends on natural rainfall.

Feedlot-based dairying is expanding, although it remains uncommon

Milk production is concentrated in the south-east of the country, with

Victoria accounting for 65 per cent of milk in 2004. Milk production has been

increasing rapidly since the introduction of better feed-management systems and

47

improved herd genetics. Herd genetics are increasingly reliant on North American

progeny, and the industry is seeking to exploit genetic potential to ensure a

sustainable broad gene base to maintain herd vigour.

Australian milk production reached 10,125,000 tonnes in the final year of

2004-05, an increase of 0.5 per cent on the previous year. This further decline on the

“drought year” reflects the slow nature of the recovery; it is particularly apparent in

livestock industries, where herds take time to recover.

TABLE 2.29

FINANCIAL YEAR BULK MILK PRODUCTION IN AUSTRALIA

(1,000 TONNES), 1997-2005

Year NSW VIC QLD SA WA TAS AUSTRALIA 1997-98 1,242 5,866 822 580 387 543 9,440 1998-99 1,286 6,414 827 646 403 603 10,179 1999-00 1,395 6,870 848 713 412 609 10,847 2000-01 1,326 6,784 760 699 388 590 10,546 2001-02 1,343 7,405 744 715 393 672 11,271 2002-03 1,301 6,584 719 733 399 585 10,326 2003-04 1,271 6,434 674 703 403 590 10,075 2004-05 1,218 6,613 619 679 396 600 10,125 Average 1,298 6,621 752 684 398 599 10,351

Note Financial year = July-June Source: Dairy Manufacturers, ABS and Dairy Australia

TABLE 2.30

CARLENDAR YEAR BULK MILK PRODUCTION IN AUSTRALIA

(1,000 tonnes), 1997-2004

Year NSW VIC QLD SA WA TAS AUSTRALIA 1997 1,233 820 557 556 5,802 366 9,334 1998 1,256 831 614 552 6,065 400 9,718 1999 1,337 834 676 627 6,743 405 10,622 2000 1,398 804 710 580 6,865 409 10,766 2001 1,300 745 703 631 6,952 380 10,711 2002 1,334 734 721 645 7,254 407 11,095 2003 1,290 704 717 567 6,246 406 9,930 2004 1,230 640 690 601 6465 395 10,021

Average 1,297 764 674 595 6,549 396 10,275 Source: Dairy Manufacturers, ABS and Dairy Australia

48

The cost of producing most of Australian dairy products can be introduced

by the average market milk price. We notice that the Australian average market milk

price in 2004 is about 27 Cents per liter or about 7.8 Baht per liter while the cost for

producing Thai raw milk accounted for 8.51 Baht per liter in Thailand. In 2005, the

average market milk price has a marking up at 11 per cent from the previous year to

31 Cents per liter or approximately about 8.46 Baht per liter.

TABLE 2.31

FINANCIAL YEAR AUSTRALIAN AVERAGE MARKET

MILK PRICES, 1997-2005

Year

Average market milk price (Cents/liter)

Change


1997-98 29.4 - - 1998-99 28.5 -0.03 -3.09 1999-00 26.2 -0.08 -7.93 2000-01 29.0 0.10 10.41 2001-02 33.0 0.14 13.88 2002-03 27.1 -0.18 -17.92 2003-04 27.9 0.03 2.96 2004-05 31.0 0.11 11.23 Average 29.08 0.01 1.06

Since deregulation of farm gate milk prices from July 2000, manufacturing and market milk prices are no longer reported separately Source: Agricultural Commodities, Australia (7501.0); ABARE.

TABLE 2.32

AUSTRALIAN AVERAGE RETAIL MILK PRICES IN SYDNEY, 1997-2005

Year

Average retail milk price (Cents/liter)

Change


1997 115.5 - - 1998 116 0.004 0.43 1999 123.75 0.067 6.68 2000 133 0.075 7.47 2001 138 0.038 3.76 2002 148.25 0.074 7.43 2003 155.75 0.051 5.06 2004 210.5 0.352 35.15 2005 284 0.349 34.92

Average 158.31 0.126 12.61 Source: Agricultural Commodities, Australia (7501.0); ABARE.

49

2.3.7 Major export markets for Australian dairy products

The Australian dairy industry is now firmly established as the world's third

largest dairy trader (behind New Zealand and the EU) accounts for 16 per cent of

world dairy product exports and is ranked third in terms of world dairy trade.

Nowadays, Australian dairy exports are valued at over AU$2 billion annually with

over 55 per cent of its milk production and more than 60 per cent of its manufactured

products.

Major dairy export markets for Australia include Japan, South Korea, China

(Hong Kong), Malaysia, Taiwan and Singapore. However, there are considerable

variations in the trade flows observed for individual products. Growing demand for

dairy products in these markets is bolstered by expanding incomes. These factors

combined with their proximity to Australia makes them attractive export destinations

for both smaller and larger producing companies.

Australia’s product mix is increasingly based on cheese and whole milk

powder production, and away from butter and skim milk powder lines. In 2004,

Australia exports of cheese, which account for more than 25 per cent of dairy

product’s export to the world while whole milk powder export for more than 10 per

cent of dairy product’s export to the world. Cheese exports are concentrated in Asia - Japan, South Korea, Taiwan, and

China (Hong Kong) with more than 60 per cent of the total export to the world. Japan

was the largest export markets for cheese, accounting for more than 46.4 per cent of

Australia cheese export in 2004 since Japan's appetite for pizzas and hamburgers has

pushed its cheese imports to a record high. In addition, Australian exporters sent

100,000 tones of cheese to Japan in 2004, out of total imports of 212,000 tonnes.

Whole milk powder exports are similarly concentrated in Asia - the

Philippines, Malaysia, Japan, and Singapore represents the largest markets for

Australian product.

50

TABLE 2.33

AUSTRALIAN EXPORTS OF DAIRY PRODUCTS BY DESTINATIONS

(1,000 TONNES), 1997-2004

1998 1999 2000 2001 2002 2003 2004 Cheese Japan 73.6 84.9 84.6 103.2 73.2 92.4 106.5 Philippines 6.6 5.4 5.5 5.2 4.9 3.7 5.0 Saudi Arabia 12.6 14.6 16.3 17.4 14.8 14.9 17.0 United Kingdom 5.7 6.8 9.8 4.3 4.3 5.0 5.1 United States 8.0 8.3 9.4 10.8 9.0 10.3 11.9 Other 68.7 99.7 93.2 77.1 101.9 85.7 81.9 Total 175.2 219.8 218.8 218.1 208.1 212.0 227.4 Butter and butterfat a Egypt 12.3 17.3 15.5 12.1 10.5 3.6 4.4 Malaysia 4.2 6.8 6.0 5.2 4.7 4.7 3.4 Philippines 4.8 5.8 4.0 2.4 2.1 1.0 1.1 Singapore 9.3 9.0 6.3 8.0 6.5 7.0 7.1 Thailand 9.4 12.4 8.9 9.8 7.7 6.5 5.5 Other 74.4 80.9 75.8 81.8 74.4 58.7 46.6 Total 117.2 136.8 120.3 123.1 111.2 83.3 69.4 Skim milk powder Japan 11.5 27.2 20.2 18.3 16.4 7.6 3.9 Malaysia 32.8 36.1 25.9 25.3 22.9 22.1 22.0 Philippines 57.4 47.0 51.1 41.4 29.8 24.2 17.7 Singapore 15.4 12.4 15.1 16.4 17.8 17.0 20.7 Thailand 27.0 24.4 18.2 21.8 14.9 7.9 8.3 Other 76.0 71.1 72.1 87.0 79.2 76.3 68.1 Total 220.1 218.2 202.6 210.2 180.9 155.0 140.7 Casein Japan 1.0 1.2 1.2 1.2 0.9 1.1 0.9 United States 9.1 9.6 5.8 6.5 4.8 3.9 3.5 Other 2.8 2.8 3.0 0.8 1.8 2.9 2.5 Total 12.9 13.6 10.0 8.5 7.6 7.8 6.9 Wholemilk powder Chinese Taipei 14.8 17.8 14.4 13.2 13.3 11.5 9.2 Malaysia 11.6 10.0 7.9 10.3 6.8 11.1 11.0 Singapore 5.9 6.4 9.6 9.8 12.3 8.8 10.6 Thailand 10.7 11.5 7.8 6.4 5.8 4.8 2.9 Other 83.3 107.7 127.8 125.6 103.5 80.6 71.0 Total 126.3 153.4 167.5 165.3 141.7 116.8 104.8

Source: ABS, International Trade, Australia, cat. no. 5465.0, Canberra.

51

2.4 Tariff and non-tariff Measures in TAFTA on Beef and Dairy Products

2.4.1 Tariff Measures in TAFTA on Beef and Dairy Products

The Thailand-Australia FTA will come into force on 1 January 2005. The

most significant feature of the free trade agreement is that it will lead to the

elimination of all of Thailand’s tariff and quota barriers on imports from Australia.

Thailand will reduce its tariff rate to zero per cent; approximately for 50 per

cents of all goods, and the remaining goods will be reduce to zero per cent within the

year 2010. Except some agricultural products and industrial products which are

sensitive such as meat, milk, whey, butter, cheese, entrails, sugar, honey, oranges,

grapes, potatoes, printing products and steel which the tariff will be cut down to zero

within the year 2015, 2020 or 2025.

For beef products, Thailand's current tariff have been initially cut from 51

per cent to 40 per cent and will be reduced by 2.6 per cent each year until their total

elimination in 2020. Similar arrangements apply for pork, where the current tariff is

32 per cent. For sheep meat, the tariff will be phased down from 33 per cent to zero

by 2010..

TABLE 2.34

TARIFF SCHEDULE FOR FRESH OR CHILLED BEEF AND FROZEN

BEEF FOR THAILAND

Heading Description Base rate Bound rate SSG (ton) 2005 2020 2005 2020

HS0201 Fresh or chilled beef 51 40 0 776 1,200 HS0202 frozen beef 51 40 0 776 1,200

Source: Department of foreign trade

For dairy products, Thailand immediately eliminate the current tariffs on fat

dried milk powder (HS040299) which is reduced from 30 per cent to 24 per cent in

2005 and will be reduced by 6 per cent each year until their total elimination in 2010.

52

The tariff rate for concentrated, not containing added sugar milk and cream

(HS0402211) is immediately eliminated from 5 per cent to zero per cent in 2005 as

well. Meanwhile, the tariff rate for buttermilk, curdled milk and cream, yogurt

(HS0403) is immediately cut in the year 2005 but will be cut from 18.2 per cent to 15

per cent in 2005 and will be reduced to zero per cent in 2015.

From the tariff schedule for milk and cream (HS0402), the tariff rate for

some dairy products in HS0402 categories did not immediately cut in the year 2005.

The tariff rate on whole milk powder (HS 0402219 and HS 040229) did not

immediately cut in the year 2005 but will be cut from 5 per cent to 3 per cent in 2008

and will be reduced to zero in 2009. Meanwhile, the tariff tare on non-containing

added sugar milk and cream (HS040291) will be cut from 30 per cent to 27 per cent in

2006 and will be reduced by 3 per cent each year until their total elimination in 2013.

TABLE 2.35

TARIFF SCHDULE FOR DAIRY PRODUCTS FOR THAILAND

Heading Description Base rate Bound rate SSG (ton)

- 2005 HS0402211 Non-fat dried milk powder 5 - 0 - -

2008 2009 2005 2020 HS0402219

- HS040229

Whole milk powder

5

3

0

9500

19,749.82

2006 2013

HS040291 Non-containing added sugar milk and cream 30 27 0 - -

2005 2010

HS040299 fat dried milk powder 20 24 0 - -

2008 2010

HS0403 Buttermilk, curdled milk and cream, yogurt 18.2 15 0 - -

2006 2020 2005 2020

HS0404 Whey 30 28 0 10 20.79

Source: Department of foreign trade

53

The tariff rate for some dairy products barriers will be phased out over an

agreed timeframe (2010, 2015 or 2020). The exception will be tariff rate quotas for

skim milk powder or non fat dried milk (SMP) and liquid milk and cream, which will

be eliminated in 2025.

Beef, milk, milk products and buttermilk sector will have around 10-20

years to undergo adjustment for import entry with zero per cent tariff rate as the final

goal. Nevertheless, if the import from Australia exceeds the specified quantity for

certain years, Thailand can impose the old tariff rate (51 per cent). Measure to

encounter the impact of TAFTA on dairy cow:

2.4.2 Non-tariff Measures in TAFTA on Beef and Dairy Products

The worries about massive import of Australian beef have been resolve since

the special safeguard (SSG) which applied to some sensitive agricultural product was

include fresh or chilled and frozen beef in the list.. When imports exceed the agreed

trigger volume during a calendar year, Thailand can activate the SSG by imposing the

old tariff rate (51 per cent) without the need to demonstrate injury to local industry.

For dairy products, the price of imported whey and powdered milk from

Australia will be as cheap as the domestic farm-gate milk price according to the tariffs

reduction in each year, many producers increased import of these products. Because

the quality of whey and powdered milk are just slightly lower than raw milk so they

can be substituted for the domestic raw milk. The producer of dairy products can mix

these whey and powdered milk with the domestic raw milk in producing their dairy

products or solely used the imported products so that they can get a greater profit.

However, Thai government has a special safeguard (SSG) which applied to

some sensitive agricultural products. Thai government can activate the SSG by

imposing the old tariff rate when the imports exceed the agreed trigger volume during

a calendar year without the need to demonstrate injury to local industry.

54

2.5 The Possible Effect of TAFTA on Thai Beef and Dairy Industries

2.5.1 The Possible Effect of TAFTA on Thai Beef Industries

Thailand and Australia already sign the agreement of free trade area

effective on 1 January, 2005. According to the proposed tariff reduction, the tariff rate

for fresh or chilled meat (HS 0201) and frozen meat (HS 0202) will cut from 51 per

cent to 40 per cent in 2005 and will be reduced by 2.6 per cent each year until their

total elimination in 2020.

In theory, a free trade agreement could result in a significant increase in

import of products that each country does not have comparative advantage in the

production. A reduction in the tariff rate for fresh or chilled meat (HS 0201) and

frozen meat (HS 0202) could result in a significant increase in import of these

products. Because the import prices of fresh or chilled meat (HS 0201) and frozen

meat (HS 0202) will be reduced, Thai importer can increase imports of these products

from Australia. So we can imply that there will be an increasing of import in fresh or

chilled beef and frozen beef.

FIGURE 2.1

COMPARISON OF IMPORT QUANTITY BETWEEN FRESH OR

CHILLED BEEF AND FROZEN BEEF

0100200300400500600700800900

1,000

1997 1998 1999 2000 2001 2002 2003 2004 2005

Year

1,00

0 K

.g.

HS0201 HS0202


55

Recently, Thai import of fresh or chilled beef from Australia increased by

120 per cent to 233,357 kg in the year 2005, with the import valued at around 29.8

million Baht. Whereas, Thai imports of frozen beef from Australia in 2005 has

decreased about 15 per cent from the previous year.

