974-7946-20-3€¦ · products including bovine meat and pigmeat was not associated with the growth...

The designations employed and the presentation of the material in this publication donot imply the expression of any opinion whatsoever on the part of the Food andAgriculture Organization of the United Nations (FAO) nor of the Animal Productionand Health Commission for Asia and the Pacific (APHCA) concerning the legal status ofany country, territory, city, or area or of its authorities, or concerning the delimitation ofits frontiers or boundaries. Opinion expressed in this paper are those of the author aloneand do not imply any opinion whatsoever on part of the FAO and APHCA.

ISBN

974-7946-20-3

© FAO, 2002

All right reserved. No part of this publication may be reproduced, stored in retrievalsystem, or transmitted in any form or by any means, electric, mechanical, photocopyingor otherwise, without the prior permission of the copyright owner. Application for thereproduction, should be addressed to Senior Animal Production and HealthOfficer/Secretary of APHCA, Food and Agriculture Organization of the UnitedNations, Regional Office for Asia and the Pacific (RAP), 39 Maliwan Mansion, Phra-AtitRoad, Bangkok 10200, Thailand.

RAP publication no. 2002/06

SOME ISSUES ASSOCIATED WITH

THE LIVESTOCK INDUSTRIES OF

THE

ASIA-PACIFIC REGION

Food and Agriculture Organization of the United Nations

Regional Office for Asia and the Pacific

Animal Production and Health Commission

for Asia and the Pacific (APHCA)

February 2002

i

Acknowledgements

This report was prepared by Paul Riethmuller under the technical guidance of DenisHoffmann, Senior Animal Production and Health Officer, FAO Regional Office for Asiaand the Pacific (FAO/RAP) and Henning Steinfeld, Chief, Livestock Information, SectorAnalysis and Policy Branch, Agriculture Department, FAO Headquarters, Rome. PaulRiethmuller of the Department of Economics at the University of Queensland, Australiaauthored chapters 1,4 and 5. He coauthored chapters 2 and 3 with Nawarat Chalermpao.Nawarat Chalermpao also assisted in compiling some of the information used in the chaptersfor which she was not a co-author. Others who gave freely of their knowledge of thelivestock industries were A. Abeyratne, P.C. Bansil, Bingshe Ke, G. Ramsay, D. Smith, D.Steane, and the participants at two FAO workshops. The first of these, Fostering the PolicyDialogue in Support of Equitable, Safe and Clean Livestock Farming, RegionalBrainstorming Workshop for East and South Asia, was held between 19-22 February 2001in Bangkok. The second workshop, Area-Wide Integration of Specialized Crop andLivestock Activities: Formulation of Guidelines, took place between 17-20 September 2001,also in Bangkok. Assistance at various stages in preparing the report also came from VishnuSongkitti, Chanrit Uawongkun, Jenny Turton and Rebecca and Rachel Riethmuller.

The research was part of the FAO partnership programme of collaborative research withuniversities.

iii

TABLE OF CONTENTS

Acknowledgments............................................................................................................................i

List of tables..................................................................................................................................iv

List of figures .................................................................................................................................v

List of boxes ...................................................................................................................................v

Appendices....................................................................................................................................vi

Executive Summary......................................................................................................................vii

CHAPTERS

1. Trends and convergence in the consumption of livestock products........................................1

2. Has higher growth in livestock production in Asia been associated with .............................31

greater variability in Asian livestock production?

3. Vertical integration and the livestock industries of the Asia-Pacific region..........................50

4. The diverse functions of livestock: an Asia-Pacific perspective...........................................71

5. Weaknesses in the livestock industries of Asia: results from

a survey of livestock policy makers and researchers............................................................82

iv

LIST OF TABLES

1. Protein consumption per person per day in grams derived from animal products ..................3

2. Bovine meat’s percentage share of protein from the consumption oflivestock products...................................................................................................................4

3. Poultry meat’s percentage share of protein from the consumption oflivestock products...................................................................................................................5

