The Economic Impact of Imports on the Australian Pig Industry: Is it Time for the WTO’s Safeguard Measures? 2. Re-estimating the Productivity Commission's Vector Autoregression and Inverse Demand Models

Abstract

In its 2008 Inquiry report into the impact of imports on the Australian pig meat industry, the Productivity Commission (PC) concluded that the main reason for the declining profitability of pig farmers in Australia was the higher costs of feed in the domestic market. Movements of the Australian dollar were also found to favour increased imports of pig meat. Based on analyses conducted with data up to 2007, the PC was unable to justify the need for Australia to activate the safeguard measures prescribed under the World Trade Organization (WTO) rules in order to temporarily protect the local pig industry. In a preceding paper, using exactly the same methods but with a dataset updated to 2013, the authors found that domestic production, rather than import volumes or prices, has been affecting the saleyard price and that there was not a strong causal effect between import volume or unit values and domestic production or saleyard price. Thus, based on a straightforward updating of the PC's models, the PC conclusions were confirmed: it is unlikely that a new case could be made for the application of the WTO safeguard measures to the Australian pig meat industry. However, there were a number of statistical problems with the PC models that were simply updated for the previous analysis. In this paper, the PC models are re-specified and re-estimated to overcome these statistical problems. However, the misspecifications do not lead to any different implications of the results.