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Trade liberalization effects on Myanmar's oilseed markets.

I. Introduction

The effects of trade policies on domestic producers (processors) should be taken into account on both their output and input prices as alternative trade policies provide nominal protection on certain goods, which affects the real income of users of those goods. Agricultural economists have frequently measured effects such as the effective rate of protection on farm and processing levels. Particularly, when a specific agricultural sector is linked to closely related markets, policy action on one market would affect the welfare of the major players in the whole sector.

As the country passed through many political eras, Myanmar's oilseed sector has become complex due to the imposing of various agricultural trade policies. This situation occurred because its major contributing raw and final products are tradable and favourable on some international fronts. Two major oilseeds, sesame and groundnut, play a crucial role in the sector by contributing about 25 per cent and 28 per cent of total oilseed production and about 30 per cent and 42 per cent of total edible oil production, respectively (FAOSTAT 2008). The other popular edible oilseeds are sunflower, soya bean, rape and mustard, and cotton seed, and their production shares are 14.7 per cent, 7.9 per cent, 2.3 per cent, and 5.2 per cent of the total oil seeds market, respectively (FAOSTAT 2010). Interestingly, Myanmar is the second largest producer of sesame (661,000 tons) in the world and the fifth largest exporter (61,200 tons) in the world sesame market (American Sesame Growers Association 2008). Myanmar groundnut production also stands as the fifth largest producer of the world by producing one million tons in 2008 even though there was no trading opportunity for this commodity (FAOSTAT 2009). Without contributing to formal export, the general market flow of groundnuts comes in the form of seeds, crushing, and confectionery. Approximately 40 per cent of the marketed groundnuts is used for snacks, of which an estimated 20 per cent is informally traded to Thailand. About 60 per cent of groundnuts, in general, go to local oil mills for crushing (Favre and Kyaw Myint 2009). Despite its negligible local production, palm oil contributes about 43.6 per cent of the country's total edible oil consumption and is imported. As such, Myanmar's oilseed and edible oil sectors comprise two major oilseeds and three major edible oils (groundnut oil, sesame oil, and imported palm oil) to meet domestic needs since edible oil is the second most important staple food for local people. Government policy restrictions prior to 2010, such as the export ban policy on groundnut seed, 10 per cent ad valorem export tax policy on sesame seed export, and import quota restriction (20,000 tons per month) on palm oil import dominated the oilseed and edible oil sectors. These trade policies have led many experts to believe that such distortions make the sector less efficient. Furthermore, the appropriate policy directions to maximize revenue and minimize losses in the oilseed sector are likely to be inefficient. With global concern about oilseed crops as energy crops, the world's leading oilseed producers have reformed their domestic policies on the oil crop sector. Policy-makers face the challenge of harmonizing policies while balancing between sufficiency economics, stabilization, and global negotiations in compliance with WTO commitments. In addition, applicable studies which can help identify opportunities for the trading and marketing of high-potential oilseed sectors are essentially needed. Unfortunately, no significant empirical economic analyses on the welfare impact of agricultural trade policies on Myanmar's oilseed and edible oil sectors have been conducted. The outcomes of this study should shed light for policy-makers on how to employ this information to challenge the free trade regional environment in the near future. Therefore, this study focuses on the impacts of trade liberalization policies on the social welfare of Myanmar's oilseed sectors.

The limited data situation allows us to conduct a partial analysis of each policy impact on the demand and supply of each market. Afterwards, the whole model simulation lets us measure the mutual impacts of policy change within the oilseed sector. The policy analysis using such an approach has been addressed in many empirical studies including: Houck (1964); Deese and Redder (2007); Houck, Ryan, and Subotnik (1972); Gemmill (1977); Hudson and Ethridge (2000); Persaud and Chern (2002); Sharma (2002); Warr (2001); and Zhao, Mullen, and Griffith (2005).

The paper consists of six sections. After this introduction, the second section presents a conceptual framework, followed by a theoretical model. The third section discusses the methods and procedures, and the results are reported in the fourth section. The findings are presented in the fifth section, while the sixth section concludes with limitations and suggestions.

II. Conceptual Framework

The conceptual framework (see Figure 1) for this study was formulated to represent the underlying effects of agricultural trade policies on closely interlinked related markets after studying many empirical literature. The theory was developed by Cournot (1801-77) and Marshall (1892-1924) and, generally speaking, that partial equilibrium theory looks at the relationship between two economic variables assuming other variables are constant in value. Furthermore, a partial equilibrium trade analysis often assumes zero transportation costs. This simplifies the issue and allows researchers to determine the direction of price movements when considering the impact of various trade policies (Koo and Kennedy 2005).