4. Pigmeat’s percentage share of protein from the consumption of livestock products ..............6

5. Milk’s percentage share of protein from the consumption of livestock products ...................7

6. Egg’s percentage share of protein from the consumption of livestock products.....................8

7. The percentage share of mutton and goat meat in protein fromthe consumption of livestock products ...................................................................................9

8. Kilocalories per person per day derived from animal products ............................................10

9. Fat per person per day in grams derived from animal products ............................................11

10. Per person consumption of bovine meat, kg per year ...........................................................12

11. Per person consumption of pigmeat, kg per year ..................................................................13

12. Per person consumption of poultry meat, kg per year...........................................................14

13. Per person consumption of mutton and goat meat, kg per year ............................................15

14. Per person consumption of other meat, kg per year ..............................................................16

15. Per person consumption of whole milk, kg per year .............................................................17

16. Per person consumption of eggs, kg per year........................................................................18

17. Results from testing for convergence in the consumption of livestock products ..................22

18. Country and commodity coverage for analysis .....................................................................34

19. Total meat production in the Asia-Pacific region and the percentageshare of each country, 1961-2000.........................................................................................35

20. Relative percentage shares of different meats in the Asia-Pacific region, 1961-2000..........36

21. Results from regression of the index of variability against production growth,the high income dummy and the significance growth dummy, 1961-2000..........................40

22. Problems identified by workshop participants, February 2001.............................................83

v

LIST OF FIGURES

1. Consumption convergence: an example...............................................................................19

2. Annual growth in total meat production, 1961-2000 ...........................................................36

3. Growth in total meat production, 1961-80 and 1981-2000..................................................37

4. Index of variability for total meat production, 1961-2000...................................................39

LIST OF BOXES

1. Methodology used to calculate growth in per person consumption oflivestock procedures.............................................................................................................20

2. Methodology used to test for consumption convergence.....................................................21

3. Sri Lanka’s experience with livestock insurance .................................................................32

4. Methodology used to calculate production growth ..............................................................32

5. Government agencies involved in information collection for China’s beef industry ..........33

6. Changes in the distribution of Republic of Korea dairy farms by number of head..............38

7. The index of variability in production .................................................................................39

8. Indonesia’s nucleus plasma scheme.....................................................................................51

9. Economies of scale and agricultural production ..................................................................54

10. Investment plans of Charoen Pokphand...............................................................................56

11. Indonesia’s regulation of the poultry industry .....................................................................58

12. Bovine hides in India ...........................................................................................................73

13. The cattle financing program for farmer cooperatives in the Philippines............................75

14. In-kind credit on Java...........................................................................................................78

15. Government intervention and Sri Lanka's livestock sector..................................................85

vi

APPENDICES

1. Results from estimating growth equations

(equation in box 12 Bovine hides in India) ............................................................26-30

Bovine meat.......................................................................................................................26

Poultry ...............................................................................................................................27

Pigmeat ..............................................................................................................................28

Wholemilk .........................................................................................................................29

Eggs ...................................................................................................................................30

2A. Growth in the production of livestock products inthe Asia-Pacific region, 1961-2000 ..............................................................................44-48

Growth in beef and veal production, selected countries in the Asia-Pacific region ..........44

Growth in buffalo meat production, selected countries in the Asia-Pacific region ...........44

Growth in chicken meat production, selected countries in the Asia-Pacific region ..........45

Growth in production of cow milk (whole fresh), selected countries inthe Asia-Pacific region ......................................................................................................45

Growth in duckmeat production, selected countries in the Asia-Pacific region................46

Growth in goatmeat production, selected countries in the Asia-Pacific region.................46

Growth in hen egg production, selected countries in the Asia-Pacific region...................47

Growth in mutton and lamb production, selected countries in the Asia-Pacific region ....47

Growth in pigmeat production, selected countries in the Asia-Pacific region ..................48

Growth in poultry meat production, selected countries in the Asia-Pacific region ...........48

2B. The index of variability in the production of livestock products inthe Asia-Pacific region, 1961-2000 ...................................................................................49

3. Examples of companies in the Asia-Pacific region thatare vertically integrated ................................................................................................62-70

vii

Executive Summary

The livestock sectors of the countries of the Asia-Pacific region have experienced phenomenalgrowth. This has created opportunities for farmers in the region to reap economic benefits, and it hasalso opened the way for people living in the region to improve their nutritional status through theconsumption of livestock products. At the same time, the expansion of the livestock industries hascreated new challenges for policy makers because of the far-reaching and sometimes unexpectedimpact it is having on various parts of the economy. This report addresses a number of issues thathave been associated with the expansion of the livestock industries.