2.5.2 The Possible Effect of TAFTA on Thai Dairy Industries

The effects of TAFTA on dairy industries will have a significant impact on

both Australia and Thailand. In theory, a free trade agreement could result in a

significant increase in import of products that each country does not have comparative

advantage in the production. A reduction in the tariff rate for milk and cream

(HS0402), buttermilk (HS0403) and whey (HS0404) could result in a significant

increase in import of these products.

According to the proposed tariff reduction, Thailand immediately eliminate

the current tariffs on fat dried milk powder (HS040299), concentrated, not containing

added sugar milk and cream (HS0402211), buttermilk, curdled milk and cream,

yogurt (HS0403). Whereas, the tariff rate for some dairy products in HS0402

categories did not immediately cut in the year 2005.

Because the imported milk powder is an attractive input for recombining

into milk, furthermore, milk powders offer Thai processors advantage in terms of

price-competitive, quality and convenience. Thai processors often choose to

recombine imported ingredients in stead of using local raw milk as their basic

material.

After the implementation of TAFTA, the imported prices of milk and cream

(HS0402), buttermilk (HS0403) and whey (HS0404) will be reduced. However, the

tariff rate is reduced in only some categories, this may imply that there will be an

increasing of import in only some dairy products.

According to the current statistics, Thailand’s import quantity of milk and

cream (HS0402) whey (HS0404) from Australia in 2005 was increased 18 per cent

and 75 per cent respectively while Thailand’s import of buttermilk (HS0403) from

Australia was decreased 33 per cent from the previous year. Whereas, Thai import

quantity of “buttermilk” decreased 33 per cent in 2005 but the import quantity of

56

“milk and cream” and “whey” in the same year increased 18 per cent and 66 per cent

respectively with the import value of 4,784 and 281 million Baht.

FIGURE 2.2

IMPORT QUANTITY OF MILK AND CREAM

0

15,000

30,000

45,000

60,000

1997 1998 1999 2000 2001 2002 2003 2004 2005

Year

1,00

0 K

.g.

HS0402


FIGURE 2.3

COMPARISON OF IMPORT BETWEEN BUTTERMILK AND WHEY

$0

$1,500

$3,000

$4,500

$6,000

$7,500

$9,000

$10,500

1997 1998 1999 2000 2001 2002 2003 2004 2005

Year

1,00

0 K

.g.

HS0403 HS0404


57

2.6 Summary and conclusions

From the overview of the beef and dairy industry, the number of beef and

dairy cow in Thailand has increased in recent years at the same rate as the domestic

consumption of beef and dairy products. In addition, there are excess demands for

beef in Thailand so we still have to import beef from others country. Similar to beef,

imported dairy products, especially powdered milk is an attractive alternative for Thai

processors due to the cost-competitiveness, convenience and quality.

According to current statistics, regardless of the high level of smuggling of

beef across Thai borders, Australia is the main exporter of beef products and dairy

products to Thailand. Meanwhile, in terms of competition between Thai and

Australia, Australia also has an advantage with cheaper production costs due to the

faster growing cattle and good cattle feed.

In theory, a free trade agreement could result in such a significant increase in

the import of products that each country does not have comparative advantage in the

production. After the implementation of TAFTA, the tariff rate for fresh or chilled

beef (HS 0201) and frozen beef (HS 0202) are reduced. These could result in a

significant increase in the import of these products because the imported prices of

fresh or chilled beef (HS 0201) and frozen beef (HS 0202) will be reduced so that

Thai importers can increase imports of these products from Australia. Then we can

imply that they will effectively expand Thailand’s imports of fresh or chilled beef

(HS0201) and frozen beef (HS0202).

The tariff rate for milk and cream (HS 0402), buttermilk (HS0403) and whey

(HS 0404) are reduced according to the implementation of TAFTA. The import prices

of milk and cream (HS 0402), buttermilk (HS0403) and whey (HS 0404) will be

reduced leading the price of imported whey and milk powder from Australia will be

as cheap as the domestic farm-gate milk price; moreover, whey and milk powder offer

processors advantages in terms of price-competitiveness, quality and convenience.

Therefore, we can imply that there will be an effective expansion in Thailand’s

imports of fresh milk and cream (HS 0402), buttermilk (HS0403) and whey (HS

0404)

58

CHAPTER 3

REVIEW OF LITERATURE

Forming a free trade agreement implies significant and inter-related changes

between countries. Opening to markets implies the creation of trade for countries

participating in the FTA. But it can also mean diverting trade from other (and

potentially lower cost) countries. Furthermore, there will be adjustment costs as a

result of changes to resource allocation that flow from the FTA, which is the flip–side

of the gains.

In case of Thailand, the effects of FTAs on Thailand have been

documented in many studies. Generally, the net effect of an FTA on all sectors are

investigated by using the APG–Cubed general equilibrium model, for instance, the

studies of Centre for International Economics1 (2004) and the Department of foreign

Affairs and Trade2 (2002). Meanwhile, the study of the effects of an TAFTA on

some specific sectors are studies by using the partial equilibrium analysis of import

demand by Sirima (2004).

This chapter consists of three sections. The first section review s the free

trade theory. The second section reviews the empirical study. The third section

presents the summary and conclusion of this chapter.

3.1 Review of Free Trade Area Theory

This chapter reviews the free trade theory, according to Salvatore (2004), we

analyze the effects of a tariff on production, consumption, trade and welfare in the

country imposing tariff and on its trade partner(s) by using a partial equilibrium frame

work.

1 Centre for International Economics (2004). “The Australia-Thailand Free Trade

Agreement: economics effects.” Report, March 2004. 2 Australian Government, Department of Foreign Affairs and Trade. “Australia-Thailand

Free Trade Agreement Joint Scoping Study.”

59

3.1.1 Partial Equilibrium Effects of a Tariff

The partial equilibrium analysis of a tariff is most appropriate when a small

country impose a tariff on imports competing with the output of a small domestic

industry. Then the tariff will affect neither world prices nor the rest of the economy.

The partial equilibrium effects of a tariff can be analyzed with Figure 3.1,

assuming Country A is a small country

where

DX is the demand curve of commodity X in Country A

SX is the supply curve of commodity X in Country. A

SF is the infinity elastic free trade foreign supply curve of commodity X to

Country A.

SF +T is the new tariff-inclusive foreign supply curve of commodity X to

Country A.

FIGURE 3.1

PARTIAL EQUILIBRIUM EFFECTS OF A TARIFF

At the world price of PX=$1, the equilibrium for the free trade is the

inertersection of DX and SF at point B. The domestic consumptions of Country A

equal to AB while the domestic productions equal to AC and the imports of

commodity X equal to CB.

DX

PX ($)

B

H

ST

1

2

3

4

5

X

J G

A C

M N

E

SF

SF + T

60

When Country A now imposes a 100 per cent ad valorem tariff on the

imports of commodity X, the domestic price in Country A will rise to $2. The

domestic consumptions reduce from AB to GH, the domestic productions raise from

AC to GJ and the imports of commodity X reduce from CB to JH. At the world price

of PX=$2, the new equilibrium after an implementation of a tariff is the inertersection

of DX and SF +T at point H.

Note that the more elastic DX and SX are in Country A, the greater is the

trade effect of the and the smaller is the revenue effect of the tariff.

3.1.2 Effect of a Tariff on Consumer and Producer Surplus

Assuming Country A is a small country

where



The increase in the price of commodity X from PX = $1 to PX = $2 as a

result of the 100 per cent tariff that Country A imposes on the importation of

commodity X leads to a reduction in consumer surplus and an increase in producer

surplus. These are examined in Figure 3.1 as follows.

FIGURE 3.2

EFFECT OF A TARIFF ON CONSUMER AND PRODUCER SURPLUS

1

2

3

4

5

E

H

B N Z

K LA

G

R

DX

PX ($)

X O

X

PX ($)

1

2

3

4

5 SX

G

A C V

J

U

I

61

The left panel of Figure 3.2 shows that consumer surplus reduce from

ARB to GRH as a result of 100 per cent tariff implementation. In the right panel of

Figure 3.2, the producer surplus increase to AGJC. This increase producer surplus

resulting from the tariff is sometimes referred to as the subsidy effect of the tariff.

3.1.3 Costs and Benefits of a tariff

The concept and measure of consumer and producer surplus can now be

used to measure the costs and benefits of the tariff. These are shown in Figure 3.3,

which summarizes and extends the information provided by Figure 3.1 and 3.2.

FIGURE 3.3

PARTIAL EQUILIBRIUM COSTS AND BENEFITS OF A TARIFF

Figure 3.3 shows that with a 100 per cent import tariff on commodity X, PX

rise from $1 to $2 in Country A. The consumer surplus reduce to AGHB = a + b + c

+d while the producer surplus reduce by CJM = b which represent the production cost

or deadweight loss to the economy and the government revenue is AGJC = c.

Therefore, the national welfare can be summarized in Table 3.1.

DX

PX ($)

B

H

ST

1

2

3

4

5

X

J G

A C M N

c d a b

E

62

TABLE 3.1

COSTS AND BENEFITS OF A TARIFF

Country A

Consumer Surplus + (a + b + c+d)

Producer Surplus a

Govt. Revenue c

Net Static Welfare - (b + d)

3.1.4 Trade Creation

In this section, we first explain the process of trade creation, and then we

illustrate the effects of a trade-creating customs union.

The static partial equilibrium effects of forming a customs union are

measured in terms of trade creation and trade diversion. Trade creation occurs when

some domestic production in a nation that is a member of the customs unions is

replaced by lower-cost imports from another member nation.

Assuming that all economic resources are fully employed before and after

formation of the customs union, this increases the welfare of member nations

because it leads to greater specialization in production based on comparative

advantage. A trade-creating customs union also increases the welfare of

nonmembers because some of the increase in its real income spills over into

increased imports from the rest of the world.

The effects of a trade-creating customs union are illustrated in Figure 3.4,

which is adapted from Figure 3.3. DX and SX in Figure 3.4 are Country A’s domestic

demand and supply curves of commodity X.

63

FIGURE 3.4

A TRADE-CREATING CUSTOMS UNION


where


SB is Country B’s perfectly elastic supply curve of commodity X to Country

A under free trade

SB + T is the tariff-inclusive supply curve.

Suppose that the free trade price of commodity X is PX = $1 in Country B

and PX = $1.5 in the rest of the world. Country B does not import commodity X

from Country C because the tariff-inclusive price of commodity X imported from

Country C would be PX = $3

If Country A initially imposes a nondiscriminatory ad valorem tariff of 100

per cent on all imports of commodity X, then Country A will import commodity X

from Country B at PX = $2 where the domestic consumptions of Country A is GH,

the domestic productions of GJ and the import of commodity X from Country B is

JH. Country A also collects MJHN in tariff revenues.

If Country A now forms a customs union with Country B by removing

tariffs on its imports from Country B only, PX = $1 in Country B. At this price, the

domestic consumptions of Country B equal to AB of commodity X, with the domestic

DX

PX ($)

SB

SB+T

SX

1

2

3

4

5

X

E

H

BNMC A

G J

Z WUV

64

consumptions AG and CB imported from Country B. In this case, Country A

collects no tariff revenue.

After the formation of the customs union, consumer surplus increase to

AGHB which this represents a net gain for Country A as a whole. While producer

surplus reduce AGJC represents a reduction in rent, or, while MJHN represents the

loss of tariff revenues. This leaves the sum of the area of triangles CJM and BHN as

the net static welfare gain for Country A.

Triangle CJM is the production component of the welfare gain from trade

creation and results from shifting the production of CM from less efficient domestic

producers in Country A to more efficient producers in Country B. BHN is the

consumption component of the welfare gain from trade creation and results from

the increase in consumption of NB in Country A, giving a benefit of ZWBH with

an expenditure of only ZWBN. Therefore, the national welfare can be summarized

in Table 3.2.

TABLE 3.2

WEFFARE EFFECTS OF FTA FORMATION TRADE CREATION CASE

Country A

Consumer Surplus AGHB

Producer Surplus -(AGJC)

Govt. Revenue -(MJHN)

Net Static Welfare CJM+BHN

65

3.1.5 Trade Diversion

In this section, we first explain the meaning of trade diversion, and then we

illustrate the effects of a trade-diverting customs union.

Trade diversion occurs when lower-cost imports from outside the

customs union are replaced by higher cost imports from a union member. This

results because of the preferential trade treatment given to member nations. Trade

diversion, by itself, reduces welfare because it shifts production from more efficient

producers inside the customs union to less efficient producers inside the union.

Thus, trade diversion worsens the international allocation of resources and shifts

production away from comparative advantage.

A trade-diverting customs union results in both trade creation and

trade diversion, and therefore can increase or reduce the welfare of union

members, depending on the relative strength of these two opposing forces. The

welfare of nonmembers can be expected to decline because their economic

resources can only be utilized less efficiently than before trade was diverted away

from them.

Thus, while a trade-creating customs union leads only to trade creation

and increases the welfare of members and nonmembers, a trade-diverting

customs union leads to both trade creation and trade diversion, and can increase or

reduce the welfare of members (and will reduce the welfare of the rest of

the world).

66

FIGURE 3.5

A TRADE-DIVERTING CUSTOMS UNION


where



SB and SC are the free trade perfectly elastic supply curves of

Country B and Country C, respectively.

SB + T is the tariff-inclusive supply curve. Country B does not import

commodity X from Country C

With a nondiscriminatory 100 per cent tariff on imports of

commodity X, Country A imports commodity X from Country B at PX =$2

with the domestic consumptions of Country A equal to GH, with the

domestic productions GJ and the imports of commodity X equal to JH

from country B. Country A also collects JMNH in tariff revenues.

If Country A now forms a customs union with Country C only,

Country A finds it cheaper to import commodity X from Country C at PX

=$1.50. At this price, the domestic consumptions of Country A equal to C'B,

the domestic productions equal to G'C' the imports of commodity X from Country C

equal to CB. In this case, Country A collects no tariff revenue. The imports

DX

PX ($)

SB

SC

SX

1

2

3

4

5

X

E

H

B’

H’ J’

C’ G’

G J

N M

SB +T

1

67

of commodity X into Country A have now been diverted from the more

efficient producers in Country B to the less efficient producers in Country C

because the tariff discriminates against imports from Country B.

The static welfare effects on Country A resulting from the formation of a

customs union with Country C can be measured from the areas shown in Figure

3.5. The sum of the areas of triangles C'JJ' and B'HH' is the welfare gain

resulting from pure trade creation, while the area of rectangle MNH'J' is the

welfare loss from diverting the initial JH of imports from lower cost Country

B to higher cost Country C.