Additionally, the price-taking behaviour on the part of both suppliers and demanders should be assumed throughout the model (Nicholson 2005). This assumption is standard practice to simplify the model because both the raw and crushing firms of the studied commodities are not controlled by the state economy. Basically, when the policy actions are directly or indirectly aimed at the market, the suppliers and consumers of each market would be affected and their social welfare would change. Apart from this, each policy action would further affect selected connected commodity markets and the social welfare effects of each policy on this sector would be measured at the new market equilibrium.

The demand functions for each market are derived from well-behaved utility functions subject to budget constraints. These demand functions will be varied inversely with commodity prices and directly with consumers' income. The supply functions are derived from well-behaved cost functions and would depend on the output price and input price. The crushing demands are derived demands which are formulated from the demands for the final products and based on the cost-minimization strategy for a given level of output. Impacts on social welfare are analysed by evaluating the changes in consumer and producer surpluses. Generally, with a more price elastic demand curve, consumers would incur a smaller share of the loss and vice versa. Furthermore, the net social losses would be smaller in situations where demand or supply was inelastic.

In this paper, we will concentrate only on the second half of the theoretical framework, or the bottom portion of Figure 1.

II.1 Theoretical Model

To construct the discussed framework, the structural models of estimating the impacts of agricultural trade policy on major oilseeds and edible oil markets are firstly illustrated. Economists state that the most basic partial equilibrium supply and demand functions can be written as Q = S(P, W) and Q = D(P, Y), where P and Q are the jointly determined variables, market price and quantity. W denotes the price of important factors of production, and Y represents the income level of potential consumers. The partial derivatives of S and D are expected to have the following signs:

[partial derivative]S/[partial derivative]P > 0, [[partial derivative]S/[partial derivative]W] < 0, [[partial derivative]D/[partial derivative]P] < 0, and [[partial derivative]D/[partial derivative]Y] > 0

For the competitive market, the equilibrium price and quantity are determined at the intersection of the demand and supply curves: S(P, W) = D(P, Y), where the supply function S(P, W) is the upward sloping part of the marginal cost curve and the demand function D(P, Y) is the downward sloping marginal benefit curve. Assuming two major oilseeds and three major edible oils, the total quantity supplied and total quantity demanded for sesame and groundnut seeds and total edible oil are hypothesized as linear forms.

In accordance with the hypotheses of each market model, the own-price factors such as farm, wholesale, and export prices of groundnut seed, sesame seed, and edible oil should positively affect the quantity supplied and negatively affect the quantity demanded. The input price, like fertilizer price, and the competitive crop price, like cow pea price, should have a negative effect on the quantity supplied. Per capita income is assumed to have a positive impact on the quantity demanded. Since the input prices and output prices mainly determine the industry demand, these two prices would negatively and positively affect the crushing demand of each seed market, respectively. The price-linkage relation is crucial in an equilibrium analysis, and it should follow the absolute marketing margin concept among the farm price, wholesale price, and export price. The identity of each market would be cleared by structuring total quantity supplied into total quantity demanded, which comprises direct consumption demand, crushing demand, and export demand.

More importantly, the policy action on each market is hypothesized. In the groundnut market model, the quantity demanded for groundnut export ([Degn.sub.t]) which is the exogenous variable, would affect the domestic direct consumption demand ([Dcogn.sub.t]) negatively. In addition, the variable export tax ([ExT.sub.t]) in the sesame market model would also affect the export price ([Pese.sub.t]) positively and that would lead to an export demand ([Dese.sub.t]) reduction. On the other hand, the import quota policy of palm oil would have a positive effect on the quantity supplied of total edible oil. Consequently, policy changes on each market would have a mutual affect among these three markets as they are closely interlinked.

III. Method and Procedure

The two major oilseed (groundnut and sesame seed) markets and a major edible oil market which comprises groundnut oil, sesame oil, and imported palm oil are studied to see what potential policy impacts on each market can affect other related markets. Following the quantitative policy analysis, this paper firstly estimates the supply and demand relationships for selected commodity markets by employing a simultaneous equations model. A two-stage least squares (2SLS) and three-stage least squares (3SLS) method are utilized to correct the simultaneity bias (Henningsen and Hamann 2006). In some circumstances, the application of 2SLS would ignore part of the information included in the entire system and thus the estimates of 3SLS would be more efficient (Koutsoyiannis 1977). All structural equations are estimated using a linear functional form in order to simplify the calculation of welfare effects.

