milk and beef. For these products, a time series of duty paid border prices and domestic prices has been generated in order to check the working hypothesis that changes in the duty paid import price are not fully transmitted to the internal price.
Turkey has been an importer of beef since 1985 when trade barriers were lowered, until 1996. In 1997, an import ban came into effect and prohibited significant imports. From 1985 to 1996 imports covered between 3 and 15 percent of domestic consumption. For this period, a price series of import prices was calculated from Turkish import statistics. For 1989 to 1996, import unit values of frozen compensated beef quarters were taken as indicators for the average import price, as significant quantities of this product were imported in each of these years. For the years 1985 through 1988, import unit values for
fresh meat of bovine animals were taken, as no significant quantities of frozen quarters were traded. This approach is justified by the fact that the unit value for the two products were reasonably close in the years 1989 to 1991. Table 6.12 presents price data for beef.
Table 6.12: Turkish Import, Border, and Domestic Prices for Beef (US$/t)
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 Im. price
(unit value)
1,108 958 1,216 1,016 871 1,458 1,275 1,010 967 1,046 1,666 1,325 Ad valorem
tariff
1% 1% 1% 1% 1% 1% 1% 1% 15% 15% 15% 105%
Specific tariff
50 250 400 400 600 600 900 1,300 1,500 1,500 1,000 Transport
margin
47 47 47 47 47 47 47 47 47 47 47 47
Border
price 1,216 1,265 1,675 1,473 1,527 2,120 2,235 2,367 2,659 2,750 2,963 2,763 Farmgate
price
1,183 1,495 2,157 1,894 2,105 2,933 3,264 3,510 3,572 2,424 3,913 3,077 Wholesale
margin
305 305 305 305 305 305 305 305 305 305 305 305 Wholesale
price
1,488 1,800 2,462 2,199 2,410 3,238 3,569 3,815 3,877 2,729 4,218 3,382 Sources: SIS (import statistics); UFT (tariffs); OECD (farmgate price); own calculations.
Tariffs and a transportation margin (as applied in TURKSIM) are added to the import price in order to generate a duty paid border price at wholesale level to be compared to the internal price, which is generated by adding a wholesale margin (as applied in TURKSIM) to the OECD reported farmgate price.53 The border price and the internal wholesale price are presented graphically in Graph 6.9.
53 There is no reason, of course, to assume that such a margin should stay constant over time.
No empirical information, however, on the development of such a margin was available.
Graph 6.9: Turkish Border and Internal Wholesale Prices for Beef, 1985-1996 (US$/t)
Sources: Various sources (see below); own calculations.
Graph 6.9 shows that the internal price usually lies above the border price and follows, to a certain extent, the movement of the border price. This positive price correlation can especially be observed, independently of the overall trend of increasing beef prices, in the years 1987 to 1990 and 1995 to 1996, when prices deviate from the overall increasing trend. The 1994 internal price is distorted due to a strong devaluation of the Turkish Lira in 1994, so 1994 is not included in the data set for estimation.
The years 1990 to 2000 were a period of dairy product imports exceeding one percent of raw milk equivalent of domestic milk consumption in most years. A price series of duty paid border prices was created for this period using Turkish import unit values for SMP (CN position 04021019) and butter (CN position 04050011) as indicators for the average price level of imported dairy products.
The results are presented in Table 6.13. The tariff-paid border prices for butter and SMP are aggregated by weighting them with their relative extraction factors, and a transportation margin is added as applied in TURKSIM in order to create a border price per ton of raw milk equivalent at wholesale level. A processing margin as applied in TURKSIM is added to the farmgate price in order to create an internal price at wholesale level for comparison to the border price. The
0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 Year
US$/t
Border Price Internal Price
processing margin is rather large and even exceeds the farmgate price in one year. This wholesale margin was calculated for the base period of TURKSIM (see Subchapter 7.2 below); for the purpose of this analysis it is assumed to be constant in dollar terms over the period 1990 to 2000. Therefore the internal price at wholesale level could be distorted, as the reasons for such a high margin and its development over time are obscure. An alternative would be the direct use of observed, internal SMP and butter wholesale prices. This approach, however, has not been followed as SMP prices in Turkey are neither collected nor published. Rather TURKSIM base period data were collected from individual companies (see Subchapter 7.2).