Specifically, a gain in consumer surplus equal to G'GHB' resulting

from the formation of the customs union, G'GJC' represents a transfer from

producer to consumer surplus in Country A and therefore washes out. JMNH is

the tariff revenue collected by Country A before the formation of the customs

union with Country C with J'JHH' is transferred to consumers in Country A in

the form of the lower price of commodity X after the formation of the

customs union.

This leaves only triangles C'JJ' and B'HH' as the net gain to Country A

and rectangle MNH'J ' as the still unaccounted for loss of tariff revenue.

Therefore, the national welfare can be summarized in Table 3.1.

TABLE 3.3

WEFFARE EFFECTS OF FTA FORMATION TRADE DIVERSION CASE

Country A

Consumer Surplus G’GHB’

Producer Surplus -(G’GJC)

Govt. Revenue -(J’MNH’)

Net Static Welfare C’JJ’+B’HH’-MNH’J’

68

3.2 Empirical studies of the effects of Thailand – Australia FTA

3.2.1 General Equilibrium Analysis

Centre for International Economics (2004) assess the measurable economic

effects arising from a free trade agreement. The APG–Cubed general equilibrium

model3 is favored as it can capture both the direct and indirect (flow-on) effects of a

policy change as the economic relationships and linkages between various sectors of

the economy are taken into consideration.

The model is dynamic, thus allowing tariff reductions to be phased in over

time as specified under the Agreement and observation of the effects of the

Agreement over time. APG–Cubed also takes into account structural adjustment costs

that emerge from the reallocation of labor and capital between sectors when trade

barriers fall. Because the APG–Cubed model includes a specification of capital

markets and captures financial flows, it can provide detailed information about the

effects of trade liberalization on the macro economy.

The trade liberalization undertaken as a result of the Agreement entering into

force will deliver economic benefits to both Australian and Thailand. The gains to

Thailand are larger than for Australia due to Thailand having higher barriers to trade,

and, therefore, a less efficient economy, than Australia.

This study concludes that Thailand’s GDP is 0.16 per cent higher than would

otherwise be the case in 2005 and 0.45 per cent higher from 2020 onwards.

Consumption in Thailand is also higher under the Agreement, peaking at 0.85 per cent

above baseline in 2020. While Australian GDP could be 0.01 per cent higher than

what it might otherwise be, peaking at just under 0.03 per cent higher in 2010. The

rise in Australia’s real consumption is slightly greater, peaking at around 0.04 per cent

in 2012.

The gain to Thailand being around three times the gains for Australia. This

result is to be expected as Thailand currently has higher barriers to trade relative to

3 The APG-Cubed model is a fully dynamic model that integrates financial and goods

markets. The model is highly suitable for assessing macro-economic effects.

69

Australia and, therefore, has more to gain from trade liberalization. This result also

reflects the greater relative importance of bilateral trade to Thailand than to Australia.

However, the results from APG-Cubed model might be underestimated

because the model did not include the impact from the non-tariff measure in the

model, moreover, this study use the outdated trade data and the effects from FTA

which measure by using economic theory so that the effects might be only assumption

that correspond with the theory. In addition, the measurement focuses on the

advantage from the FTA to the consumers and the producers so that the estimations

will not be cover the entire system. Therefore, the results from the TAFTA were

insignificant because the measurement in this model used the same period of the tariff

reduction in every items.

Department of Foreign Affairs and Trade (2002) assess the benefits and

costs, including through economic modeling, of entering into negotiations to establish

a preferential, bilateral free trade agreement between the two Governments. Both

economies have agreed that the free trade agreement subject to study should be

consistent with, and supportive of, the multilateral trading system.

This study concludes that the increase in output and welfare for Thailand

under a free trade agreement is much bigger than for Australia under all scenarios.

Under “overnight” liberalization, the increase in Thailand’s GDP is US$25.2 billion,

while real consumption increases by US$14.3 billion in net present value terms.

Thailand’s GDP is more than 1 per cent bigger by 2005 and more than 0.9 per cent

higher some twenty years after the introduction of the free trade agreement. Real

consumption also rises by almost 1 per cent by 2005, with the increase peaking at

almost 1.5 per cent ten years after the introduction of the free trade agreement.

The difference in the impact of phasing for Australia and Thailand is

essentially due to the differences in levels of protection in the two economies. For

Thailand, the gain from liberalizing high protective barriers substantially outweighs

adjustment costs. In Australia’s case, the lower initial level of protection means that

there are smaller gains from liberalization and a smaller net gain over and above

adjustment costs.

For Australia, both output and welfare (measured by real consumption) rise

under the impact of a free trade agreement. Under the “overnight” liberalization

70

scenario, Australia’s GDP increases by US$6.6 billion and real consumption by

US$4.9 billion in net present value terms. In percentage terms, the increase in

Australia’s GDP as a result of the free trade agreement is modest, rising to 0.07 per

cent by 2006 and remaining at above that level in the following years. The increase in

real consumption is 0.07 per cent by 2005 increasing to more than 0.1 per cent from

2016.

The gains which accrue to Australia as a result of the free trade agreement

are not greatly affected by the phasing arrangements in place. In welfare terms,

Australia’s gains are maximized under “overnight” liberalization, but the differences

are relatively small. Australia’s gain in GDP is slightly larger under a simulation

where the free trade agreement is phased in over 3 years (for Australia) and eight

years (for Thailand), but the differences are again small. The slightly larger gains for

a longer phase-in period for Australia occur because of the adjustment costs which

arise during trade liberalization, which are modeled explicitly in APG-Cubed.

3.2.2 Partial Equilibrium Analysis

Sirima (2004) explores the effect the tariff reduction under Thailand-

Australia free trade on beef and dairy products by using partial equilibrium analysis,

an ordinary least square (OLS) estimator, to estimate the elasticities of import

demand during 1998-2003. The import of beef and dairy products were used in terms

of the Customs Tariff, which is based on the Harmonized Commodity Description and

Coding System (HS) such as HS0201, HS0202, and HS 0402 - HS0404. Import

demand equations in Sirima’s model depend on 2 factors that is the relative price

between the average import price from Australia and the average import price from

other countries and real GDP.

On the beef products side, the results suggest that the tariff reduction

under Thailand-Australia free trade will have a small effect on import quantities of

fresh or chilled and frozen meat as the estimated elasticity of import quantity of meat

with respect to the relative price is only -0.13 or when the import price of meat raises

1 percent then the import quantity of meat from Australia will decline 0.13 percent.

71

Sirima conclude that the result from the estimation is consistent with the

answers from the interview of Thai entrepreneur that is the main factors that might

strongly influence the import quantity are the quality of the meat, the reliability of the

production, main customers. While the worries about the massive import of meat from

Australia lessen since Thailand apply a special safeguard provision (SSG) on meat

which are also in the sensitive agricultural products lists and the meat import from

Australia is mainly for the demand for meat in the high quality market while the

structure of this market is much more small than the middle-low quality market which

rely on domestic production

On the dairy products side, Sirima conclude that the tariff reduction under

Thailand-Australia free trade will have a small effect on import quantities of milk and

cream, buttermilk and whey as the estimated elasticity of import quantity of milk and

cream and buttermilk with respect to the relative price are 0.66 and 0.98 respectively.

While the tariff reduction under Thailand-Australia free trade does not have a

significant impact on import quantities of buttermilk as the estimated elasticity of

import quantity of buttermilk with respect to the relative price is 1.45 and statistically

insignificant at the 0.10 level of significance.

72


In the review of literature, there are many studies that explore the impact of

free trade agreement by using general equilibrium analysis. CIE (2004) explore the

impact of Thailand-Australia free trade agreement and evaluate the effect of the

reduction and elimination of import tariff in 42 sectors. We can search for the effect

of tariff reduction in meat and dairy product. However, to study further in the impact

on beef dairy product we need to focus on import and export of expressed in terms of

the Customs Tariff which is based on the Harmonized Commodity Description and

Coding System (HS). That is we have to use partial equilibrium in an analysis.

In partial analysis, Sirima (2004) studies the impact of tariff reduction and

elimination on beef and dairy product in 4 and 6 digits Harmonize system by using

Ordinary Least Square estimation. In addition, Sirima’s study estimate the elasticity

of import quantity of beef with respect to relative price and conclude from the small

value of the elasticities that Australia import price have a minor impact to Australia

import quantity and the main factor which have a strong influence to import quantity

should be the quality of the beef, the reliability of the production, main customers.

This paper will explore in 4 digits Harmonize system code and use a

systematic approach instead of a single equation approach. This means that we

estimate the demand by using Zellner's Seemingly Unrelated Regression (SUR) models

that are asymptotically more efficient than equation-by-equation OLS estimates and

circumvents the bias and inconsistency problems. In addition, we use generalize least

square (GLS) to estimate the elasticity of import quantity of beef with respect to

import price.

73

CHAPTER 4

METHODOLOGY

This paper aims to estimate an effect of tariff reduction due to Thailand-

Australia free trade agreement (TAFTA) on Thailand import of beef and dairy

products from Australia by using the elasticity of import demand function, according

to Leamer and Stern (1970). This chapter consists of four sections. The first section

presents the import demand function. The second section presents the estimation

method. The third section presents the interpretation of the model. The fourth section

presents hypothesis and data description.

4.1 Import Demand Function

The quantity of import purchased by any consumer will depend on his/her

income (y), the price of import including tariff (PM), and the price of other

consumable commodities (PY).

( )mm y

m

VM= f P ,P ,yP

=

4.1.1 The individual’s optimal consumption for both goods

( )*d d m yQ Q P ,P ,y= (4-1)

( )*m m m yQ Q P ,P ,y= (4-2)

Assume homogeneous consumers

The aggregate import demand function could be implied from individual

import demand function, equation (4-1 and 4-2).

74

4.1.2 The Aggregate Import Demand Function ( )d d

m y dM M P ,P ,Y= (4-3) where

diM = The import demand quantity for ith commodity

iMP = The import price for ith commodity iYP = The other goods’ price ith commodity

Yd = The nominal income

Therefore, by the traditional approach, import demand depends on import

price, domestic price, and income.

4.1.3 The Effect of a Tariff Reduction

We assume that Thailand is a small country which means that the Thailand's

imports of beef and dairy products from Australia are a very small share of the world

market (See Table 2.11, 2.13, 2.15, 2.17 and 2.19). So that a reduction of the tariff

rate in Thailand will not affect prices on the world beef and dairy market. However,

the domestic price of importable commodity will fall by the full amount of a reduction

in the tariff for individual producers and consumers in Thailand.

Assuming that Thailand is a small country, the price effect of a tariff

reduction can be depicted from Figure 4.1.

where SAusX is Australia’s perfectly elastic supply curve of commodity X to

Thailand with tariff on imports of commodity X. SAusX +T is Australia’s tariff-inclusive perfectly elastic supply curve of

commodity X to Thailand under free trade. DThaiM is Thailand’s import demand curve of commodity X from Australia

If Thailand impose the tariff rate, T, on the imports of commodity X, the

domestic price in Thailand will be AusP T+ , the intersection of SAusX +T and D

ThaiM

defined equilibrium point E with tariff on imports of commodity X. Thailand will

import commodity X from Australia equal to 0X1.

75

If Thailand reduce he tariff rate, T, on the imports of commodity X, the

domestic price in Thailand will be Thai AusP P= , intersection of SAusX and D

ThaiM

defined equilibrium point F with tariff on imports of commodity X. Thailand will

import commodity X from Australia equal to 0X2.

FIGURE 4.1

THE PRICE EFFECT OF A TARIFF REDUCTION

This assumption implies that the export supply curve is horizontal at the

level of the world price. From the perspective of the small importing country, it takes

the world price as exogenous since it can have no effect upon it. From the exporters

perspective, it is willing to supply as much of the product as the importer wants at the

given world price.

When the tariff is placed on imports, two conditions must hold in the final

equilibrium; the same two conditions as in the large country case. Namely,

Thai AusP P=

( ) ( )S Aus D ThaiAus ThaiX P M P=

PAUS+T

MDTHAI

XSF

AUS

T

X2X1 X

P

PTHAI

XSF

AUS+T

F

E

0

76

However, now AusP remains at the free trade price. This implies that in a

small country case, the price of the import goods in the importing country will fall by

the amount of the tariff reduction. As seen in the adjoining diagram, the lower

domestic price increases import demand and export supply to X2.

4.2 The Estimation Method

Since many studies have been done to estimate the effects of the free trade

agreement by using a computable general equilibrium (CGE) model which assesses

the effects of FTA in all sectors and rely on the outdated trade data. In addition, the

results from using CGE to estimate the effects of the TAFTA might be insignificant

because the measurement in this model applied a reduction of the tariff rate in the

same period for all item in the same sector. Therefore, this thesis tries to estimate the

effects of TAFTA in some specific sector; beef and dairy products, by using the

partial equilibrium approach instead of CGE.

This paper intends to estimate economic effects arising from a FTA using an

applied partial equilibrium (model of trade by using the estimation of the demand-

supply Zellner's Seemingly Unrelated Regression (SUR) models that are asymptotically

more efficient than equation-by-equation OLS estimates and circumvents the bias and

inconsistency problems. The method of estimation is the generalized least square in the

log-linear form.

4.2.1 The Seemingly Unrelated Regression (SUR) models

Consider a system of M equations without any feedback mechanisms ordered

as

1 1 1 1

2 2 2 2

M M M M

y X 0 0y 0 X

0y 0 0 X

uu

u

ββ

β

⎡ ⎤ ⎡ ⎤ ⎡ ⎤ ⎡ ⎤⎢ ⎥ ⎢ ⎥ ⎢ ⎥ ⎢ ⎥⎢ ⎥ ⎢ ⎥ ⎢ ⎥ ⎢ ⎥= +⎢ ⎥ ⎢ ⎥ ⎢ ⎥ ⎢ ⎥⎢ ⎥ ⎢ ⎥ ⎢ ⎥ ⎢ ⎥⎢ ⎥ ⎢ ⎥ ⎢ ⎥ ⎢ ⎥⎣ ⎦ ⎣ ⎦ ⎣ ⎦ ⎣ ⎦

(4-4)

77

or simply as

i i i iy X uβ= + , i = 1,2,…,m (4-5)

The efficient estimator is generalized least squares. The model has a

particularly convenient form.

The error-covariance matrix is assumed to be of the form

[ ]11 12 1M

21 22 2MT T

M1 M2 MM

E U U I I

σ σ σσ σ σ

σ σ σ

⎡ ⎤⎢ ⎥⎢ ⎥′ = ⊗ = Σ⊗ = Ω⎢ ⎥⎢ ⎥⎢ ⎥⎣ ⎦

(4-6)

and 1 1TI− −Ω = Σ ⊗

where Σ is a symmetric m×m matrix

Above equation (4-6), it is also assumed that the error terms of each

equation have a zero mean.

The GLS estimator is given by

( ) ( ) ( )11-1 -1 -1 -1T T

ˆ X X X Y= X I X X I Yβ−− ⎡ ⎤′ ′ ′ ′= Ω Ω Σ ⊗ Σ ⊗⎣ ⎦ (4-7)

which is BLUE (Best Linear Unbiased Estimator).