As presented in Table 1, the groundnut seed model contains one identity and four structural equations comprising five endogenous (Sdgn; Dcogn; Dcrgn; Pfgn; and Pmgn) and five exogenous variables (Pf; YM; Degn; Pfse; and Pogn). On the one hand, the sesame seed model which contains five behavioural and three identity equations consists of eight endogenous (Sdse; Dcose; Dcrse; Dese; Pese; Pfse; Pmse; and ExT) and eight exogenous variables (Pcp; YM; Pose; Qf; Y J; PigJ; T; and Pmgn). Additionally, the major edible oil model contains one identity and two behavioural equations consisting of three endogenous (Sto, Dto, and Pto) and five exogenous (Diplo; Pmgn; Pmse; Pcgn; and YM) variables. The major edible oils comprise groundnut oil, sesame oil, and imported palm oil since the other vegetable oils (sunflower oil; mustard oil; rapeseed oil; cotton seed oil; and rice bran oil) are not prominent in the local market. The total edible oil discussed here, such as major groundnut oil, sesame oil, and imported palm oil, is assumed to be identical to all major edible vegetable oils with the intention of simplifying the analysis (Benin and Walusimbi 2004). Since oil production and cake production are locked together through technically fixed crushing yields for cake and oil (Houck, Ryan, and Subotnik 1972), the production quantity of groundnut oil and cake and that of sesame oil and cake would be yielded proportionately from the crushing quantity of groundnut seed and sesame seed. In simplified equations, groundnut oil and cake productions would be written as:

Sogn = Fogn * Dcrgn and Scgn = Fcgn * Dcrgn,

where Fogn and Fcgn are the fixed ratios of oil and cake, meaning the fixed yield of oil and cake per ton of groundnut seed; and Dcrgn is the quantity demanded for crushing as mentioned above. At the same time, sesame oil and cake production would also be expressed as:

Sose = Fose * Dcrse and Scse = Fcse * Dcrse,

where Fose and Fcse are the fixed yield of sesame oil and cake per ton of sesame seed; and Dcrse is crushing quantity of sesame seed. This would help in understanding the policy impact on the final product sector to raw material sector through the processing sector, although there is no processing sector estimation.

The quantity supplied of total edible oil is constructed as a function of output and input price and can be expressed as:

[MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII]

where Pto is the weighted average price of total edible oil at the wholesale level which comprises the weighted average of groundnut oil price, sesame oil price, and palm oil price; Pmgn is the average wholesale price of groundnut seed; Pmse is that of sesame seed; Pcgn represents groundnut cake; and Diplo is the imported quantity of palm oil. The last variable acts as a policy shock to reflect the impact of restricted non-tariff barrier on edible oil markets. Assuming the domestic source of supply of total edible oil is equal to the domestic production of major edible oils (groundnut oil and sesame oil) plus palm oil import, the supplied quantity of total edible oil is obtained as:

Sto = {(Fogn*Dcrgn) + (Fose*Dcrse) + Diplo},

Since there was insignificant domestic production of palm oil until 2006-07, the assumption is not believed to be arguable. On the other hand, the quantity demanded for total edible oil functions as the inverse demand:

Pto = f(Dto, YM); ([partial derivative]Pto/[partial derivative]Dto) < 0, and ([partial derivative]Pto/[partial derivative]YM) > 0,

where YM is the per capita income of the country (Houck 1964; Woo, Calkins, and Meyers 1986). Market clearing equilibrium for total edible oil is then written as Dto = Sto, where Dto is the quantity demanded for total edible oil.

In fact, policy actions affecting each market should have some kind of effect on closely related markets through the respective derived demands. Total edible oil price and oilseed prices play a crucial role in each market as well as in the whole oilseed sector. This makes sense as domestic edible oil processing is influenced by the total edible oil price and this would shift domestic seed demand upward or downward depending on policy actions.

The whole model consists of eleven behavioural equations and five identity equations which contain sixteen endogenous (Sdgn; Dcogn; Dcrgn; Pfgn; Pmgn; Sdse; Dcose; Dcrse; Dese; Pese; Pfse; Pmse; ExT; Sto; Dto; and Pto) and twelve exogenous (Pf; YM; Degn; Pogn; Pcp; Pose; Qf; Y J; PigJ; T; Pcgn; and Diplo) variables. The disturbance terms are assumed to have zero mean, E ([[mu].sub.i]) = 0, constant variance, var ([[mu].sub.i]) = [[sigma].sup.2], and are uncorrelated over the sample, E ([[mu].sub.i], [[mu].sub.j]) = 0 (Table 1). The limited data allows us to estimate only one system that represents the whole oilseed sector. Fortunately though, three market systems are feasible in this study.