Chapter 1 - Trends and convergence in the consumption of livestock products - describes the roleplayed by the different livestock products in the diets of consumers in the Asia-Pacific region. Thematerial presented in the first part of the chapter highlights the changes that have occurred in theconsumption of livestock products. Protein consumption from livestock products more than doubledin Indonesia and in Thailand between 1961 and 1999. Over this same period, China's consumption ofpigmeat increased from 2.3 kg per person to 32.3 kg per person, and Malaysia's consumption ofpoultry expanded from 3.5 kg per person to 36.5 kg per person. The second part of the chapter drawsupon some of the methodologies used in growth theory to examine whether there is any evidencethat consumption of livestock products is converging in the countries of the Asia-Pacific region. Thetest is based upon the idea that if there is convergence, then those countries where per personconsumption at the start of a period is low should display high consumption growth in subsequentyears. Conversely, countries where consumption is high initially should display little consumptiongrowth. Using information for the period 1961 to 1999, it was found that for bovine meat, pigmeat,eggs and wholemilk there is evidence of convergence. This suggests that per person consumption oflivestock products across countries will become increasingly similar over time.

The linkage between the growth in production of livestock products and the variability in thedomestic production of livestock products for a group of countries in the Asia-Pacific region isinvestigated in chapter 2. It is fairly clear that livestock have an important part to play in improvingthe nutritional status of low-income households. However, it is not only the level of food availabilitythat is important, but also the stability of supply, which is related in part to the variability ofdomestic production. This is particularly the case if the country does not have the financial resourcesto turn to international markets when it experiences a shortfall in domestic production. For the period1961 to 2000, the results indicated that variability in production of a number of different livestockproducts including bovine meat and pigmeat was not associated with the growth in the livestockindustries. There was an association between variability and production growth for chicken meat,goat meat and cow milk. For the first two, increased production variability was observed in thosecountries showing the smallest rate of production increase, while for the latter, the relationship wasthe opposite. Additional work on this question is warranted. Industry characteristics (such as theproportion of production that comes from traditional producers) should be a part of an extendedanalysis.

Vertical and horizontal integration of the livestock industries is examined in chapter 3. The chapterdescribes the nature of vertical and horizontal integration, outlining a number of reasons why thesestructures might have appeared in the livestock sectors. Transaction costs, product quality and theopportunity for firms to make profits from this form of market structure are among the reasonsdiscussed. An extensive listing of examples of firms involved in the livestock industry is provided inthe Appendix to chapter 3. It is clear from the activities of these firms that many have interestsbeyond livestock production, extending into food distribution and retailing and manufacturing.

The livestock industries in developing countries perform many functions besides providing food.Chapter 4 discusses a number of these using examples from across the countries of the Asia-Pacificregion. It is clear that there is a complex web of interactions based upon social, cultural and religious

viii

factors surrounding the livestock industries. Moreover, it appears that social and cultural factors maybe more important for livestock than for the cropping industries. The functions performed bylivestock are often different across countries and can even differ within the same country. Many ofthese functions do not involve any form of formal market transaction, making it extremely difficultto place a value upon them. Knowledge of these functions on the part of policy makers is critical inthe design of livestock programmes.

