The economic impact of imports on the Australian pig industry: is it time for the WTO’s safeguard measures? 1. Replicating and updating the 2008 Productivity Commission analyses

Abstract

<p>It is now 25 years since pig meat imports were first allowed into Australia. Pig producers have argued that import liberalization has caused the decline in the domestic production of pig meat and in the profitability of pig production. In its most recent Inquiry report in 2008, 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. Since then the volume of pig meat imports into Australia has continued to rise so that by 2014 imported pig meat made up nearly 70 percent of the total pig meat processed domestically and half of total consumption. The question addressed in this analysis is whether the current market scenario of substantial and continuing increases in pig meat imports in Australia could now justify the need for the WTO’s safeguard measures. The specific objective is to assess whether the PC’s earlier results still hold using exactly the same methods but with an updated dataset. Application of the first of the estimation techniques used by the PC suggests that domestic production has been affecting the sale yard price rather than import volumes or prices, while the second technique used by the PC and its respective post-estimation tests did not suggest a strong causal effect between import volume or unit values and domestic production or sale yard price. Thus, based on the PC’s models, 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 are a number of statistical problems with the PC models that were simply updated for the current analysis. In a companion paper, the PC models are re-specified and re-estimated to overcome these statistical problems. </p>