Under one of the following two conditions, OLS applied to each equation is

equivalent with GLS (in the context of SUR)

1. If all ijσ =0 (for i≠ j) which implies that the Sigma matrix of (4-6) is diagonal

2. If the exogenous variables in all equations are the same ( 1 2 3 mX X X X= = = = )

78

4.2.2 Estimation of Ω parameters

The GLS estimator can be written in the form

i i

1n n

i i i2 2i=1 i=1

1 1ˆ x x x yβσ σ

−⎡ ⎤ ⎡ ⎤⎛ ⎞ ⎛ ⎞

′ ′= ⎢ ⎥ ⎢ ⎥⎜ ⎟ ⎜ ⎟⎜ ⎟ ⎜ ⎟⎢ ⎥ ⎢ ⎥⎝ ⎠ ⎝ ⎠⎣ ⎦ ⎣ ⎦∑ ∑

1. Regress each equation using the ordinary least squares (OLS) method 2. Compute the ordinary least squares residuals iu of each equation which have the same asymptotic properties as those computed using the true disturbances.

3. Uses iu to estimate Ω by using iu = ( )i i iY -X β

where iβ is iβ from OLS , although inefficient, but still consistent

4. Compute 2iσ from

( )( )i

i

i i i i i ii i2

i

ˆ ˆY -X Y -Xu us

n-k-1 n-k -1

β β′= =

and estimate 2iσ from

( ) ( )( ) ( )

i

i

i i i i i ii i21122

i j

ˆ ˆY -X Y -Xu us

n-k-1 n-k -1 n-k -1

β β′′= =

4.2.3 The General Form of Aggregate Import Demand Function in Matrix form

d

1 1 11d

2 2 22

dM M MM

X 0 0M0 XM

00 0 XM

uu

u

ββ

β

⎡ ⎤ ⎡ ⎤ ⎡ ⎤ ⎡ ⎤⎢ ⎥ ⎢ ⎥ ⎢ ⎥ ⎢ ⎥⎢ ⎥ ⎢ ⎥ ⎢ ⎥ ⎢ ⎥= +⎢ ⎥ ⎢ ⎥ ⎢ ⎥ ⎢ ⎥⎢ ⎥ ⎢ ⎥ ⎢ ⎥ ⎢ ⎥

⎢ ⎥ ⎢ ⎥ ⎢ ⎥⎢ ⎥ ⎣ ⎦ ⎣ ⎦ ⎣ ⎦⎣ ⎦

11 1 1M Y d12 2 2M Y d

1

1t t MM Y d

1 P P Y1 P P Y

X11 P P Y

⎡ ⎤⎢ ⎥⎢ ⎥=⎢ ⎥⎢ ⎥⎢ ⎥⎣ ⎦

,

21 1 1M Y d22 2 2M Y d

2

2t t MM Y d

1 P P Y1 P P Y

X11 P P Y

⎡ ⎤⎢ ⎥⎢ ⎥=⎢ ⎥⎢ ⎥⎢ ⎥⎣ ⎦

79

M1 1 1M Y dM2 2 2M Y d

M

Mt t MM Y d

1 P P Y1 P P Y

X11 P P Y

⎡ ⎤⎢ ⎥⎢ ⎥=⎢ ⎥⎢ ⎥⎢ ⎥⎣ ⎦

11

121

1M

bb

b

β

⎡ ⎤⎢ ⎥⎢ ⎥=⎢ ⎥⎢ ⎥⎢ ⎥⎣ ⎦

,

21

222

2M

bb

b

β

⎡ ⎤⎢ ⎥⎢ ⎥=⎢ ⎥⎢ ⎥⎢ ⎥⎣ ⎦

, …,

M1

M2M

MM

bb

b

β

⎡ ⎤⎢ ⎥⎢ ⎥=⎢ ⎥⎢ ⎥⎢ ⎥⎣ ⎦

11

121

1t

uu

u

u

⎡ ⎤⎢ ⎥⎢ ⎥=⎢ ⎥⎢ ⎥⎢ ⎥⎣ ⎦

,

21

222

2t

uu

u

u

⎡ ⎤⎢ ⎥⎢ ⎥=⎢ ⎥⎢ ⎥⎢ ⎥⎣ ⎦

, …,

M1

M2M

Mt

uu

u

u

⎡ ⎤⎢ ⎥⎢ ⎥=⎢ ⎥⎢ ⎥⎢ ⎥⎣ ⎦

4.2.4 The General Form of Aggregate Demand Function in Log-Linear Form

1 2 m 3 y 4 dln M= + lnP + lnP + lnY +α α α α ε (4-8)

Each estimated coefficient obtained from the GLS represents the elasticity of

import demand with respect to each exogenous parameter. However, our interest

focuses on the coefficient, 2α , the elasticity of import demand with respect to import

price.

In this paper, the author separates the system of equations into 2 groups.

First, the system of import demand for beef products (4-9 and 4-10). Second, the

system of import demand for dairy products (4-11, 4-12 and 4-13).

ln d1M = 1β + 2β ln( 1t

MP ) + 3β ln( 2tMP ) + 4β ln( 1t

YP ) + 5β ln (Ydt) (4-9)

ln d2M = 1β + 2β ln( 1t

MP ) + 3β ln( 2tMP ) + 4β ln( 1t

YP ) + 5β ln (Ydt) (4-10)

ln d3M = 1β + 2β ln( 3t

MP ) + 3β ln( 4tMP ) + 4β ln( 5t

MP ) + 5β ln( 2tYP ) + 6β ln (Ydt) (4-11)

ln d4M = 1β + 2β ln( 3t

MP ) + 3β ln( 4tMP ) + 4β ln( 5t

MP ) + 5β ln( 2tYP ) + 6β ln (Ydt) (4-12)

ln d5M = 1β + 2β ln( 3t

MP ) + 3β ln( 4tMP ) + 4β ln( 5t

MP ) + 5β ln( 2tYP ) + 6β ln (Ydt) (4-13)

80

Import Demand ( d1M - d

5M ) is represented by fresh or chilled beef, frozen

beef, milk and cream, buttermilk and whey import quantity.

Import Price ( 1MP - 5

MP ) is proxied by the unit value of fresh or chilled beef,

frozen beef, milk and cream, buttermilk and whey import price. This study uses the

unit value prices that include the tariff rate. However, under the assumption of small

country and perfectly competition market from trade liberalization, the price change

is the effect of tariff change. Under, given assumption, change in nominal price only

come from change in nominal tariff rate.

Price of other goods is proxied by the producer price index (PPI) of

meat products ( 1tYP ) and dairy products ( 2t

YP ), respectively.

Real Income (Yd) is represented by real GDP per capita.

Dummy variable (D) is used to represent subgroups of the sample in this

study.

4.2.5 Dummy variable

According to Gujarati (1995), many economic time series based on

monthly or quarterly data exhibit “structural change” (regular oscillatory

movement).

From the documentary research, we notice that there was some evidence of

irregularities to the import demand for some products. For instance, there might be

81

some structural change in the import demand after the financial crisis1 in 1998 and the

school milk crisis 2 in 1999. (See detail in section 5.1.2)

Generally, we could test a structural break at the first quarter of 1998 or

1999 by using Chow test3. However, the author decides to use another more

informative way of testing for structural change that is to use dummy variables to

create “new” split sample variables in the following way:

To investigate this, we proceed as follows:

1 2 m 3 y 4 d 5ln M= + lnP + lnP + lnY + D+α α α α α ε (4-14)

The coefficient of any particular dummy variable shows the difference

between being in that period and being in the period whose dummy variable is not in

the equation.

D = 1 for the suspected period

= 0 otherwise

This fits two regression lines for each equation with the same slope but

different intercepts. In other words, the coefficient 5α represents the constant

separation between the two regression lines:

1 According to the Bureau of Livestock Development and Technology Transfer, it reported

that the consumption of RTD milk decreased dramatically due to a decreased in the purchasing power

of consumers. 2 According to the Bureau of Livestock Development and Technology Transfer , it reported

that Thai farmers have to pour away about 198.5 tonnes of raw milk because the factories deny buying

raw milk during the closed–semester period. 3 Chow test is a particular test for structural change; an econometric test to determine

whether the coefficients in a regression model are the same in separate sub samples. In reference to a

paper of G.C. Chow (1960), "the standard F test for the equality of two sets of coefficients in linear

regression models" is called a Chow test. See derivation and explanation in Davidson and MacKinnon,

pp. 375-376. More info in Greene, 2nd edition, pp. 211-2.

82

4.3 The Interpretation of the Model

Let consider the following import demand function,

1 2 m 3 y 4 dln M= + lnP + lnP + lnYα α α α (4-15)

In this model, M is the import demand, Pm is the import price including

tariff, Py is the producer price index and Yd is real GDP per capita.

As we set other thing being equal,

d

2m

% M% P

α∆=

∆ (4-16)

d2 m% M % Pα∆ = × ∆ (4-17)

Since Pm is the import price including tariff, it can be rewritten as;

Pm = (1+t)Pcif (4-18)

where

Pcif = The C.I.F price of import goods

t = The tariff rate

Since both countries have a small sector of beef comparing with the rest of

the world. This study assumes that trade liberalization leads to a perfectly competitive

market. Therefore, Pcif of both countries are not affected by the changes in the tariff

level of both countries. And, changes in Pm between two periods can be calculated as

follows:

mP∆ = m1 m0P -P

= (1+t1)Pcif – (1+t0)Pcif

= (t1-t0)Pcif

= t.Pcif∆ ∆t = t1-t0

Then we divide it by m0P

m

m0

PP∆ = m1 m0

m0

P -PP

83

= m0

t.PcifP

∆

= 0

t.Pcif(1+t )Pcif∆

, Pm = (1+t)Pcif

= 0

t1+t∆

or, m% P∆ = 0

t1+t∆ x100 (4-19)

Substitute equation (4-13) into equation (4-11), we get

d% M∆ = 2α0

t1+t∆ x100 (4-20)

The equation (4-17) explains the percentage change in the import demand is

equivalent to the multiplication of the elasticity of the import demand ( 2α ) and the

proportion of tariff change, 0

t1+t∆ .

From equation (4-17) and (4-20), the changes in the import price are solely

depended on the changes in import tariff.

This logic is as same as the traditional approach, since the import price is

assumed to incorporate the ad valorem import tariff and world price before and after

tax is assumed to be constant. The effect of tariff changes will fully pass through

import price.

In conclusion, to quantify the effect of import demand change attributed to

the tariff changes, this study employs GLS regression of equation (4-8) in order to get

the elasticity of import demand ( 2α ).

Once 2α is obtained, the estimated import demand change measuring the effect of tariff change will be predicted by equation (4-8).

84

4.4 Hypothesis and data description

Import Price (PM)

According to law of demand, the unit value variable of both country

equations are expected to have negative sign of coefficient. If the import prices

increase, there will lead lower import quantity demand.

Price of other goods (PY)

This paper use producer price index (PPI) of meat and meat products and

dairy products as proxy of the price of other goods, the expected sign of these

coefficient is positive. That is, the higher domestic price of other goods will lead to

the higher of domestic price and import quantity due to lower relative price.

Real Income (Y)

The coefficient of real income is expected to have positive sign in both

countries. The higher income will lead to higher import quantity.

The GLS regression of equation (4-8) uses the quarterly data starting from

first quarter of 1996 to fourth quarter of 2005. The data descriptions are provided

below.

1. Thailand's import quantity from Australia came from Department of

Trade Negotiation, Thailand Ministry of Commerce. All of data are under 4 digits

harmonized code system. Monthly data are summed to quarterly data.

2. The unit values are computed from Thailand's import value from

Australia divided by their quantity. These values are used as import price proxies.

Thailand's import value and quantity are summed from monthly data, and hence unit

value is simply the ratio of quarterly import value divided by quarterly quantity.

3. Thailand's producer price index (PPI) of meat and dairy products is the

proxy of domestic price of other goods. The data come from Bureau of Trade and

Economic Indices, Ministry of commerce of Thailand.

4. GDP per capita is used for income variable. Quarterly data of GDP per

capita are obtained from Bank of Thailand.

85

CHAPTER 5

EMPIRICAL RESULTS

The purpose of this study is to estimate the percentage change in Thai import

demand of beef and dairy products after the implementation of TAFTA by using the

estimated price elasticity of the import demand for beef and dairy products from

Australia expressed in terms of the Customs Tariff based on the Harmonized

Commodity Description and Coding System (HS) which are in 4 digits.

The functional form chosen was double-log-linear. This form is generally

used in import demand estimation, for its ease of interpretation, as coefficients of the

log-liner equation are elasticities.

This chapter is divided into 3 sections. The first section begins with the

multicollinearity problem and structural change in the model and how to remedy the

problem. The second section presents the estimation results obtained from using the

SUR model and documentary research. The third section presents the summary and

conclusions of this chapter.

5.1 The Revising of the Model

This section intends to revise the estimated model from some problems that

cause the price elasticity to contradict the law of demand. According to the results

from the SUR model, the sign of the price elasticity of import demand of buttermilk

from Australia contradict to the law of demand. Then, we explore and the cause of

this problem and how to address it in the next following section.

5.1.1 Multicollinearity in the Model

In the system of import demand for dairy products, the following results

from the SUR estimation shows that all of the estimated price elasticities in the import

demand correspond with the law of demand except the price elasticity of Thailand’s

import demand of buttermilk ( 4tMP ) from Australia in equation (5-1) as follows.

86

ln( d4M ) = - 16.330 – 1.853ln( 3t

MP ) + 1.403ln( 4tMP ) + 0.2604ln( 5t

MP )

SD (8.781)*** (1.319) (1.004) (0.529)

+ 1.061( 2tYP ) + 2.675ln(Ydt)

(1.472) (1.081)**

R-squared = 0.104 Durbin-Watson stat = 1.857

Adjusted R-squared = -0.027 N = 40 (*) significant at the 1% level, (**) significant at the 5% level, and (***) significant at the 10% level

(5-1)

This results could imply that we have multicollinearlity1 in the model; one

way of finding out which X variable is related to other X variable is to regress each Xi

on the remaining X variables and compute the corresponding R2 . Each one of these

regressions is called an auxiliary regression. Therefore, the author decided to use the

auxiliary regression to detect the multicollinearlity in the model.

The auxiliary regression of regressing the unit value of milk and cream

imports ( 3tMP ) on the unit value of buttermilk imports ( 4t

MP ) is presented as follows:

ln( 3tMP ) = 1.797 + 0.619ln( 4t

MP )

SD (0.222)* (0.053)*


F-stat = 133.061 Critical F1,38 = 4.116 N = 40 (*) significant at the 1% level, (**) significant at the 5% level, and (***) significant at the 10% level

(5-2)

1 Multicollinearity arises because one or more of the regressors are exact or approximately

linear combination of the other regressors.