Policy makers and researchers involved in the livestock industries from a number of the developingcountries of the Asia-Pacific region were asked through an informal survey to identify what theybelieved to be weaknesses in the livestock sector of the region. This material is presented in chapter5. Production, marketing and infrastructure problems dominated the responses. Environmental issuesand government intervention in global markets were matters that were raised rarely, if at all, byrespondents. Both of these might be viewed as being more long-term issues. While it is certain thatthe respondents would regard them as important, it is not surprising their focus should be on theother areas. The countries where most of the respondents came from have limited resources availableto them. Hence implementing a production measure that increased output in the short term is likelyto be more appealing that introducing a policy that will provide results only in the long term.

1

1. Trends and convergence in the consumption of livestock products §

The purpose of this chapter is to present information on trends in the consumption of livestockproducts in the countries of the Asia-Pacific region using data from the Food and AgricultureOrganization of the United Nations (FAO). After outlining developments in the consumption ofdifferent livestock products, the issue of convergence in the consumption of livestock productsacross countries will be examined. This is done by relating the growth rates in consumption ofdifferent livestock products in a number of countries to the level of consumption of these livestockproducts in those same countries at the start of the period for which the growth rates were calculated.The results from this should help analysts in their thinking about the possible future path of livestockproduct consumption in the countries of the Asia-Pacific region. Fish are not explicitly included inthis chapter, although their importance in the Asia-Pacific region is acknowledged.

Grigg (1999) describes the average diet in Western Europe in the nineteenth century as one in whichlivestock products rarely provided more than 15 percent of total calorie intake. He explains that theFrench diet in the nineteenth century was similar to that in developing countries in the 1960s. Thebottom half of the French population during the 1860s ate about 20 kg of meat each year, while thesame group in England would have eaten barely 10 kg of meat (Smil 2000). Grigg (1999) goes on tooutline how diets in Western Europe were transformed by a number of economic and technologicalchanges. These were :

• a rapid growth in agricultural productivity that allowed production and consumption tooutpace population growth, leading to a decline in the real price of food;

• an improvement in transport reduced the cost of moving foods, together with the introductionof refrigeration which allowed international trade in food to expand and;

• a growth in real incomes following industrialization.

It is interesting to note that Grigg (1999) appears to place substantial weighting to factors on thesupply side since two of the three sets of factors mentioned are supply shifters.

In the 1960s, diets have changed in the developing countries of the Asia-Pacific region for reasonsthat are broadly similar to those that shaped Western European diets a century earlier. Increasedagricultural productivity, increased incomes (reflecting an increased opportunity cost of time) andchanges in life style such as increased urbanization were taking place at the same time as changeswere occurring in the consumption of livestock products. Furthermore, just as cultural and historicalfactors have been influential in shaping the diets of western Europeans (Simoons 1978), cultural,religious and historical factors have also been important influences on Asian diets. For example, thefollowers of Islam in countries such as Indonesia, Pakistan, Bangladesh and China do not consumepork, and the cow is regarded as sacred by India's Hindus, preventing the consumption of cow'sflesh. Fish from certain sacred rivers in Bangladesh and from the klongs (canals) adjoiningThailand's Buddhist temples can not be eaten in those countries1. Kuntowijoyo (1991), cited inMulyo (2000), explains that in Indonesia, the food that is consumed should be halal (allowed byreligious teachings) as well as nutritious.

§ Alicia Rambaldi provided helpful comments on this chapter but she is not responsible for any errors.1 This latter restriction would have almost no effect on food consumption in Thailand. When a birthday isbeing celebrated, the person who is celebrating the birthday often will release fish into the klong near to thetemple. Obviously if someone else were to catch these fish, this would not be the socially acceptable thing todo.