Based on Gujarati (1995), the pre-estimation identification properties of the model are examined as a necessary condition and all structural equations are identified. In addition, the rank condition of the models is also examined and the results show that all equations pass. The baseline model is solved using the Gauss-Seidel algorithm; in the analysis, appropriate respecifications are undertaken whenever each equation fails to accept theoretical and statistical validations. All of the model equations and the definition of variables used and their units are presented in Table 2.

Secondly, to see the welfare effects of trade restriction on each market, policy simulations for the whole model are examined. Simulation is used to estimate the distributional impacts associated with the agricultural trade policy (Hudson and Ethridge 2000). In general, simulation refers to the determination of the behaviour of a system via the calculation of values from an estimated model of the system (Intriligator, Bodkin, and Hsiao 1996; Srinivasan 2005). In the groundnut model, the quantity demanded for the export of groundnut seed ([Degn.sub.t]) is used as a shock variable. Multiple percentage change scenarios are conducted and the impacts would affect only the demand and supply of the groundnut market by keeping other things constant (Box I in Figure 2).

Similarly, the ad valorem export tax ([ExT.sub.t]) is used as a policy variable in the sesame market model and the impacts of liberalizing sesame trade would simply be examined by reducing the tax rate in alternative scenarios (Box II in Figure 2). Apart from this, under the identical products assumption (Benin and Walusimbi 2004), the quantity demanded for the import of palm oil is also played as an exogenous shock in the supply and demand of the total edible oil market (Box III in Figure 2).

Consequently and reciprocally, each policy impact would have an effect on the related major oilseed markets via derived demand (Figure 2). Alternative scenarios for policy simulation are also implemented by using the Gauss-Seidel algorithm. Additionally, the concepts of trade theory support measure the welfare effects of market participants at the new market equilibrium of each market; all welfare items are calculated following standard geometric area measurements.

Annual data covering the period from 1988 to 2007 were utilized to estimate the parameters in this study. The supply and demand quantities of major oilseeds and edible oils and the marine fish production quantity are drawn from the data source of FAOSTAT and the Ministry of Agriculture and Irrigation, Myanmar. All domestic prices are collected from FAOSTAT, the Statistical Year Book (CSO), Myanmar, and the Market Information Service (MIS), Myanmar. The per unit value of export for Myanmar sesame available from FAOSTAT is used as the sesame export price by converting the value using the market exchange rate. All prices are in real terms, deflated by the Consumer Price Index (CPI). In this study, the Japanese market is assumed to be a major official importer of Myanmar sesame seed and the real per capita income of this trading partner is drawn from the International Monetary Fund (IMF) database. Despite officially shipping mainly to Japan, Myanmar also formally and informally exports its sesame seeds to China, Bangladesh, Singapore, Malaysia, and the Middle East. Generally, foreign demand depends on the colour of the sesame, with black sesame being very popular in the Japanese market. Local farmers are willing to grow black sesame widely as it is the most valuable in terms of foreign price intake. General market flows also depend on the colour of seeds: 100 per cent of black sesame goes to the Japanese market through the official export market; 80 per cent of white sesame goes to both formal and informal export markets, mainly to China; and the remaining 20 per cent goes to local direct consumption. The data for Myanmar per capita income were collected from the IMF and the Asian Development Bank (ADB) and were deflated using a GDP deflator.

IV. Results and Discussions

IV.1 Estimated Results

The estimated parameters of all behavioural equations perform well following the data. The system of equations is evaluated based on theoretical and statistical criteria. The estimates of 3SLS show small differences from the 2SLS estimates under the probable contemporaneous correlation of error terms of the various equations, and thus the estimates of 3SLS are reported. The price elasticity for each respective market is focused upon to present the estimation results of this paper. The reason for this is that the prices of edible oil and raw material oilseeds play a crucial role in this model by linking the raw material and final product sectors through the processing sectors. By using the marginal effect of price variables, their elasticity is calculated at the mean value. The price elasticity of supply for groundnuts is inelastic and approximately 0.16 at mean value, with other factors held constant. As a value for short-run supply elasticity, the result is reasonable. The price elasticity of direct consumption demand is also inelastic and approximately -0.2 at mean value. This means that the quantity demanded for groundnuts is relatively unresponsive to price changes. The price elasticity of the derived demand for crushing is elastic at the mean value of -1.34. This elasticity is derived from changes in the quantity demanded for groundnut crushing with respect to changes in relative input prices, and the result indicates that it is highly responsive to changes in relative input prices. This is plausible since the operations of major oil mills in the country are costly and have low capacity.