87

ln( 4tMP ) = - 1.335 + 1.255ln( 3t

MP )

SD (0.475)* (0.108)*


F-stat = 133.061 Critical F1,38 = 4.116 N = 40 (*) significant at the 1% level, (**) significant at the 5% level, and (***) significant at the 10% level

(5-3)

The F statistics exceeds the critical F at the 1 per cent significance level. It

means that there are linear correlations between the unit price of milk and cream ( 3tMP )

and the unit price of buttermilk ( 4tMP ). We will then have to consider whether the

particular Xi should be dropped from the model.

Generally, one of the “simplest” things to remedy the multicollinearity

problem is to drop one of the collinear variables. However, we may be committing a

specification bias or specification error in dropping a variable from the model.

The author decided to drop the unit price of milk and cream ( 3tMP ) in the

import demand equation of buttermilk and to drop the unit price of buttermilk ( 4tMP ) in

the import demand equation of milk and cream. Although we might commit a

specification bias or specification error, we have to drop some variables in some

equations in order to maintain the purpose of this study that is to estimate the price

elasticity of the import demand which we expect to have a negative sign

corresponding to the law of demand.

The results from dropping the unit price of milk and cream ( 3tMP ) in the

import demand equation of buttermilk and to drop the unit price of buttermilk ( 4tMP ) in

the import demand equation of milk and cream will be presented in equation (5-6) and

(5-7) in section (5.2).

88

5.1.2 The Use of Dummy Variable in the Model

In this study, according to section 4.2.5, we found that there was some

evidence of irregularities to the import demand for some products. For more

informative details, it will be illustrated by the following graphs (See Figure 5.1 - 5.5)

providing the pattern of the import quantity of each product.

The author decides to use dummy variables to test the structural changes in

the import demand for each product by assuming some suspected year (period) in the

following way:

D1 = 1 for the year 1998

= 0 otherwise


= 0 otherwise

D3 = 1 for the year 1998-1999

= 0 otherwise


= 0 otherwise

Note that we are assuming that the dummy variable has 4r classes, the

year 1998, the year 1999, the period 1998-1999 and the year 2002, thereby

requiring the use of dummy variables. Thus, if there is a structural change present in

various years, the estimated differential intercepts, 5α , from equation (4-14), if

statistically significant, will reflect it.

Note that we add one more dummy variable, D4, to create “new” split

sample variables in the testing in the import demand for fresh or chilled beef due to

the following graph.

89

FIGURE 5.1

IMPORT QUANTITY OF FRESH OR CHILLED BEEF (KG)

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

1996

/119

96/4

1997

/319

98/2

1999

/119

99/4

2000

/320

01/2

2002

/120

02/4

2003

/320

04/2

2005

/120

05/4

Import Quantity of fresh or chilled beef (kg)


The graph of Figure 5.1 shows that there might be some structural changes

in the import demand of fresh or chilled beef from Australia between 2002 and 2003

because the import quantity started to increase dramatically during that period.

One may notice that the pattern of import quantity in the graph changed to

be strictly positive after 2002 while the trend was quite steady in before 2002. (This is

a reason why we introduce D4 in the testing). Therefore, the author has added a

dummy variable in the import demand equation of fresh or chilled beef from Australia

(Equation 4-9).

After testing by regressing equation (4-14) with each dummy variable;D1,

D2, D3, and D4, the estimated equation for Thai import demand for fresh or chilled

beef (HS0201) from Australia shows that only the coefficient of the unit value and

differential intercept associated with 1998 (D1) are statistically significant at the 5 per

cent significance level. Thus, one may conclude that there was some structural

changes present in 1998.

Since 1998 seems to be different from the rest, if one wishes, one could

rerun (4-14) using just one dummy to distinguish the 1998 figures from the rest as

90

follows: This was done using a dummy variable which took the value 0 from the first

quarter of 1996 to the fourth quarter of 1997 and the first quarter of 1999 to the fourth

quarter of 2005 and the value 1 from the first quarter of 1998 to the fourth quarter of

1998.

FIGURE 5.2

IMPORT QUANTITY OF FROZEN BEEF (KG)

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

1996

/119

96/4

1997

/319

98/2

1999

/119

99/4

2000

/320

01/2

2002

/120

02/4

2003

/320

04/2

2005

/120

05/4

Import Quantity of frozen beef (kg)


Graphically, Figure 5.2 shows that there might be some boost to the import

demand of frozen beef from Australia in 1998 because the import quantity reached its

peak in that year. Therefore, the author adds the dummy variable in the import

demand equation of frozen beef from Australia (Equation 4-10).

Similarly to the previous product, we test each of dummy variable; D1, D2,

D3, and D4, in the equation of Thai import demand for frozen beef (HS0202) from

Australia by regressing (4-14). And the result shows that only the coefficients of the

unit value and differential intercept associated with 1998-1999 (D3) are statistically

significant at the 5 per cent significance level.

Since 1998-1999 seems to be different from the rest, if one wishes one

could rerun (4-14) using just one dummy to distinguish 1998-1999 from the rest as

follows: This was done using a dummy variable which took the value 0 from the first

quarter of 1996 to the fourth quarter of 1997 and the first quarter of 2000 to the fourth

91

quarter of 2005 and the value 1 from the first quarter of 1998 to the fourth quarter of

1999.

FIGURE 5.3

IMPORT QUANTITY OF MILK AND CREAM (1,000 KG)

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

1996

/119

96/4

1997

/319

98/2

1999

/119

99/4

2000

/320

01/2

2002

/120

02/4

2003

/320

04/2

2005

/120

05/4

Import Quantity of Milk and Cream (Thousand kg)


From Figure 5.3, the pattern of the import quantity of milk and cream was

quite steady. However, the test shows that the dummy variable which took the effect

in 1998 is statistically significant at the 5 per cent level. Moreover, the historical

statistic shows that 1998 is the only year that there is excess demand2 in RTD milk

(see Table 2.9, Chapter 2).

Although we do not have any information of the linkage between the excess

demand of RTD milk and the irregularities in the import demand for milk and cream

in 1998, such circumstance could imply that the excess demand has an influence on

the import quantity of milk and cream. Therefore, the author expects some impact to

the import demand for milk and cream from Australia in the year 1998. Therefore, the

2 Excess demand for RTS milk was about 20,539 tonnes of in 1998. This year is the only

year in the last decade that there is an excess demand for RDT milk. (see Table 2.9)

92

author decides to add the dummy variable in the import demand equation of milk and

cream beef from Australia (Equation 4-11).

This could imply that we have some irregularities in the year 1998 and the

dummy variable we suspected to reflect the structural changes in that year is D1.

However, we still test for the other dummy variables in the estimated equation for

Thai import demand of milk and cream (HS0402) from Australia. Subsequently, the

result shows that only the coefficient of the unit value and differential intercept

associated with 1998 (D1) are statistically significant at the 5 per cent significance

level. Thus, one may conclude that there were some structural changes in 1998.

As a result of such regularities, 1998 seems to be different from the rest; we

therefore rerun the equation (4-14) by using only D1 to distinguish 1998 from the rest

as follows. This was done using a dummy variable which took the value 0 from the

first quarter of 1996 to the fourth quarter of 1997 and the first quarter of 1999 to the

fourth quarter of 2005 and the value 1 from the first quarter of 1998 to the fourth

quarter of 1998.

FIGURE 5.4

IMPORT QUANTITY OF BUTTERMILK (THOUSAND KG)

0500

1,0001,5002,000

2,5003,0003,5004,000

1996/1

1996/4

1997/3

1998/2

1999/1

1999/4

2000/3

2001/2

2002/1

2002/4

2003/3

2004/2

2005/1

2005/4

Import Quantity of Buttermilk(Thousand kg)


The graph of Figure 5.4 shows that the import quantity started to increase

dramatically during 1999 – 2000. Perhaps there were some structural changes in the

93

import demand of buttermilk from Australia during that period. One may notice that

the pattern of the import quantity in the graph changed to be positive after 1999 while

the trend was quite steady in the period before 1999.

Therefore, the author has added the dummy variable in the import demand

equation of buttermilk from Australia (Equation 4-12). This was done using a dummy

variable which took the value 0 from the first quarter of 1996 to the fourth quarter of

1998 and the first quarter of 2000 to the fourth quarter of 2005 and the value 1 from

the first quarter of 1999 to the fourth quarter of 1999.

FIGURE 5.5

IMPORT QUANTITY OF WHEY

Import Quantity of Whey (Thousand kg)

0500

1,0001,5002,0002,5003,0003,500

1996

/119

96/4

1997

/319

98/2

1999

/119

99/4

2000

/320

01/2

2002

/120

02/4

2003

/320

04/2

2005

/120

05/4

Th

Import Quantity of Whey (Thousand kg)


From Figure 5.5, the pattern of the import quantity of milk and cream was

quite steady. We have no problem with the sign of any coefficient nor with the

significance level of price elasticity. Thus, we have no reason to put a dummy

variable in this model (Equation 4-13).

94

5.2 The Analysis of the Effects of a Free Trade Agreement on

Thai Beef and Dairy Products

5.2.1 The impact on Thai fresh or chilled beef (HS0201) import demand

The estimated equation of Thai import demand for fresh or chilled beef

(HS0201) by using equation (4-14) is presented as follows:

ln( d1M ) = - 32.386 - 0.502ln ( 1t

MP ) – 0.27ln( 2tMP ) + 1.480ln( 1t

YP )

SD (7.193)* (0.209)** (0.706) (1.242)

+ 3.863ln(Ydt) + 1.480(D1t)

(1.057)* (0.290)*


Adjusted R-squared = 0.690 N = 40 (*) significant at the 1% level, (**) significant at the 5% level, and (***) significant at the 10% level

(5-4)

The import demand of fresh or chilled beef ( d1M ) is expected to increase by

0.502 per cent responding to a 1 per cent decrease in unit value ( 1tMP ). In other words,

consistent to the law of demand, the tariff reduction leading to the dropping in import

prices implies higher import quantity of Thai import of fresh or chilled beef ( d1M )

from Australia. Having a value of –0.502, the demand for fresh or chilled beef is

inelastic, meaning that a price ( 1tMP ) change will cause even less change in the import

demand for fresh or chilled beef ( d1M ). This variable is statistically significant with a

1 per cent significance level.

Meanwhile, the import demand of fresh or chilled beef ( d1M ) is expected to

increase by 0.274 per cent responding to a 1 per cent decrease in the unit value of

frozen beef ( 1tMP ). In other words, if the unit value of frozen beef ( 2t

MP ) increases by 1

per cent, the import quantity of fresh or chilled beef ( d1M ) will decrease by 0.274 per

95

cent, on average. From this, it can be interpreted that if the import price of frozen beef

rises, the import quantity of fresh or chilled beef will decline the same as the import

quantity of frozen beef because fresh or chilled is a complimentary product for frozen

beef.

The coefficient of domestic price of other goods ( 1tYP ), proxy by producer

price index (PPI) for meat and meat products, has shown a positive relationship with

the import demand of fresh or chilled beef ( d1M ). From this, it can be interpreted that

if there is an increase in the price of any others goods, which typically induce a lower

consumption of other goods, import demand of fresh or chilled beef ( d1M ) will

increase. In other words, if producer price index for meat and meat products ( 1tYP )

increases by 1 per cent, the import quantity of fresh or chilled beef ( d1M ) will increase

by 1.480 per cent, on average.

The GDP per capita (Ydt), proxy of income, positively relates to import

demand. This variable is statistically significant at a rate of 1 per cent. The value of

the coefficient is 3.863 which means that if consumers incomes increase by 1 per cent

the import demand of fresh or chilled beef ( d1M ) will increase by 3.863 per cent on

average. We can imply from this that higher income will encourage consumers to

consume more fresh or chilled beef ( d1M ) and increase the share of this product

consumption.

Since the regression equation is specified in terms of log-linear form, the

coefficient can be interpreted as elasticity of quantity demand with respect to each

variable. The specification of import price elasticity has served for an important

advantage in the estimation of percentage change in import quantity from tariff

reduction.

Table 5.1 demonstrates the estimated effect of a percentage change in import

quantity due to a reduction in tariffs. The forecast on the change in import quantity is

therefore calculated by multiplying price elasticity with percentage reduction of tariff

as defined in (4-20). The import demand ( d1M ) is expected to increase by 0.502 per

cent responding to a 1 per cent decrease in tariff reduction as shown in equation (5-4).

From the estimation above, the estimated import quantity is a 3.656 per cent increase

96

from tariff reduction. However, the real import quantity of the first quarter of 2005 is

shown in the table below.

TABLE 5.1

ESTIMATED CHANGE OF THAI IMPORT QUANTITY OF FRESH OR

CHILLED BEEF (HS0201) UNDER TARIFF REDUCTION

Fresh or chilled beef (HS0201)

Initial rate before 2005 51%

Tariff rate in 2005 40%

Estimated price elasticity -0.502

%Change in Thai import quantity in 2005 3.656

TABLE 5.2

ACTUAL CHANGE IN THAI IMPORT OF FRESH OR

CHILLED BEEF (HS0201)

Import of fresh or chilled beef Quantity (Kg.) Value(Baht) Price (Unit value)

1st quarter 2004 21,711 3,536,178 162.875

2nd quarter 2004 19,836 3,257,241 164.209

3rd quarter 2004 24,795 3,529,836 142.361

4th quarter 2004 39,573 6,014,402 151.982

1st quarter 2005 60,491 7,245,466 119.778

2nd quarter 2005 51,560 6,922,690 134.265

3rd quarter 2005 55,869 8,126,008 145.448

4th quarter 2005 65,437 7,545,808 115.314

% Change in 1st quarter 178.619 104.895 -26.460

% Change in 2nd quarter 159.931 112.532 -18.235 % Change in 3rd quarter 125.320 130.209 2.165

% Change in 4th quarter 65.358 25.462 -24.127


By comparing Table 5.1 with Table 5.2, the estimated import quantity

change and the actual import quantity change move the same direction. We notice that

the estimated import quantity increases by 3.656 per cent responding to a 1 per cent

decrease in tariff reduction while the actual import quantity in the first quarter of 2005

97

increases by 178.619 per cent after the implementation of TAFTA compared to the

corresponding period of last year.

5.2.2 The impact on Thai frozen beef (HS0202) import demand

The estimated equation of Thai import demand for frozen beef (HS0202) by

using equation (4-14) is presented as follows:

ln( d2M ) = - 8.765 + 0.484ln( 1t

MP ) - 0.339ln( 2tMP ) + 2.266ln( 1t

YP )

SD (9.855)** (0.287)* (0.778) (1.357)**

+ 0.908ln(Ydt) + 0.827(D3t)

(1.237) (0.275)*



(5-5)

The above equation (5-5) is the estimated equation of Thai import demand

for frozen beef ( d2M ). The import demand is expected to increase by 0.339 per cent

responding to a 1 per cent decrease in the unit value ( 2tMP ). This variable is statistically

insignificant by normal standard of a 99 per cent confidence level. With a value of

-0.339, the price elasticity of import demand is inelastic, meaning that a price change

will cause even less change in the import demand for frozen beef. The relationship

between the unit value and the import quantity are consistent to the law of demand.