2

The data source

As noted already, the data presented in this chapter came from FAO. The data relate to supply perperson and are derived from production in the country, net trade, change in stocks and waste. Dataquality is a problem when examining agricultural markets in developing countries. Problems relatedto product quality as well as to the level of services embodied in the product makes analysingdeveloped country markets also difficult. In a recent review of models from FAO, the United StatesDepartment of Agriculture and the International Food Policy Research Institute, McCalla andRevoredo (2001) pointed out that data problems are a "major cause of error" (p.25). There are avariety of reasons for the sometimes dubious quality of the data. Three of these will be mentionedhere. First, the informal market for many agricultural commodities in developing countries isimportant. In India, for example, some commentators say 85 to 90 percent of the milk that isconsumed is sold through informal channels. In Sri Lanka, the figure is said to be closer to 40percent. Adulteration of milk is a major issue in Pakistan and this would create uncertainty as to thequantity of milk being consumed. A second reason is that livestock production by subsistencefarmers is difficult to estimate. Village poultry and egg production, for example, is seldom recordedaccurately and this would impact on estimates of food consumption by people living in villages. Athird reason is that different agencies are usually involved in data collection and this makes qualitycontrol of the data problematic in at least some of the countries examined. (Box 2.3 in Chapter 2describes the situation that has existed in China.) The data quality issue is an important qualificationto the material that will be presented in this chapter.

Livestock as a source of protein

Animal protein based foods contain all of the essential amino acids needed to maintain the body.Recommended levels of protein consumption vary depending upon a range of factors including - butnot limited to - age, body size and sex2. For example, some authorities say that for infants therecommended protein intake is 2 g per kg of bodyweight; for men and women, the recommendedintake is 0.75 g per kg of body weight; while for pregnant women and lactating women protein needsare 6.75 g and 16.75 g per kg of bodyweight, respectively (Stanton 2001). According to Hussain(1992), protein intake should be 45.3 g per day. One third of this, Hussain (1992) contends, shouldcome from livestock products. Smil (2000) is more cautious, and points out that finding a consensuson protein requirements is "an elusive task even after more than a century of relevant research"(p.228). Nonetheless, a consistent view of most writers is that livestock products can play a usefulpart in meeting protein requirements.

As well as being a source of protein of high biological value, livestock products providemicronutrients such as vitamin A and iron, both of which are important in preventing malnutrition.To meet average daily requirements for energy, iron and zinc, a child would need to eat 2 kg of cornand beans each day which is more than a child is physically able to do. The same amount is availablein 60 g of meat (World Bank 2001). There are significant public health consequences associated withlivestock consumption. Children who are malnourished are susceptible to viral, parasitic andbacterial infections (van der Zipf 1999); and toddlers whose diets include little animal protein do notperform as well on cognitive tests as children who do have animal protein in their diets (World Bank2001). Too much protein can have undesirable health effects, interfering with calcium absorption,the functioning of the kidneys and leading to fat build-up. This tends to be a problem in the high-income countries of the west at the present time and it is emerging as a problem among certaingroups in some of the developing countries.

2 McCalla and Revoredo (2001) point out that the estimates made by FAO of food requirements in the earlypost-war period made what McCalla and Revoredo (2001) regard as the incorrect assumption that foodrequirements were the same for all people. This led, in their opinion, to a gloomy assessment of the percentageof the world's population that was undernourished.

3

There are differences between countries in the level of protein intake from livestock products asTable 1 shows. Protein consumption based upon livestock products was highest in 1999 in the fourhigh-income countries (Australia, New Zealand, Japan and the Republic of Korea) and Mongolia.Protein from animal products was particularly high in Australia and New Zealand for all of the yearsshown in Table 1. Mongolia and Malaysia were the only countries among the developing countrygroup where livestock based protein consumption was anything like the levels in the high incomecountries; for Malaysia this has only been the case since the mid-1990s. In the countries of SouthAsia, per person consumption of protein from livestock products was highest in 1999 in Pakistan at22.2 g per person per day and lowest in Bangladesh at 5.9 g per person per day. In both of thesecountries, consumption of protein from livestock products has been relatively stable since the mid-1990s. Cambodia, Laos and Myanmar had the lowest levels of protein from livestock products, atless than 10 g per person per day in 1999. In all of these three countries, there is evidence thatconsumption has recently been increasing. The importance of livestock products as a source ofprotein has increased dramatically in Malaysia; since the mid-1970s, protein from livestock hasalmost doubled. Of the other countries in South-east Asia, Thailand and the Philippines had broadlysimilar levels of protein intake from livestock products although for Thailand the increase over thelast decade has been more marked. Indonesia and Viet Nam are clearly on a lower level in terms ofprotein intake from livestock products but consumption in both countries has been increasing (Table1).