Despite its rather high magnitude, the elasticity of sesame supply with respect to its price is inelastic (0.68). This supply elasticity is essentially much larger than the supply elasticity of groundnut seed and is certainly due to the higher export opportunity of sesame seed since the continuous exports incentivizes farmers through price. The estimate of sesame direct consumption demand is less responsive to its own price with an elasticity of approximately -0.1 at mean value. In fact, sesame seeds are a unique commodity for local consumers and there have been no other substitutes so far. The relative price elasticity of crushing demand or derived demand of sesame crushing is elastic and approximately -1.38 at mean value. This shows that the demands are price responsive and is reasonable as the larger the proportion of total costs accounted for by a particular variable input, the greater the elasticity is of the demand for that input. The price elasticity of export demand for sesame is inelastic and the calculated result is -0.28 at mean value. The negative relation between export price and export demand follows the conventional trade theory as expected; the small price sensitivity of export demand would lead to increased export revenue should prices increase.

The own-price elasticity of supply for total edible oil is inelastic and approximately 0.34 at mean value. The small change in quantity supplied of edible oil is observed by the higher change in its output price. The price elasticity of demand for total edible oil is also inelastic and a very small price response (-0.04) emerges. This suggests that this scenario is the case for necessary commodities.

IV.2 Simulation Results

Simulation error statistics for the oilseed sector model are evaluated for policy simulation and the results are reported in Table 3. Two simulation error measures that compare the estimated and actual value are utilized: Mean Absolute Percentage Error (MAPE), and the Theil inequality coefficient ([U.sub.2]). The MAPE error results for all endogenous variables show between 1 and 10 per cent. The Theil [U.sub.2] results further reveal that the errors vary from 0.03 to 0.1, which are not far from zero. The results indicate that the model is appropriate to continue policy simulation.

All simulation results are presented as positive and negative changes from baseline values which are affected by existing policy. In the simulation for Scenario I, where the import quota policy on palm oil import is expanded, a 10 per cent increase in the quantity import of palm oil is measured, holding other policies constant. According to simulation results presented in Table 4, the producer surplus loss in the total edible oil sector is 1,411 million kyat, while the consumer surplus gain in this sector is 2,064 million kyat. Then, the quota rent for quota holders is lost by expanding the import quota, accounting for 616 million kyat. By summing up those welfare items, the net social effects for import liberalization on the major edible oil sector are positive and account for 36 million kyat.

In addition, a vertical market relationship is employed to estimate the welfare effects of two major oilseed markets (groundnuts and sesame) by increasing the quantity import of palm oil. The inward shifting demand function of major oilseeds certainly leads to a price reduction in the oilseed markets. The benefits of producers (growers) in the groundnut and sesame seed markets lose 3,034 million kyat and 2,065 million kyat, respectively. Consumer surpluses for those two markets are positive and account for 1,233 million kyat and 1,416 million kyat, respectively, under the assumption of a parallel demand shift. These gains do not compensate the farmers' losses, and the negative social effect for both markets is 1,801 million kyat for the groundnut market and 648 million kyat for the sesame market (Table 4).

Furthermore, Scenario II is simulated to reflect the impact of the groundnut export policy on the groundnut market itself and other horizontally and vertically related markets. Keeping other policies constant, a 10 per cent increase in the quantity export of groundnut changes the price and quantity of the groundnut market. The overall welfare effect of the groundnut market is positively influenced by this policy and accounts for 12 million kyat. Additionally, the producer surplus gains are at 107 million kyat and consumer surplus losses total 95 million kyat. Interestingly, the same direction is reflected in both the sesame seed market and the total edible oil market. The farmers' gains in the sesame seed sector amount to 70 million kyat while consumer surplus losses stand at 57 million kyat. Subtracting the consumer surplus losses from the farmers' gains results in a positive net social effect of approximately 12 million kyat. The effects from this policy are positive for producer surplus in the total edible oil sector and account for 30 million kyat while consumer surplus decreases by 8 million kyat, resulting in a positive net social effect of 22 million kyat in this sector (Table 4).