The tariff reduction leading to reducing in import price implies higher import quantity

of Thai import of frozen beef from Australia.

Meanwhile, the import demand for frozen beef ( d2M ) is expected to increase

by 0.484 per cent responding to a 1 per cent increase in the unit value of fresh or

chilled beef ( 1tMP ). In other words, if the unit value of fresh or chilled beef ( 1t

MP )

98

decreases by 1 per cent, the import quantity of frozen beef ( d2M ) will increase by

0.484 per cent, on average. It can be interpreted from this that import quantity of

frozen beef will fall if the import price of fresh or chilled beef falls because some

frozen beef consumers will switch from frozen beef to fresh or chilled beef. In other

words, fresh or chilled beef is a substitute for frozen beef. This variable is statistically

significant by normal standard of a 90 per cent confidence level.

The coefficient of domestic prices of other goods ( 1tYP ), proxy by producer

price index for meat and meat products, has shown a positive relationship with

import demand of frozen beef ( d2M ). It can be interpreted from this that if there is an

increase in the price of any others goods, which typically induce lower consumption

of other goods, import demand of other meat and meat products will increase. In

other words, if producer price index for meat and meat products increases by 1 per

cent, the import quantity of frozen beef ( d2M ) will increase by 2.266 per cent, on

average.


demand. The value of coefficient is 0.908 which means that if consumers’ incomes

increase by 1 per cent the import demand of frozen beef ( d2M ) will increase by 0.908

per cent on average. We can imply from this that higher incomes will encourage

consumers to consume more frozen beef (HS0202) and increase the share of this

product consumption. However, there is a high probability that this coefficient is equal

to zero the 5 per cent significance level.



variable. This specification of import price elasticity has served for an important

advantage in the estimation of percentage change in import quantity from tariff

reduction.

99

TABLE 5.3

ESTIMATED CHANGE OF THAI IMPORT QUANTITY OF FROZEN BEEF

(HS0202) UNDE TARIFF REDUCTION

Frozen beef (HS0202)

Initial rate before 2005 51%







as defined in (4-20).

TABLE 5.4

ACTUAL CHANGE IN THAI IMPORT OF FROZEN BEEF (HS0202)

Import of frozen beef Quantity (Kg.) Value (Baht) Price (Unit value)

1st quarter 2004 242,062 25,278,878 104.431

2nd quarter 2004 265,242 25,939,391 97.795

3rd quarter 2004 289,457 24,395,697 84.281

4th quarter 2004 261,328 29,478,957 112.804

1st quarter 2005 129,572 14,432,090 111.383

2nd quarter 2005 266,298 29,363,335 110.265

3rd quarter 2005 217,447 25,701,275 118.196

4th quarter 2005 276,420 31,173,228 112.775

% Change in 1st quarter -46.471 -42.908 6.656

% Change in 2nd quarter 0.398 13.199 12.750

% Change in 3rd quarter -24.878 5.352 40.240



The import demand for frozen beef ( d2M ) is expected to increase by 0.339

per cent responding to a 1 per cent decrease in tariff reduction as show in equation

100

(5-5). From the estimation above, the estimated import quantity is about a 2.469 per

cent increase from tariff reduction. However, the real import quantity of first quarter

of 2005 is showing in table above.

By comparing Table 5.3 and Table 5.4, the estimated import quantity change

and the actual import quantity change per unit change move in the same direction. We

notice that the estimated import quantity increased by 2.469 per cent responding to a 1

per cent decrease in tariff reduction while the actual import quantity in the first

quarter of 2005 decrease 46.471 after the implementation of TAFTA compared to the

corresponding period of last year.

A decrease in the import of frozen beef from Australia in 2005 can be

explained by 2 following reasons. First, the production of high-quality beef in

Thailand increased due to the promotion of new breeding and feeding process of beef

cattle and lifting the quality of beef manufacturing (a report by the Office of

Agricultural Economics, 2006)3.

Second, an increase in the smuggling of both high and low quality of chilled

and frozen beef from India and New Zealand through Thailand’s borders; Myanmar,

Laos and Cambodia, reduced the dependence of the import of high-quality frozen beef

from Australia (a report by Department of Agricultural Extension4 and from

newspaper, Prachachat business, April 13, 2005)5. Also the estimated models might

have others factors that have an influence on the import demand for example the

number of supermarkets, restaurants and five-star hotels or the number of tourists

which the quarterly data of these factors are not available.

3 Office of Agricultural Economics (2006). “Survey Report of Cattle Year 2005 and outlook

for 2006,” Ministry of agriculture and cooperatives, March 2006. 4 Department of Agricultural Extension. “Agricultural News” <http://www.doae.go.th/> 5 Prachachat Business (April 13, 2005). “Corruption in SPV and 1M cows project and Beef

smuggling from India.” <http://www.ftawatch.org/news/view.php?id=3288 >

101

5.2.3 The effects of TAFTA on Thai beef cattle farmers

In 2005, it was reported by the Provincial of Livestock that the beef cattle

population in Thailand has reached 7.7 million heads and almost 800,000 families in

rural area were involved in this farming activity. However, most Thai beef cattle

farming is small scale farming6 holding only a small number of beef cattle. According

to the Thai Provincial Livestock Office, Thai farmers possessed beef cattle at a rate of

only 9.5 heads per family in 2004. Meanwhile, Australian beef faming are large scale

farming7 holding a huge number of cattle and large-size farm area. Besides, Australia

is also famous in their high weight-to-meat rate, excellent quality of the meat, disease-

free guarantee, and also the variety of choices to suit each consumer’s need.

In terms of competitive strength, the total production costs of beef in

Thailand are largely determined by the cost of feed. Other costs are relatively low in

Thailand, especially labour. One problem applies to almost every individual beef

cattle farm across the country. Roughage8 is scarce and it quality is usually

inadequate. As a result farmers have to rely on the expensive concentrate feed in order

to keep the cow’s diet balanced.

As a result of the faster growing cattle and the perfection of feeding systems,

the production cost for Australian beef cattle are lower than Thai. According to

6 “Most of Thai beef cattle farming are either small scale farming or part time farming

holding only a small number of beef cattle and farm area. They are unorganized making them lack

bargaining power. Most Thai beef cattle farmers lack experience and are undereducated and are

inefficient in the breeding and feeding process. Their acknowledgements for new technology were also

slowly” said Mr. Sitiporn Buranut, The administrative Assistant of beef cattle association of Thailand

(Naewna, April 2005). 7 According to Australian Bureau of Statistics, the 2003–04 agricultural survey found that

the number of farms in Australia in the 12 months ending 30 June 2004 is about 131,000 farms. For the

size of the farm, most farms in 2003–04 agricultural survey were between 100 and 499 hectares in size,

and accounted for 42,400 farms. These farms were mainly engaged in beef cattle grazing, dairying

cattle grazing, and sheep grazing or mixed grain-sheep/beef cattle growing. 8 Cattle feed is divided in to 2 groups, concentrates and roughage. Concentrates is a feed

used with another to improve the nutritive balance of the total and intended to be further diluted and

mixed to produce a supplement or a complete feed such as bran, corn, millet, etc. While roughage feed

is cheap prevailing feed providing ungestible nutrient for cattle leafage, vetch, straw, bagasse

102

current statistics, Thailand has to import beef products from other countries to satisfy

the excess demand of beef which was outstripping the current production as shown in

Figure 5.1.

FIGURE 5.1

BEEF CATTLE PRODUCTION, BEEF CONSUMPTION

AND EXCESS DEMAND OF BEEF, 1997-2005

0

500

1,000

1,500

2,000

2,500

3,000

1997 1998 1999 2000 2001 2002 2003 2004 2005

Thou

sand

hea

ds

Beef Cattle Production Beef Consumption Shortage


One may expect that many beef cattle farmers might be disadvantaged from

the implementation of TAFTA in terms of competitive strength of beef cattle farming.

In addition, many related industries such as the bagasse, molasses, cassava , and corn

industries are also expected to be affected from TAFTA, thus, losing beef cattle

farming will affect Thailand’s cooperative system and economic sustainability.

Although Thai beef cattle farmers are disadvantaged from the difference in

the farm scale and production cost, the effects of TAFTA on Thai farmers will not be

intense because the quality of the products are different. However, after the

implementation of TAFTA, Thai farmers can import live cattle from Australia of a

lower cost. They can make a decision whether to buy cattle from local farmers or

standardized farms or import them from Australia in order to breed a new species.

On the importers side, Australia is considered to be the largest beef exporter

in the world and the largest exporter of beef products to Thailand. After the

103

implementation of TAFTA, Thai importers could import cheaper fresh or chilled beef

(HS0201) and frozen beef (HS0202) from Australia.

In addition, Thai importers with well-organized and standardized farms can

import cheaper live beef cattle from Australia. This could make the production costs

lower since the beef cattle from Australia have higher quality, are easy to feed and

faster growing than Thai local cattle. Therefore, Thai processors will get more profit.

Because imports of beef from Australia are considered to be high quality,

Australian beef will be served for only a small group of Thai consumers (and for

some foreign tourists) in the upper market or processed for re-export. Meanwhile,

sliced beef and beef parts of the moderate-lower beef markets such as fresh-food

markets served Thai consumers mostly. Therefore, a lowering in the Australian

imported beef prices does not imply that Australian beef will capture the market share

of the Thai beef market, especially in the middle and lower markets because they are

different in quality.

5.2.4 The impact on Thai milk and cream (HS0402) import demand

The estimated equation of Thai import demand for milk and cream (HS0402)

by using equation (4-14) is presented as follows:

ln( d3M ) = 11.916 – 0.693ln( 3t

MP ) + 0.519ln( 5tMP ) - 0.975ln( 2t

YP )

SD (2.707)* (0.268)** (0.199)** (0.563)***

+ 1.027ln(Ydt) + 0.321(D1t)

(0.405)** (0.139)**



(5-6)

104

The above equation (5-6) is the estimated equation of Thai import demand

for milk and cream ( d3M ). The import demand is expected to increase by 0.693 per

cent responding to a 1 per cent decrease in unit value ( 3tMP ). This variable is

statistically significant different from zero at the 1 per cent significance level. Having

a value of -0.693, the demand for fresh or chilled beef is inelastic, meaning that a

price change will cause an even less change in quantity demand for milk and cream.

The coefficient sign is consistent with theoretical expectation, meaning that a tariff

reduction leading to a dropping in the import price implies a higher import quantity of

Thai imports for milk and cream ( d3M ) from Australia.

Meanwhile, the import demand for milk and cream ( d3M ) is expected to

decrease by 0.519 per cent respectively responding to a 1 per cent decrease in the unit

value of whey ( 5tMP ). From this we can interpret that the import quantity of milk and

cream will fall if the price of whey falls because some milk and cream consumers will

switch from milk and cream to whey. In other words, whey is a substitute for milk and

cream. This variable is statistically significant at the 5 per cent significant level.

The coefficient of domestic price of other goods ( 2tYP ), proxy by producer

price index for dairy products, has shown a negative relationship with the import

demand of milk and cream ( d3M ). This can lead us to interpret that the import quantity

of milk and cream will fall if the price of any other dairy products rises because any

other dairy products may be a complement for milk and cream. In addition, this

variable is statistically and significantly different from zero at the 10 per cent level of

significance. In other words, if producer price index for dairy products increases by 1

per cent, the import quantity of milk and cream ( d3M ) will decrease by 0.975 per cent,

on average.

The coefficient of GDP per capita (Ydt) is statistically and significantly

different from zero at 5 percent significance level. The value of coefficient is 1.027

which means that if consumers’ incomes increase by 1 per cent, the import demand

will decrease by 1.027 per cent on average. From this, we imply that higher incomes

will encourages consumer to import more milk and cream ( d3M ) and increase the

consumption of the other dairy products.

105



variable. This specification of import price elasticity served an important advantage in

the estimation of percentage change in import quantity from tariff reduction.

TABLE5.5

ESTIMATED CHANGE OF THAI IMPORT QUANTITY FOR MILK

AND CREAM (HS0402) UNDER TARIFF REDUCTION

Milk and cream (HS0402)

Initial rate before 2005 * 30%




*Others milk and cream not in powdered (HS040299)


quantity due to a reduction in tariff. The forecast on change in import quantity is


as defined in (4-20).

The import demand for milk and cream ( d3M ) is expected to increase by

0.703 per cent responding to a 1 per cent decrease in tariff reduction as shown in

equation (5-6). From the estimation above, the estimated import quantity is a 3.224

per cent increase from tariff reduction. However, the real import quantity of first

quarter of 2005 is shown in Table 5.6.

106

TABLE 5.6

ACTUAL CHANGE IN THAI IMPORT OF MILK AND CREAM (HS0402)

Import of milk and cream Quantity (Kg.) Value (Baht) Price (Unit value)

1st quarter 2004 15,183,439 1,087,751,855 71.641

2nd quarter 2004 13,065,553 997,721,057 76.363

3rd quarter 2004 10,440,016 885,052,873 84.775

4th quarter 2004 14,731,124 1,295,491,978 87.943

1st quarter 2005 10,497,434 895,093,215 85.268

2nd quarter 2005 11,106,423 967,480,940 87.110

3rd quarter 2005 11,852,605 1,039,187,994 87.676

4th quarter 2005 29,640,373 2,739,773,121 92.434


% Change in 2nd quarter -14.994 -3.030 14.074

% Change in 3rd quarter 13.531 17.415 3.422

% Change in 4th quarter 101.209 111.485 5.107



and the actual import quantity change moves in the opposite direction. We notice that

the estimated import quantity increased by 3.224 per cent responding to a 1 per cent

decrease in tariff reduction while the actual import quantity in the first quarter of 2005

decreases by 30.862 per cent compared with the same period last year.

From the fact that the changes in the tariff rate for dairy products seems

insignificant and the change occurred in only some categories, the total import

demand for milk and cream (HS0402) did not increase immediately after the

implementation of TAFTA.

107

5.2.5 The impact on Thai buttermilk, curdled milk and cream, yogurt (HS0403)

import demand

The estimated equation of Thai import demand for buttermilk, curdled milk

and cream, yogurt (HS0403) by using equation (4-14) is presented as follows:

ln( d4M ) = - 16.477 – 0.138ln( 4t

MP ) + 0.223ln( 5tMP ) + 2.354ln( 2t

YP )

SD (6.792)** (0.453) (0.478) (1.388)***

+ 1.949(Ydt) – 1.132ln(D2t)

(0.982)** (0.310)*


Adjusted R-squared = -0.495 N = 40 (*) significant at the 1% level, (**) significant at the 5% level, and (***) significant at the 10% level

(5-7)

The above equation (5-7) is the estimated equation of Thai import demands

for buttermilk, curdled milk and cream, yogurt ( d4M ). The buttermilk price elasticity

is –0.138 making it inelastic meaning that a price change will cause even less change

in quantity demand for buttermilk. It means that when the price of buttermilk ( 4tMP )

increase by 1 per cent, it causes the demand of buttermilk to decrease by 0.138 and

vice versa. This variable is statistically and insignificantly different from zero at the

10 per cent level of significance. The coefficient sign of the relationship is consistent

with theoretical expectations, meaning that a tariff reduction leading to a reduction in

import price implies higher import quantity of Thai import for buttermilk from

Australia.

