Future scenarios for pig sector development in Vietnam: Results from a policy simulation model

1. Future scenarios for pig sector development in Vietnam: Results from a policy simulation model Nicholas Minot (IFPRI) Karl Rich (NUPI) Nguyen Ngoc Que (CAP) Nguyen Phuong Hong (CAP) Presented at the workshop “Improving the Competitiveness of Pig Producers in Adjusting Vietnam Markets”, Melia Hotel, Hanoi, 4-5 October 2010.

2. Outline of presentation • Background on pig sector • Objectives of analysis • Methods: Description of model • Results • Base scenario • Alternative scenarios • Conclusions • Policy implications

3. Background of pig sector in Vietnam • Pig production • Large proportion of rural Vietnamese households grow pigs • Some commercial farm households • A few large-scale pig farms, particularly in the south • Contract farming exists but is rare • Marketing • Rural areas – small farms sell locally, medium & large supply cities • Urban areas – mix of temp neighborhood markets, permanent open markets, and supermarkets • Pork consumption • Pork is dominant form of meat consumed in Vietnam • Growing per capita consumption due to income growth & urbanization • Concern about safety, preference for fresh meat • Most buy fresh from traditional market • Small but growing demand for processed and chilled pork at modern retail outlets in urban areas, particularly in south

4. Objectives • How will rising income & urbanization affect total pork demand and the composition of pork demand? • How will shifts in pork demand influence pig producers, particularly small-scale producers ie will small-scale pig producers be squeezed out of the market? • How will growth of pig production affect maize markets – will imports grow? • How would alternative policies, institutions, and technologies influence evolution of pig sector?

5. Economic models Definition: a set of equations designed to represent the supply and demand for different goods External factors such as technology, world markets, policy, and income growth Model equations and relationships Outcomes of variables of interest: production, consumption, trade, prices, and income

6. Economic models • Strengths • Models can represent complex interactions between markets for related goods • Can be used to simulate the impact of alternative policies before implementing them • Weaknesses • Cannot predict the future – they merely tell us the logical consequences of our assumptions • Reliability of results depends on the quality of the data and assumptions used in the model

7. Characteristics of Vietnam pig model • Partial equilibrium • Focused on maize and pig sector, does not attempt to capture all sectors of the economy • Spatial equilibrium • Simulates markets in eight regions of Vietnam • Each region can be surplus, deficit, or self-sufficient • Price differences are less than or equal to transp cost • Recursive dynamic • Simulates over multiple periods (years) with growth in income, population, and production technology • We run the model to simulate 10 years into the future

8. Characteristics of Vietnam pig model • Commodities • Maize for human consumption and for animal feed • Traditional pig production – small-scale production for the fresh pork market • Modern pig production – large-scale production for chilled and processed pork to be exported or sold at supermarkets • Regions • Seven regions: Northern Uplands, Red River Delta, North Central Coast, South Central Coast, Central Highlands, Southeast, and Mekong River Delta

9. Characteristics of Vietnam pig model • Production in each region based on GSO statistics • Per capita consumption based on VHLSS for total pork consumption and ILRI-CAP survey for traditional-modern composition • International trade based on FAO statistics • Prices based on GSO price data • Transportation costs between regions based on distance and estimates of per-km transport costs • Demand elasticities from ILRI-CAP consumer survey • Supply elasticities based on estimates in similar countries

10. Characteristics of Vietnam pig model • 10 types of variables (e.g. production) • 289 individual variables (e.g. production of maize in the Central Highlands) • 10 years simulated for each scenario • 8 scenarios run • = 23,120 outcome variables • Need to summarize results! • Focus on national totals and averages • Focus on growth rates over 10 year period • Focus on differences between base and each other scenario

11. Base scenario - assumptions

12. Base scenario - Results

13. Higher income growth scenario

14. Higher technological growth in modern pig sector

15. No technological growth in traditional pig sector

16. No technological growth in maize sector

17. Higher income elasticity of modern pork

18. Higher income elasticity & higher tech growth in modern pig sector

19. Worst –case scenario for traditional pig sector

20. Worst –case scenario for traditional pig sector

21. Conclusions • Modern pig sector is very small • Large-scale modern producers are just 5% of national production • Consumption of frozen, chilled, and canned pork is just 2% of total • Modern sector will remain small over the next decade • Modern sector 5-10% of pig production over next 10 years except under extreme assumptions • In worst-case scenario for traditional sector, modern sector grows 10-fold but still only reaches 12% of total production

22. Conclusions • Growth in modern sector depends more on technology than demand • With exports, changes in demand affect volume of exports, not production • Improved technology expands output • Pork exports fade out within 10 years in most scenarios • Rapidly growing demand is likely to displace exports • Only exception: high technological growth in modern • Maize imports rise to 200-500 thousand tons • Exception: No maize imports if traditional pig production technology is stagnant • Exception: Imports over 1 m tons if income growth is high or maize production technology is stagnant

23. Policy implications • Not necessary to protect small-scale pig farmers • Small-scale pig sector may grow more slowly than large-scale, but will not decline • Modern large-scale sector too small to threaten traditional small-scale sector for at least 10 years production • Regulation of modern large-scale pig production • For environmental and food safety reasons • But not out of equity concerns • Nor should government “impose” modernization of small-scale production for its own sake • Food safety and animal disease regulation of traditional sector must take into account feasibility and cost-benefit ratio

24. Policy implications • Highlights importance of technological improvement • In modern sector, technology will maintain exports in face of growing domestic demand • In traditional sector, technology will reduce price, maintain market share, and have pro-poor impact • In maize sector, technology will reduce and delay maize imports in response to growing pig and poulty sectors