Apart from this, we intuitively further examine a third scenario by liberalizing sesame seed trade through the reduction of the existing export tax to 8 per cent. The results report negative social welfare effects on both consumer surplus and government revenue, consequently leading to a negative net social effect in the sesame seed sector. Government revenue losses account for 3,909 million kyat and the net social loss for the sesame sector is 4,476 million kyat via the tax policy adjustment. By assuming a leftward parallel supply shift, total edible oil sector welfare is calculated through changes in the sesame export tax policy. The results show a positive effect on the total edible oil market by allowing edible oil price to increase enough for edible oil processors with a positive net effect of 534 million kyat. However, there is a negative net social effect of 2 million kyat in the groundnut seed sector. The producer surplus gains in this sector are 138 million kyat and consumer surplus losses stand at 140 million kyat (Table 4).

V. Conclusion and Recommendations

During the study period, it is observed that less efficient domestic edible oil production is further confounded by competition with imported cheaper palm oil. Although private imports are allowed by removing the government's monopoly policy, the quantity restriction is still imposed on palm oil trade. The restricted quota quantity depends on the domestic demand and prices of edible oils since poor consumers rely on the ungraded, cheapest, and poorest quality edible oils. Therefore, liberalizing palm oil imports would benefit domestic consumers.

According to the simulation results, this study concludes that an import quota expansion has positive effects on the total edible oil sector since the gain in edible oil consumers is higher than the processor loss and quota holder loss as the policy favours domestic consumers by keeping prices low. Consequently, the lower oilseed price reduces the incentive for oilseed producers (growers) to boost production, thereby generating welfare losses. The loss is not compensated with the gain of consumers in the two major oilseeds and negative net social effects are observed. In fact, the rising imports undermine the domestic oil price discrimination scheme as cheaper palm oil imports start competing with high-price domestic groundnut oil and sesame oil.

In addition, liberalizing groundnut seed trade has a positive net effect on society as well as on groundnut production. Export-leading price increments in the seed sectors reduce the attraction for oil processors to crush more and consequently generate higher edible oil prices and processor gains in the short run. Unfortunately, this welfare effect would not favour the domestic consumers. However, in the long term, there might be an incentive for farmers to increase production in response to the demand from exports that might also help to improve the consumers' welfare.

On the other hand, liberalizing sesame trade by reducing the existing tax rate (10 per cent) generates a negative impact on the local government, consumers, and society even though sesame growers benefit in some proportion. Nonetheless, domestic seed price increments under the large country assumption allow edible oil processors to add to their surplus by raising oil price and producing a smaller quantity. As a result, the edible oil sector benefits from sesame seed trade liberalization. However, the existing tax rate would generate government revenue and a positive net social effect in the Myanmar sesame seed sector since the tax rate is relatively low for a developing country that can influence the world market (Nyein, Sirisupluxana, and Titapiwatanakun 2010). The results clearly suggest that when the input and output commodities are tradable and when the policy is imposed on this value-added commodity, the domestic producers at each stage of production would be more affected.

The study concludes and implies that trade liberalization is generally beneficial to the oilseeds and edible oils sector, though the impact of the whole economy is not quantifiable. Nevertheless, all of the information from this study would be a helpful to policy-makers in creating more appropriate policies for improvement in the oilseeds sector. According to the results, the groundnut market needs to be encouraged in terms of market and trade opportunities which would benefit all market participants in this sector. Since many kinds of prepared groundnuts are favourable in the international market, groundnut free trade would also benefit the domestic small-scale confectionery sectors. Therefore, policy-makers should not ban potential groundnut trade but rather provide the opportunity for opening up the trade in the sector as it results in a net benefit to the entire oilseed sector.

The government should also not ban sesame seed trade as it would benefit local sesame farmers since the trade prohibition would negatively affect the incentives for local farmers. Nevertheless, abolishing the tax on this product should not be necessarily imposed. The reason is that the existing tax benefits the domestic consumers through a positive purchasing power effect, thereby ensuring government revenue and eventually resulting in a positive net social effect; this tax revenue can support the sesame industry improvement. Apart from this, the palm oil quota restriction should be liberalized and to compensate the linked sectors which are worse off, there should be measures to make up for the loss or policies that complement trade liberalization which minimize the negative impacts on those groups.

VI. Limitations and Suggestions

The study is limited mainly due to the lack of data. The uniform dataset was available only until 2007 during the study period (2007-10) as the restricted agricultural trade policies in Myanmar were abolished after 2010. This action essentially eliminates the import quota policy on palm oil trade and export tax exemption on sesame seed trade. The government has relaxed trade policies on some commodities to conform with the regional trade agreement which will start in 2015. Under many limitations, this paper attempted to point out the effects of some liberalizing policy scenarios on the oilseed sector as indicators for policy-makers to select more appropriate policy choices in conforming to the regional free trade environment.