Table 6.13: Turkish Import, Border, and Domestic Prices for Dairy Products (US$/t)
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Im. price butter 1,291 814 921 1,193 1,435 1,902 1,962 1,756 2,003 1,669 1,687 Ad valorem tariff
butter
30% 30% 30% 5% 5% 5% 50% 70% 70% 70% 100% Sp. tariff butter 400 400 400 900 900 500
Tariff paid border price butter
2,078 1,458 1,597 2,153 2,407 2,497 2,943 2,985 3,405 2,837 3,374 Import price SMP 879 813 1,269 1,577 1,384 1,746 1,805 1,752 1,656 1,351 1,556 Ad val. tariff SMP 1% 1% 1% 26% 20% 20% 75% 130% 130% 130% 150% Sp. tariff SMP 700 1,000 1,200 1,200 1,300 1,300 30
Tariff paid border
price SMP 1,588 1,821 2,482 3,187 2,961 3,395 3,189 4,030 3,809 3,107 3,890 Transport margin 24 24 24 24 24 24 24 24 24 24 24 Weighted border
price
259 253 320 408 399 442 443 522 520 431 526 Farmgate price 285 274 306 286 223 283 317 359 341 275 264 Wholesale margin 246 246 246 246 246 246 246 246 246 246 246 Wholesale price 531 520 552 532 469 529 563 605 587 521 510 Sources: SIS (import statistics); UFT (tariffs); OECD (farmgate price); own calculations.
The border price and the internal wholesale price are presented graphically in Graph 6.10. Graph 6.10 shows that the internal price is above the border price for the whole period, except for the year 2000. The correlation, however, is less clear than in the case of beef. During periods 1992 to 1993 and 1999 to 2000 prices, move in opposite directions, whereas correlation is positive in other periods.
Graph 6.10: Border Price and Internal Wholesale Price for Milk, 1989-2000 (US$/t)
Sources: Various sources (see below); own calculations.
In order to quantify the relationship between the internal price and the border price the following statistical model was estimated in GAUSS using the least squares estimator.
(6.16) ln PIt = α +β • ln PBt + γ • t + εt,
with PI being the internal price, PB being the border price and t being the respective year. The trend parameter γ is included as a simple approach to account for the nonstationarity of price series. β is the price transmission elasticity of the internal price with respect to the border price. Estimation results are presented in Table 6.14. In the case of beef, the price transmission elasticity is estimated at 0.66, significant at a 5 percent level. The explanatory value of the chosen model is high, as the adjusted R-square is at 0.93 and the F-value is at 69. The Durbin Watson test is inconclusive but the Breusch and Godfrey test for autocorrelation rejects first order autocorrelation at the five percent significance level. The result is in accordance with a priori assumptions that domestic prices are linked to border prices, but price transmission is not complete. Price transmission elasticities for meat in TURKSIM are therefore set at 0.66.
0 100 200 300 400 500 600 700
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Year
US$/t
Border Price Internal Price
Table 6.14: Estimation of Price Transmission Elasticities for Beef and Milk
Beef Milk
Functional form log-linear log-linear
Period covered 1985-1996 excl. 1994 1993-1999
Degrees of freedom 8 4
Constant 2.696 1.459
(t-value) (1.7) (1.1)
Price transmission elasticity 0.657 0.796
(t-value) (2.8) (3.4)
* *
Trend parameter 0.169 -0.02
(t-value) (1.7) (0.6)
Adj. R2 0.931 0.708
F 68.7 8.3
* = significant at 5 percent level.
Source: Own estimates.
In the case of milk, no significant results are obtained from full period data 1990 to 2000. If, however, periods 1990-1993 and 1999-2000 are excluded, the resulting price transmission elasticity is at 0.8 and significant at five percent, and first order autocorrelation is rejected by the Durbin Watson as well as the Breusch and Godfrey tests. The exclusion of 1999-2000 can be justified by the sudden devaluation of the Turkish Lira, but not so the exclusion the period 1990-1993. Nonetheless the price transmission elasticity for milk and eggs in TURKSIM is set at 0.8. This is because no better a priori assumption exists and it seems plausible that price transmission for milk products and eggs is somewhat higher than that for meat due to lower transportation cost for these products (e.g. in the form of SMP or dried eggs).
7 D
ATAS
ET FORM
ODELC
ALIBRATIONThe base period for TURKSIM with respect to the quantitative framework (yield, area, supply, trade, and demand) is the average of the years 1997 through 1999 for plant products and the average of the years 1998 through 1999 for animal products. A two year average is considered sufficient for animal products; animal production is much less volatile than plant production as it depends less on climatic conditions of the respective year. For prices, wholesale as well as farmgate, and the relevant price margins, the average of the years 1996/98 was chosen in order to make allowance for some lagged adjustment at the supply side, which is of course more distinct in animal production due to the respective production cycles and long-term investment decisions. For some products the base period was adjusted for specific reasons which are explained below in the respective sections.
7.1 Supply, Trade, and Demand