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GTAP Resource #1269

"Globalization, trade liberalization and poverty alleviation in Southeast Asia: the case of the livestock sector in Vietnam"
by Nin-Pratt, Alejandro, Ma. Lucila Lapar and Simeon Ehui


Abstract
Introduction

Two decades of economic growth in Southeast Asia resulted in substantial increases of per capita income, urbanization and poverty reduction. From 1975 to 1995, poverty in the region was reduced by two-thirds as a result of successful trade and macroeconomic policies. These changes fueled a massive increase in demand for food of animal origin. Southeast Asian’s meat consumption rose substantially during this period, from 10 kilograms per capita in 1982 to 18 kilograms in 1997 (Rosegrant et al., 2001). This rising demand for livestock products has led to increasing livestock production (4.7% per year increasing to 5.9% during 1990-97) accompanied by structural changes to the sector.

However, Southeast Asian’s growth strategy has revealed limitations that have become apparent in recent years showing that poverty is still a chronic phenomenon for a significant proportion of the population in the region. There still are 160 million poor people in Southeast Asia, out of which 60 million are livestock keepers (Thornton et al., 2002). Vietnam is no exception. The doi moi reforms of the late 1980s and early 1990s stimulated high levels of domestic and foreign investment to fuel growth that averaged over 7% in real terms between 1990 and 2000. The livestock sector showed similar performance, with pig and poultry production growing at rates of 7% and 9% per year respectively. In spite of sustained growth of the economy and the livestock sector, there still are approximately 37 percent of Vietnamese (28.4 million people) living in poverty, with 90% of those poor living in rural areas (CIE, 2002) and 15 million of poor livestock keepers (Thornton et al., 2002).

The Government of Vietnam recognizes the problem of rural poverty and believes that a strategy focused on achieving high and sustainable growth by reducing trade restrictions, is key to generate sufficient resources to raise the welfare and living standards of the people (Soc.Rep. of Vietnam, 2002). In this context, Vietnam submitted its application to join the WTO as a developing country at the beginning of 1995 and has stated its intention to bring its trade and investment policies in line with WTO principles. Lowering protection in the coming years will likely lead to contractions in import competing sectors but also to expansions in labor intensive and export oriented sectors. Given Vietnam’s advantage in manufacture production, will these changes lead to a contraction of the agricultural sector? Could the growing demand for livestock products provide income growth opportunities for the rural poor under this new policy environment? Or should the new strategy rely mainly on manufacture growth, creating job opportunities outside the agricultural sector?

Goal
The goal of this paper is to evaluate the potential contribution of Vietnam’s livestock sector to poverty alleviation under a liberalized trade policy environment, as Vietnam becomes a member of the WTO.

Methodology
Following the approach employed by Chen and Ravallion (2002), we use the GTAP modeling framework (Hertel, 1997) to simulate trade liberalization. Price changes induced by trade policy changes are carried to an extensive survey of livestock producers in Vietnam (IFPRI, 2001), to analyze production, welfare and poverty alleviation implications of policy changes for smallholder livestock producers. The welfare impacts on the livestock sector are measured using first-order approximations of a money metric of the change in utility, which are based on a household model incorporating own-production activities and are calibrated to the household-level data without imposing aggregation. The sample of 2213 livestock producers was drawn from 29 provinces covering all eight agro-ecological regions in Vietnam and a range of farm sizes from small subsistence farms to some of the largest commercial agricultural operations in the country. The survey provides information about household characteristics and livestock production systems that allow us to explain the heterogeneity of welfare impacts.

Findings
Removing all trade distortions in all regions is our benchmark experiment and shows how Vietnam should adjust to better exploit its comparative advantages. Under this scenario, substantial increases in production of wearing apparel (340%), textiles (73%) and light manufactures occur, while production of non-ruminants and cattle remain unchanged or are slightly reduced (-0.8% and –2.1% respectively). Trade liberalization would boast consumption of meat (89%) and this would result in increasing imports reducing Vietnam’s trade balance in meat products from almost $20 million in 1997 to a negative balance after policy changes. Comparing welfare gains from our benchmark scenario with agricultural and non-agricultural trade liberalization scenarios, we conclude that most gains for Vietnam’s economy would come from liberalization of manufacture and services. Relative small gains can be expected from multilateral agricultural trade liberalization.

The effect of the different trade policy changes on livestock production is relatively small and goes from a negative impact of 3.8% in agricultural multilateral liberalization to an increase of 1.6% with non-agricultural multilateral liberalization. All scenarios result in negative changes in trade balance of meat products substantially reducing, in most cases, the positive trade balance shown by Vietnam in 1997.

Only the unilateral and multilateral agricultural trade liberalization scenarios result in net welfare gains for Vietnam’s livestock sector. However, all policy scenarios with the exception of the regional agricultural trade liberalization have a positive impact in terms of poverty alleviation. Factors explaining income growth in poor livestock keepers differ with the different policy scenarios. Only in those scenarios involving liberalization of agricultural products, income growth in smallholder livestock producers is explained by an increase in farm’s net income. Trade liberalization of non-agricultural sectors benefit livestock keepers mainly by increasing non-farm income. In general, all policy scenarios have a negative impact on consumption prices but this effect is smaller than the positive effect on income.

Distributions of the benefits of policy changes between regions differ. The Northern regions (North Central Coast, North West) and the Central Highlands with the higher poverty headcount indices (30%) could reduce poverty to values between 20% and 25% of the index with unilateral and multilateral total liberalization of Vietnam’s trade. On the other hand, multilateral and unilateral agricultural liberalization would increase poverty in these regions.


References
CIE, Vietnam poverty analysis. Prepared for the Australian Agency for International Development, Canberra and Sidney, 2002.

Chen, S. and M. Ravallion. “Household welfare impacts of China’s Accession to the WTO. Presented at the Asian Development Forum , Seoul, November 2002.

Hertel, T. W. (Ed), 1997. Global trade analysis: modeling and applications. Cambridge University Press, Cambridge and New York.

IFPRI. Policy options for using livestock to promote rural income diversification and growth in Viet Nam. Final Report submitted to the Royal Emabssy of Denmark and the
Ministry of Agriculture and Rural Development. Hanoi, 2001.

Rosegrant, M.W., M.S. Paisner, S. Meijer and J. Witcover. Global Food Projections to 2020. Emerging Trends and Alternative Futures. IFPRI, Washington D.C, 2001.

Socialist Republic of Vietnam. The comprehensive poverty reduction and growth strategy. Hanoi, 2002.

Thornton, P.K., R.L. Kruska, N. Henninger, P.M. Kistjanson, R.S. Reid, F. Atieno, A.N. Odero and T. Ndegwa. Mapping Poverty and Livestock in the Developing World. ILRI, Nairobi, Kenya, 2002.



Resource Details (Export Citation) GTAP Keywords
Category: GTAP Application
2003 Conference Paper
Status: Published
By/In: Presented at the 6th Annual Conference on Global Economic Analysis, The Hague, The Netherlands
Date: 2003
Version:
Created: (4/30/2003)
Updated: Bacou, M. (9/27/2003)
Visits: 3,552
- Economic analysis of poverty
- Asia (East)


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