The study would suggest that analyses on present liberalizing policies which were enacted after 2010 should be conducted to highlight their effects. It also suggests that if complete datasets are available and valid for other related input/output markets, the feed meal and livestock markets should be included to cover the subsequent impacts of policy change since edible oil processors often earn profits from oil cake rather than from edible oil.

DOI: 10.1355/ae30-1e

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NOTE

The authors would like to acknowledge the Oil Crops Development Project, Myanmar, funded by OPEC with representation of FAO, for its scholarship support throughout this study. This paper is a portion of a Ph.D. thesis.

Zhao, X., J. Mullen, and G. Griffith. "Economic Surplus Measurement in Multi-Market Models". 2005. <www. ageconsearch.umn.edu/bitstream/12910/1/wp05003.pdf>. Accessed 6 May 2009.

Khin Myo Nyein is Deputy Programme Officer, Cotton & Sericulture Extension and Technology Development Division, Department of Industrial Crops Development, Myanmar.

Prapinwadee Sirisupluxana is Director, Center for Applied Economic Research, Faculty of Economics, Kasetsart University, Thailand.

Boonjit Titapiwatanakun is Assistant Professor (Retired) in the Faculty of Economics, Kasetsart University, Thailand.

TABLE 1
Major Oilseeds and Edible Oil Market Models

Model of Estimating Major Oilseeds & Edible Oils Market  Equations

Groundnut Market Model

[Sdgn.sub.t], = [a.sub.0] + [a.sub.1] [Pfgn.sub.t] +      (1)
[a.sub.2] [Pf.sub.t] + [u.sub.1t]

[Dcogn.sub.t] = [b.sub.0] + [b.sub.1] [Pmgn.sub.t] +      (2)
[b.sub.2] Y[M.sub.t] + [b.sub.3] [Degn.sub.t] +
[u.sub.2t]

[Dcrgn.sub.t] = [c.sub.0] + [c.sub.1] [Pfgn.sub.t]/       (3)
[Pfse.sub.t] + [c.sub.2] [Pto.sub.t], + [u.sub.3t]

[Pfgn.sub.t] = [d.sub.0] + [d.sub.1] [Pmgn.sub.t] +       (4)
[u.sub.4t]

[Sdgn.sub.t] = [Dcogn.sub.t] + [Dcrgn.sub.t] +            (5)
[Degn.sub.t]

Sesame Market Model

[Sdse.sub.t] = [e.sub.0] + [e.sub.1] [Pfse.sub.t] +       (6)
[e.sub.2] [Pcp.sub.t] + [u.sub.5t]

[Dcose.sub.t] = [i.sub.0] + [i.sub.1] [Pfse.sub.t] +      (7)
[i.sub.2] Y[M.sub.t] + u[6.sub.t]

[Dcrse.sub.t] = [j.sub.0] + [j.sub.1] [Pmse.sub.t]/       (8)
[Pmgn.sub.t] + [j.sub.2][Pto.sub.t], + [j.sub.3]
[Q.sub.f], + [u.sub.7t]

[Dese.sub.t] = [k.sub.0] + [k.sub.1] [Pese.sub.t] +       (9)
[k.sub.2] [YJ.sub.t] + k, Pig[J.sub.t] + [u.sub.8t]

[Pese.sub.t] = [m.sub.0] + [m,.sub.1] [Pfse.sub.t] +     (10)
[m.sub.2] [ExT.sub.t] + [u.sub.9t]

[Pmse.sub.t] = 0.5 ([Pese.sub.t] - [ExT.sub.t], +        (11)
[Pfse.sub.t])

[Sdse.sub.t] = [Dcose.sub.t] + [Dcrse.sub.t] +           (12)
[Dese.sub.t]

[ExT.sub.1] = T * [Pese.sub.t]                           (13)

Total Edible Oil Market Model

[Sto.sub.t] = [n.sub.0] + [n.sub.1] [Pto.sub.t] +        (14)
[n.sub.2] [Pmgn.sub.t] + [n.sub.3] [Pmse.sub.t] +
[n.sub.4] [Pcgn.sub.t] + [n.sub.5] [Diplo.sub.t] +
[u.sub.10t]

[Pto.sub.t] = [r.sub.0] + [r.sub.1] [Dto.sub.t] +        (15)
[r.sub.2] [YM.sub.t] + [u.sub.11t]

[Dto.sub.t] = [Sto.sub.t]                                (16)