Meanwhile, the import demand for buttermilk, curdled milk and cream,

yogurt ( d4M ) is expected to decrease by 0.223 per cent responding to 1 per cent

decrease in the unit value of whey ( 5tMP ). We can interpret from this that the import

quantity of buttermilk, curdled milk and cream, yogurt ( d4M ) will fall if the price of

108

whey ( 5tMP ) falls because some consumers of buttermilk will switch from buttermilk to

whey. In other words, whey is a substitute for buttermilk. However, there is high

probability that this coefficient is equal to zero as the coefficient is statistically

insignificant by the normal standard of a 90 per cent confidence level.

The other goods price elasticity is 2.354 which means that a 1 per cent

change in producer price index for dairy products ( 2tYP ) will result in a 2.354 per

cent change in the amount of import demand for buttermilk in the same direction.

This suggests that the import quantity of buttermilk ( d4M ) will fall if the price of

others dairy products ( 2tYP ) falls because some consumers of buttermilk will switch

from buttermilk to other dairy products. In other words, buttermilk is a substitute for

others dairy products. In addition, this variable is statistically significant at the 10 per

cent Level.


demand. This variable is statistically significant at the 5 per cent significance level.

The value of coefficient is 1.949 which means that if consumers’ incomes increase 1

per cent the import demand will increase by 1.949 per cent on average. This implies

that higher income will encourage consumers to consume more butter milk.



variable. This specification of import price elasticity serves an important advantage in


TABLE 5.7

ESTIMATED CHANGE OF THAI IMPORT QUANTITY FOR BUTTERMILK

(HS0403) UNDER TARIFF REDUCTION

Buttermilk (HS0403)

Initial rate before 2005 18.2%*

Tariff rate in 2005 15%*


%Change in Thai import quantity after 2009 0.373

* HS040390

109


quantity due to a reduction in tariff. The forecast on change in import quantity is


as defined in (4-20). The import demand for buttermilk, curdled milk and cream,

yogurt ( d4M ) is expected to increase by 0.138 per cent responding to a 1 per cent

decrease in tariff reduction as shown in equation (5-7). From the estimation above, the

estimated import quantity for buttermilk is a 0.373 per cent increase from tariff

reduction. However, the actual import quantity of first quarter of 2005 is shown in the

table below.

TABLE 5.8

ACTUAL CHANGE IN THAI IMPORT OF BUTTERMILK (HS0403)

Import of buttermilk Quantity (Kg.) Value (Baht) Price (Unit value)

1st quarter 2004 3,754,846 221,280,081 58.931

2nd quarter 2004 2,424,445 157,064,897 64.783

3rd quarter 2004 948,367 72,047,443 75.970

4th quarter 2004 3,176,128 246,351,255 77.563

1st quarter 2005 1,671,125 127,978,296 76.582

2nd quarter 2005 2,032,468 159,799,038 78.623

3rd quarter 2005 1,439,998 120,551,060 83.716

4th quarter 2005 1,809,221 151,242,278 83.595


% Change in 2nd quarter -16.167 1.740 21.362


% Change in 4th quarter -43.036 -38.607 7.776



and the actual import quantity change of buttermilk, curdled milk and cream, yogurt

(HS0403) moves in the opposite direction.

We notice that the estimated import quantity of buttermilk, curdled milk and

cream, yogurt (HS0403) increase by 0.373 per cent while the actual import quantity in

110

the first quarter of 2005 decreased by 55.494 per cent after the implementation of

TAFTA compared with the same period last year.

5.2.6 The impact on Thai whey (HS0404) import demand

The estimated equation of the demand for whey (HS0404) by using equation

(4-14) is presented as follows:

ln( d5M ) = - 30.691 + 01.775ln( 3t

MP ) – 0.515ln( 4tMP ) – 0.863ln( 5t

MP )

SD (6.240)*** (0.931)** (0.710) (0.377)**

- 0.016ln( 2tYP ) + 4.140ln(Ydt)

(1.049) (0.769)*



(5-8)

The above equation (5-8) is the estimated equation of the import demand for

whey ( d5M ). The whey price elasticity of - 0.863 is inelastic meaning that a price

change will cause even less change in the quantity demanded for buttermilk. It means

that when the unit value of buttermilk ( 5tMP ) increases by 1 per cent, it causes the

import demand for buttermilk to decrease by 0.863 per cent and vice versa. This

variable is statistically significant at the 5 per cent significance level. The relationship

between the unit value and the import quantity are consistent to the law of demand,

the tariff reduction leading to dropping in import price implies higher import quantity

of Thai import for whey from Australia.

Meanwhile, the import demand for whey ( d5M ) is expected to decrease by

1.775 per responding to a 1 per cent decrease in the unit value of milk and cream

111

( 3tMP ). This implies that import quantity of whey ( d

5M ) will fall if the price of milk and

cream falls because some consumers of milk and cream will switch from milk and

cream to whey. In other words, milk and cream is a substitute for whey. This variable

is statistically significant by the normal standard of a 90 per cent confidence level.

The import demand for whey ( d5M ) is expected to decrease by 0.515 per

responding to a 1 per cent decrease in the unit value of buttermilk, curdled milk and

cream, yogurt ( 4tMP ). We can interpret from this that if the price of buttermilk rises, the

import quantity of whey will decline the same as the import quantity of buttermilk

because buttermilk is a complimentary product for buttermilk. This variable is

statistically insignificant by the normal standard of a 90 per cent confidence level.

The other goods price elasticity is -0.016 which means that 1 per cent change

in producer price index for dairy products ( 2tYP ) will result in a 0.016 per cent

change in the amount of demand for whey ( d5M ) in the opposite direction. This

suggests that import quantity of whey ( d5M ) will fall if the price of any others dairy

products falls because some consumers of any others dairy products will switch from

any other dairy products to whey. In other words, milk and cream is a substitute for

whey. However, this variable is statistically and insignificantly by normal standard of

a 90 per cent confidence level. In other words, any other dairy products can be a

complement for whey.


demand. The coefficient of GDP per capita is statistically and significantly different

from zero at 1 per cent level of significant. The value of coefficient is 4.140 which

mean that if consumers’ incomes increase by 1 per cent the demand will increase by

4.140 per cent on average. This implies that a higher incomes will encourage

consumers to consume more whey ( d5M ) and increase the share of this product

consumption. In addition, this variable is statistically significant at the 1 per cent

significance level.



112

variable. This specification of import price elasticity served an important advantage in


TABLE 5.9

ESTIMATED CHANGE OF THAI IMPORT QUANTITY OF WHEY

(HS0404) UNDER TARIFF REDUCTION

Whey (HS0404)

Initial rate before 2005 30%*

Tariff rate in 2006 28%*



* HS0404101 and HS0404901



therefore calculated by multiplying the price elasticity with the percentage reduction

of tariff as defined in (4-20).

The import demand for whey ( d5M ) is expected to increase by 0.863 per cent

responding to a 1 per cent decrease in tariff reduction. From the estimation above, the

estimated import quantity is a 1.327 per cent increase from tariff reduction as shown

in equation (5-8). However, the actual import quantity for the first quarter of 2005 is

shown in Table 5.10.

113

TABLE 5.10

ACTUAL CHANGE IN THAI IMPORT OF WHEY (HS0404)

Import of whey Quantity Value Price

(HS0404) (Kg.) (Baht) (Unit value)

1st quarter 2004 1,523,300 32,497,578 21.333

2nd quarter 2004 1,712,325 36,910,812 21.556

3rd quarter 2004 1,300,710 32,264,216 24.805

4th quarter 2004 1,416,165 65,181,836 46.027

1st quarter 2005 2,755,150 36,680,716 25.089

2nd quarter 2005 2,373,000 61,859,286 26.068

3rd quarter 2005 2,246,270 195,986,054 87.249

4th quarter 2005 3,051,125 99,414,460 32.582

% Change in 1st quarter 80.867 112.711 17.606

% Change in 2nd quarter 38.583 67.591 20.931




By comparing Table 5.9 and Table 5.10, the estimated import quantity

change and the actual import quantity change of whey ( d5M ) moves in the same

direction. We notice that the estimated import quantity of whey (HS0404) increased

by 1.327 per cent while the actual import quantity in the first quarter of 2005

increased by 80.867 per cent after the implementation of TAFTA compared with the

same period last year.

114

5.2.7 The effects of TAFTA on Thai dairy cow farmers

In terms of the competitive strength of dairy cow farming, Thai farmers

operate dairy cow on a smaller scale in terms of land usage and the number of dairy

cow. The number of Thai dairy cow was 478,836 heads in 2005 which was an

increase of about 17 per cent from the previous year while the number of Australian

dairy cow was around 2.9 million heads decreased slightly from 3 million heads due

to the drought.

Overall, the dairy cow numbers in Australia is much more than in Thailand

(See Table 2.6 and 2.28). In addition, from the international farm comparison network

(IFCN)9, Australia had about 206 cows per farm while our own “typical” Thai farm

had approximately 20 cows.

Also the milk yields from Thai dairy cows are lower than Australia. The

Thai average annual milk yield per cow was about 2,100 liters in 2005 which is

relatively low compared to international standards (6200 liters in the EU, 8,400 liters

in the US and 3,300 in New Zealand). Meanwhile, Australian average annual yield

per cow has increased from 2,850 liters to around 5,000 liters over the past two

decades due to improvements in herd genetics, pasture management and

supplementary feeding regimes in Australia.

For the production costs of Thai dairy cow farmers, it is largely determined

by the cost of feed as well as the production cost of Thai beef cattle farmers. Other

costs are relatively low in Thailand, especially labour. Consequently, Thai dairy cow

farmers also have the same problem as beef cattle farmers. Roughage is scarce and its

quality is usually inadequate.

According to Thai Bureau of Livestock Development and Technology

Transfer and Dairy Australia, the cost of milk production in Thailand was about 8.24

Baht per kg with the raw milk price being about 11.50 Baht per kg while the

Australia’s average milk cost was about 29 cents per liter or about 7-8 Baht per kg

(see Table 2.10 and 2.31)

9 The international farm comparison network (IFCN) (2005) “Dairy report 2005”

<http://www.ifcnnetwork.org/>

115

Therefore, Australia has an advantage in terms of cheaper production costs

so that Thai dairy cow farmers cannot compete with the imported milk products,

especially powdered milk due to cost factors. Overall, we can draw the conclusion

that Thailand has a comparative disadvantage in milk production.

5.2.8 The impact of TAFTA on Thai processors of dairy products

Generally, the remainder of Thai raw milk is mainly sold to the processors

supplying the commercial ready-to-drink (RTD) milk market, comprising all milk

(ambient and chilled), yogurt and yogurt products.

Nowadays, many Thai processors has increased their imports of powdered

milk or whey from Australia to substitute the local raw milk in the production of RTD

milk because imported milk or whey are attractive alternative inputs. Furthermore,

powdered milk and whey offer Thai RTD milk processors advantages in terms of

price-competitivness, quality and convenience as there are many ways to recombine

powdered milk or whey into RTD milk.

After the implementation of TAFTA, the changes in the tariff rate for some

dairy products seem insignificant and the change only occurred in some categories in

2005. In addition, according to International Farm Comparison Network (IFCN)10, the

current global dairy commodity prices are quite high. Thus, we do not expect the

import quantity of some dairy products to change much.

The government already imposed the import quota for powdered milk to

protect the domestic raw milk industries and also forces the importers who import

powdered milk to buy local raw milk for the production; in addition they also have to

pay an additional tariff at the rate 25 per cent to the “school milk” fund. However,

most processors in Thailand are multinational processors who need both local raw

milk and imported milk powder in their production. Thus, they do not suffer from

such government policies. But some processors such as yoghurt processors use only

powdered milk in their production. Forcing them to buy local raw milk will cause

10 International Farm Comparison Network (2005). “Dairy Report: The annual product”

< http://www.ifcnnetwork.org/ >

116

them a problem. Such situations imply that some Thai processors are expected to be

disadvantaged from the government policy rather than the TAFTA.

117


This chapter estimates the regression equation for import demand of beef and

dairy products by using Seemingly Unrelated Regression (SUR) models. The purpose

is to estimate the import price elasticity in order to predict the effects of tariff

reductions on demand of beef and dairy products.

From the estimation , the estimated price elasticities of Thai import demand

for fresh or chilled beef (HS0201), frozen beef (HS0202), milk and cream (HS0402),

buttermilk (HS0403) and whey (HS0404) from Australia are -0.502, -0.339, -0.693,

-0.138 and -0.863, respectively. The price elasticity for fresh or chilled beef

(HS0201), milk and cream (HS0402), and whey (HS0404) are statistically significant

at the 5 per cent level of significance. For the rest of the commodities, the coefficients

of unit value are statistically insignificant at the 5 per cent significance level. And the

sign of the price elasticities are all corresponding with the law of demand.

Since the main objective of this chapter is to estimate the price elasticity of

the import demands for beef and dairy products from Australia, the author is

concerned about the sign of the price elasticities more than the significance of the

coefficient. Therefore, the author adds a dummy variable in some model because,

according to the graph of import quantity, the author found that there are some

patterns in the import quantity of some commodities which are irregular. For instance,

there might be some structural change during the financial crisis in 1997 and the

school milk crisis in some of the import demand.

The estimated effect of a percentage change in import quantity for fresh or

chilled beef (HS0201), frozen beef (HS0202), milk and cream (HS0402), buttermilk

(HS0403) and whey (HS0404) due to a reduction in tariff calculated by multiplying

price elasticity with percentage reduction of tariff are 3.656, 2.469, 3.224, 0.373 and

1.327 respectively. These estimated results suggest that a reduction in tariff rate

boosts the quantity of import demand in every selected category under

different magnitude of adjustment.

The percentage changes of the actual import quantity of fresh or chilled beef

(HS0201) and whey (HS0404) from Australia in the first quarter increased by

178.619, and 80.867 respectively, whereas the percentage changes of the actual

118

import quantity of frozen beef (HS0202), milk and cream (HS0402), buttermilk

(HS0403) from Australia in the first quarter of 2005 decreased by 46.471, 30.862, and

55.494 respectively.

However, the total import quantity of fresh or chilled beef, milk and cream

and whey from Australia in 2005 increased by 120 per cent, 18 per cent, and 75 per

cent, respectively, whereas the total import quantity frozen beef (HS0202) and

buttermilk, curdled milk and cream, yogurt (HS0403) from Australia in 2005

decreased by 15 and 33 per cent from the previous year. Thus, we can conclude that

only the imports of fresh or chilled beef (HS0201) and whey (HS0404) from Australia

increased significantly after the tariff reduction in 2005.




cattle and lifting the quality of beef manufacturing (a report by the office of

agricultural economics, 2006)11.

Second, an increase in the smuggling of both high and low quality of chilled

and frozen beef from India and New Zealand through Thailand’s borders; Myanmar,

Laos and Cambodia, reduced the dependence of the import of high-quality frozen beef

from Australia (a report by Department of Agricultural Extension12 and from

newspaper, Prachachat business, April 13, 2005)13. Also the estimated models might

have others factors that have an influence on the import demand for example the

number of tourists, supermarkets, restaurants and five-star hotels which the quarterly

data of these factors are not available.

For a decrease in the import of milk and cream (HS0402) and buttermilk

(HS0403), we describe a decrease in import of these products that the changes of the

tariff rate for these dairy products seem insignificant and the changes occurred in only

some categories. Thus, the total demand for milk and cream (HS0402) and buttermilk

(HS0403) did not increase immediately after implementation of TAFTA.

11 Office of Agricultural Economics (2006). “Survey Report of Cattle Year 2005 and

outlook for 2006,” Ministry of agriculture and cooperatives, March 2006. 12 Department of Agricultural Extension. “Agricultural News” <http://www.doae.go.th/> 13 Prachachat Business (April 13, 2005). “Corruption in SPV and 1M cows project and Beef

smuggling from India.” <http://www.ftawatch.org/news/view.php?id=3288 >

119

CHAPTER 6

SUMMARY AND CONCLUSIONS


Since Thailand and Australia have agreed upon TAFTA, many studies have

been done to estimate the effects of the free trade agreement. Some studies used the

general equilibrium approach which assesses the effects in all sectors. However, such

studies cannot estimate the effects of the FTA in some specific sectors. Therefore, this

thesis tries to estimate the effects of TAFTA in some specific sectors; beef and dairy

products, by using the partial equilibrium approach.

According to the enforcement of Thailand and Australia free trade

agreement on 1 January 2005, Thailand’s tariff rate for fresh or chilled meat (HS

0201) and frozen meat (HS 0202) have been immediately cut from 51 per cent to 40

percent in 2005 and will be reduced by 2.6 per cent each year until their total

elimination in 2020. The tariff rates for these products will take 15 years to be totally

eliminated. Meanwhile, Thailand’s tariff rates for some dairy products in HS0402

categories were not immediately cut in 2005. The tariff rate for milk and cream not

containing added sugar (HS040291), whole milk powder (HS 0402219 and HS

040229) will be cut from 30 per cent to 27 per cent in 2006 and will be reduced by 3

per cent each year until their total elimination in 2013. Whereas, the tariff rate for

buttermilk, curdled milk and cream, yogurt (HS0403) will be cut from 5 per cent to 3

per cent in 2006 and will be eliminated in 2009.

In 2005, the tariff rate for some items of dairy products in HS0402

categories reduced slightly. The tariff rate for other milk and cream or fat dried milk

powder (HS040299) was reduced from 30 per cent to 24 per cent in 2005 and will be

reduced by 6 per cent each year until total their elimination in 2010. The tariff rate for

milk and cream concentrated, not containing added sugar (HS0402211) was

immediately eliminated in 2005.

This study estimates the regression equation for demand of beef and

dairy products by using Seemingly Unrelated Regression (SUR) models. The

120

purpose is to estimate the import price elasticity in order to predict the effect of tariff

reductions on demand of beef and dairy products. The estimated results suggest that a

reduction in the tariff rate boosts the quantity of demand in every selected category

under different magnitudes of adjustment.

However, the actual change in the total import quantity did not increase for

every category in 2005. In 2005, the total import quantity of fresh or chilled beef,

milk and cream, and whey increased by 120 per cent, 18 per cent, and 75 respectively

while the total import of frozen beef (HS0202) and buttermilk, curdled milk and

cream, yogurt (HS0403) decreased by 15 and 33 per cent. We can conclude that the

estimated change and the actual change for only the import quantity of fresh or chilled

beef and whey moved in the same direction.




cattle and lifting the quality of beef manufacturing (a report by the office of

agricultural economics, 2006).

Second, an increasing in the smuggling of both high and low quality of

chilled and frozen beef from India and New Zealand through Thailand’s borders;

Myanmar, Laos and Cambodia, reduced the dependence of the import of high-quality

frozen beef from Australia (a report by Department of Agricultural Extension and

from newspaper, Prachachat business, April 13, 2005). Also the estimated models

might have other factors that had an influence on the demand for example the number

of tourists, supermarkets, restaurants and five-star hotel or the number of tourists for

the quarterly data of these factors are not available.

For a decrease in the import of milk and cream (HS0402) and buttermilk

(HS0403), we describe a decrease in the import of these products by stating that the

changes of the tariff rate for these dairy products seem insignificant and the change

occurred in only some categories. Thus, total demand for milk and cream (HS0402)

and buttermilk (HS0403) did not increase immediately after the implementation of

TAFTA.

121

6.2 Policy Implications

Under the timelines presented in the FTA with Australia and most

certainly under the expected timelines for trade liberalization under the WTO, we

feel there is sufficient time for the more vulnerable parts of the Thai dairy chain to

prepare for more competition.

From the estimated results, this thesis show that Thai importers and

processors advantage from lower import price of beef and dairy products. However,

the most suffer goes to Thai farmers who cannot compete with high quality of beef

and dairy products due to either the cost factor or the quality factor.

This section suggests the options to aid Thai farmers to improve their

competitive position of Thai beef cattle and dairy cow as follows:

a) The government should help Thai farmers to reduce the cost of production

by improving of the feed efficiency of beef and dairy cow for example; use of local

roughage instead of highly concentrate feed, cattle feed controlling system.

b) The government should give support to Thai farmers to improve the

quality of beef and dairy cow. For instance, create a new faster growing breed or new

milky breed or provide some advance techniques in artificial insemination, animal

feed, and animal sanitation.

122

6.3 Limitations and suggestion for further study

The primary objective of this study is to estimate the effects of tariff

reduction from TAFTA on demand of beef and dairy products; however, most

importers of dairy products from Australia are multinational processors and joint

venture dealing with high competition so that it’s difficult for an in-depth study or

some information may be company’s secret.

Also the estimated might have others factors that have an influence on the

demand for example the number of supermarket, restaurants and five-star hotel or the

number of tourist which the quarterly data of these factors were not available.

The scope of this study is restricted the estimation of the impact of the

TAFTA on the demand which concerning about the producers but the effects on the

other sector; the beef cattle and dairy cow farmers, which need the scheme and the

possible impact of the TAFTA which would allow more imported beef into Thailand

from an in-depth study.

APPENDICES

124

APPENDIX AA

THAILAND’S TARIFF SCHEDULE FOR BEEF

AND DAIRY PRODUCTS

125

TTAABBLLEE AA--11

TTHHAAIILLAANNDD’’SS TTAARRIIFFFF SSCCHHEEDDUULLEE FFOORR BBEEEEFF PPRROODDUUCCTTSS

Base Rate Bound Rate (percent)

Ad-valorem Specific Heading Sub-Heading Description Unit

percent Baht/Unit 2005 2006 2007 2008 2009 2010 2011 2012

Remark

0201 Meat of bovine animals, fresh or chilled.

20110 - Carcasses and half-carcasses - 51 - 40 37.333 34.667 32 29.333 26.667 24 21.33 SSG

020120 - Other cuts with bone in - 51 - 40 37.333 34.667 32 29.333 26.667 24 21.33 SSG

020130 - Boneless - 51 - 40 37.333 34.667 32 29.333 26.667 24 21.33 SSG

0202 Meat of bovine animals, frozen.

020210 - Carcasses and half-carcasses - 51 - 40 37.333 34.667 32 29.333 26.667 24 21.33 SSG

020220 - Other cuts with bone in - 51 - 40 37.333 34.667 32 29.333 26.667 24 21.33 SSG

020230 - Boneless - 51 - 40 37.333 34.667 32 29.333 26.667 24 21.33 SSG




Remark


20110 - Carcasses and half-carcasses - 51 - 18.67 16 13.33 10.67 8 5.33 2.67 0 SSG

020120 - Other cuts with bone in - 51 - 18.67 16 13.33 10.67 8 5.33 2.67 0 SSG

020130 - Boneless - 51 - 18.67 16 13.33 10.67 8 5.33 2.67 0 SSG


020210 - Carcasses and half-carcasses - 51 - 18.67 16 13.33 10.67 8 5.33 2.67 0 SSG

020220 - Other cuts with bone in - 51 - 18.67 16 13.33 10.67 8 5.33 2.67 0 SSG

020230 - Boneless - 51 - 18.67 16 13.33 10.67 8 5.33 2.67 0 SSG Source: Department of Foreign Trade

126

TTAABBLLEE AA--22

TTHHAAIILLAANNDD’’SS TTAARRIIFFFF SSCCHHEEDDUULLEE FFOORR DDAAIIRRYY PPRROODDUUCCTTSS




Remark

0402 Milk and cream, concentrated or containing added sugar or

040210 - In powder, granules or other solid forms, of a fat content, 20 - In Quota

Rate

0402211 - - - Fit for infant feeding according to conditions specified 5 - 0 0 0 0 0 0 0 0

0402219 - - - Other 5 - 5 5 5 3 0 0 0 0

040229 - - - Other 5 - 5 5 5 3 0 0 0 0

040291 - - Not containing added sugar or other sweetening matter 30 - 30 27 24 21 18 15 12 9 SSG

040299 - - Other 30 - 24 18 18 12 6 0 0 0

0403 Buttermilk, curdled milk and cream, yogurt, kephir and other

040310 - Yogurt 5 - 5 5 5 3 0 0 0 0

040390 - Other 18.2 - 15 11.8 8.6 5.4 2.2 0 0 0

0404 Whey, whether or not concentrated or containing added sugar

0404101 - - - In liquid, including condensed form 30 - 30 28 26 24 22 20 18 16 SSG

0404109 - - - Other 5 - 5 5 5 3 0 0 0 0


0404909 - - - Other 5 - 5 5 5 3 0 0 0 0 Source: Department of Foreign Trade

127

TTAABBLLEE AA--22 ((CCoonntt..))





Remark


040210 - In powder, granules or other solid forms, of a fat content, 20 - In Quota

Rate

0402211 - - - Fit for infant feeding according to conditions specified 5 - 0 0 0 0 0 0 0 0

0402219 - - - Other 5 - 0 0 0 0 0 0 0 0

040229 - - - Other 5 - 6 3 0 0 0 0 0 0

040291 - - Not containing added sugar or other sweetening matter 30 - 0 0 0 0 0 0 0 0 SSG

040299 - - Other 30 -


040310 - Yogurt 5 - 0 0 0 0 0 0 0 0

040390 - Other 18.2 - 0 0 0 0 0 0 0 0



0404109 - - - Other 5 - 14 12 10 8 6 4 2 0


0404909 - - - Other 5 - 0 0 0 0 0 0 0 0 Source: Department of Foreign Trade

128

TTAABBLLEE AA--22 ((CCoonntt..))




percent Baht/Unit 2021 2022 2023 2024 2025

Remark


040210 - In powder, granules or other solid forms, of a fat content, 20 - 0 0 0 0 0 In Quota

Rate

0402211 - - - Fit for infant feeding according to conditions specified 5 - 0 0 0 0 0

0402219 - - - Other 5 - 0 0 0 0 0

040229 - - - Other 5 - 0 0 0 0 0

040291 - - Not containing added sugar or other sweetening matter 30 - 0 0 0 0 0 SSG

040299 - - Other 30 -


040310 5 - 0 0 0 0 0

040390 18.2 - 0 0 0 0 0


0404101 - - - In liquid, including condensed form 30 - 0 0 0 0 0 SSG

0404109 - - - Other 5 - 0 0 0 0 0

0404901 - - - In liquid, including condensed form 30 - 0 0 0 0 0 SSG

0404909 - - - Other 5 - 0 0 0 0 0 Source: Department of Foreign Trade

129

APPENDIX B

THAILAND’S SPECIAL SAFEGUARDS SCHEDULE

130

TABLE B-1

THAILAND’S SPECIAL SAFEGUARDS SCHEDULE FOR BEEF PRODUCTS (TONNES)

Heading Sub-Heading Description 2005 2006 2007 2008 2009 2010 2011 2012

T0201 Meat of bovine animals, fresh or chilled.

020110 - Carcasses and half-carcasses

020120 - Other cuts with bone in

020130 - Boneless




020230 - Boneless

776.00

814.80

855.54

898.32

943.23

990.39

1039.91

1091.91





020130 - Boneless




020230 - Boneless

1146.51

1203.83

1264.02

1327.22

1393.58

1463.26

1536.43

1613.25

SSoouurrccee:: TThhee CCuussttoommss DDeeppaarrttmmeenntt ooff KKiinnggddoomm ooff TThhaaiillaanndd

131

TABLE B-1 (Cont.)

THAILAND’S SPECIAL SAFEGUARDS SCHEDULE FOR DAIRY PRODUCTS (TONNES)



0402219

Milk and cream, in powder, granules or other solid forms, of fat content by weight, exceeding 1.5%, not containing added sugar or other sweetening matter, not for infant feeding

040229

Milk and cream, in powder, granules or other solid forms, of fat content by weight, exceeding 1.5%, containing added sugar or other sweetening matter

14,035.83

14,737.62

15,474.5

16,248.22

17,060.64

17,913.67

18,809.35

19,749.82


0404101

Whey and modified whey, whether or not concentrated or containing added sugar or other sweetening matter, in liquid, including condensed form

0404901

Products consisting of natural milk constituents, whether or not containing added sugar or other sweetening matter, in liquid, including condensed form

14.77

15.51

16.29

17.1

17.96

18.86

19.8

20.79


132

TABLE B-2

THAILAND’S SPECIAL SAFEGUARDS SCHEDULE FOR DAIRY PRODUCTS (TONNES)



0402219

Milk and cream, in powder, granules or other solid forms, of fat content by weight, exceeding 1.5%, not containing added sugar or other sweetening matter, not for infant feeding

040229

Milk and cream, in powder, granules or other solid forms, of fat content by weight, exceeding 1.5%, containing added sugar or other sweetening matter

9,500

9,975

10,473.75

10,997.44

11,547.31

12,124.67

12,730.91

13,367.45


0404101

Whey and modified whey, whether or not concentrated or containing added sugar or other sweetening matter, in liquid, including condensed form

0404901

Products consisting of natural milk constituents, whether or not containing added sugar or other sweetening matter, in liquid, including condensed form

10

10.5

11.03

11.58

12.16

12.76

13.4

14.07


133

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