TABLE 2
Definitions of Variables and Their Units

Variables   Definition

Sdgn        Quantity supplied of groundnut seed
Dcogn       Quantity demanded for direct consumption of groundnut seed
Dcrgn       Quantity demanded for crushing of groundnut seed
Degn        Quantity demand for export of groundnut seed
Pfgn        Average farm gate price of groundnut seed
Pmgn        Average wholesale price of groundnut seed
Pogn        Average wholesale price of groundnut oil at the Yangon
            & Mandalay market
Pf          Average fertilizer price (N,P,K)
Sdse        Quantity supplied of sesame seed
Dcose       Quantity demanded for direct consumption of sesame seed
Dcrse       Quantity demanded for crushing of sesame seed
Dese        Quantity demand for export of sesame seed
Pfse        Average farm gate price of sesame seed
Pmse        Average wholesale price of sesame seed
Pese        Export price for sesame exports
Pcp         Average wholesale price of cow pea
Pose        Average wholesale price of sesame oil at the Yangon
            & Mandalay market
PigJ        Cif price of groundnut in Japan market
YM          Myanmar per capita income
YJ          Japan per capita income
Qf          Production quantity of Marine fish and other
EXT         Ad valorem export tax for sesame seed export
T           A fixed tax rate in percentage terms
Sto         Quantity supplied of total edible oil
Dto         Quantity demanded for total edible oil
Pto         Weighted average price of total edible oil at
            wholesale level
Diplo       Quantity import of palm oil
Pcgn        Average wholesale price of groundnut cake

Variables   Units

Sdgn        Tons
Dcogn       Tons
Dcrgn       Tons
Degn        Tons
Pfgn        Kyat per Ton
Pmgn        Kyat per Ton
Pogn        Kyat per Ton
Pf          Kyat per Ton
Sdse        Tons
Dcose       Tons
Dcrse       Tons
Dese        Tons
Pfse        Kyat per Ton
Pmse        Kyat per Ton
Pese        Kyat per Ton
Pcp         Kyat per Ton
Pose        Kyat per Ton
PigJ        US$ per Ton
YM          Kyat
YJ          US$
Qf          Tons
EXT         Per cent
T           Per cent
Sto         Tons
Dto         Tons
Pto         Kyat per Ton
Diplo       Tons
Pcgn        Kyat per Ton

TABLE 3
Simulation Errors Statistics for Endogenous
Variables in Complete Model

                                      Static-Deterministic simulation

                                                         Theil's
                                      Mean Absolute     Inequality
Endogenous variables                    Error (%)       Coefficient

Groundnut supply                          1.20              0.04
Groundnut direct consumption demand       1.69              0.08
Groundnut crushing demand                 1.19              0.07
Groundnut farm price                      8.01              0.04
Sesame seed supply                        1.87              0.06
Sesame direct consumption demand          3.63              0.04
Sesame crushing demand                    0.49              0.09
Sesame export demand                      3.83              0.1
Sesame export price                       7.27              0.06
Total edible oil supply                   1.04              0.03
Total edible oil price                    6.52              0.13

TABLE 4
Effects of Liberalizing Agricultural Trade Policies on the
Major Oilseeds Sector

                                   Estimated Effects (Million Kyat)
Welfare Items
on Three Markets               Scenario I   Scenario II   Scenario III

Total Edible Oil Market
Change in Producer Surplus         -1,411            30            784
Change in Consumer Surplus          2,064            -8           -249
Change in Quota Rent                 -616            --             --
Net Social Effects                     36            22            534

Groundnut Seed Market
Change in Producer Surplus         -3,034           107            138
Change in Consumer Surplus          1,233           -95           -140
Net Social Effects                 -1,801            12             -2

Sesame Seed Market
Change in Producer Surplus         -2,065            70          3,005
Change in Consumer Surplus          1,416           -57         -2,438
Change in Government Revenue           --            --         -3,909
Net Social Effects                   -648            12         -4,476

NOTES: The figure was calculated by using the average value
from 1988 through 2007.

Scenario I: 10 per cent increase in quantity import of palm oil,
other policies remain the same.

Scenario II: 10 per cent increase in quantity export of groundnut,
other policies remain the same.

Scenario III: Setting 8 per cent export tax in sesame seed trade,
other policies remain the same.
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Article Details
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Author:Nyein, Khin Myo; Sirisupluxana, Prapinwadee; Titapiwatanakun, Boonjit
Publication:Journal of Southeast Asian Economies
Article Type:Report
Geographic Code:9MYAN
Date:Apr 1, 2013
Words:7033
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