Table 1 Protein consumption per person per day in grams derived from animal products

Country 1961 1965 1970 1975 1980 1985 1990 1995 1999

High-income countriesAustralia 68.2 70.9 70.2 78.0 69.8 70.8 72.8 68.5 66.1New Zealand 60.5 61.3 65.7 72.5 65.0 68.0 64.0 64.2 59.8Japan 23.4 28.3 36.1 40.3 44.8 49.2 53.0 54.9 51.7Korea, Rep. of 5.3 6.5 7.1 13.1 15.6 19.9 27.6 34.2 36.2

East AsiaChina 3.5 5.7 5.4 6.4 7.4 10.2 14.2 23.6 28.9Mongolia 61.2 56.1 53.6 54.4 50.2 43.4 47.9 46.9 50.5

South AsiaIndia 6.2 5.9 5.8 6.3 6.7 8.5 9.0 10.0 10.3Nepal 7.6 7.7 7.8 8.4 8.6 9.2 9.1 8.8 9.1Pakistan 13.8 14.1 13.9 13.9 14.4 15.3 17.8 20.7 22.2Sri Lanka 8.8 9.4 9.3 7.7 9.9 10.0 9.8 11.8 13.0Bangladesh 5.2 6.1 6.2 5.4 4.7 5.2 4.8 5.4 5.9

South-east AsiaCambodia 4.2 5.7 7.4 7.1 3.3 7.5 8.7 8.6 8.2Laos 5.2 6.4 7 5.3 6.6 6.4 6.6 8.8 8.9Myanmar 8.3 8.1 7.6 7.6 8.4 9.4 8.2 8.5 9.4Thailand 11.7 13.8 17.3 15.9 15.3 17.7 18.5 25.0 23.7Malaysia 14.1 14.9 16.7 21.6 25.2 29.6 34.4 44.3 42.8Viet Nam 8.9 10.0 9.7 7.9 7.3 9.0 9.6 13.5 14.6Philippines 15.1 16.9 20.0 21.4 21.3 19.4 23.8 24.1 24.5Indonesia 4.7 4.8 5.4 5.6 7.2 8.4 9.4 11.6 11.5Source: calculated from FAO data

The importance of the different livestock products as a source of protein varies across countries.Turning first to bovine meat, the FAO statistics indicated that in five of the countries listed inTable 1, the importance of bovine meat as a source of protein was higher in 1999 than in 1961. The

4

relative contribution of bovine meat in Japan and the Republic of Korea more than doubled, while italso increased dramatically in China albeit from very low levels in 1961. The other countries wherethe relative importance of bovine meat increased were Nepal and Laos. For the other countries, therole of bovine meat as a contributor to protein from livestock either stayed roughly the same (forexample, Viet Nam, Australia and Malaysia) or declined (Sri Lanka, Bangladesh and Thailand). It isapparent from the data in Table 2 that there is a great deal of variability across countries. Further, itseems that between 1961 and 1999 there has been no statistically significant change in the variabilityof the contribution made to protein by bovine meat3. There is a strong correlation between thecontribution made by bovine meat to protein intake for the years shown in Table 2. This implies thatcountries where the contribution of bovine meat was high in one year were also countries where thecontribution was high in other years. However, the strength of this correlation decreased over time.The correlation between the contribution made by bovine meat to protein consumption in 1961 and1965 was 0.94, while the correlation between its contribution in 1961 and 1999 was 0.684. Thisindicates that the changes taking place in the diets of the different countries in the region were notuniform.

Table 2 Bovine meat's percentage share of protein from the consumption of livestock products

Country 1961 1965 1970 1975 1980 1985 1990 1995 1999

High-income countriesAustralia 23.0 27.9 24.6 34.6 28.9 26.0 24.6 22.8 24.4New Zealand 25.3 28.1 25.1 26.3 26.3 19.0 19.5 19.5 18.6Japan 2.6 2.8 3.0 3.5 4.2 4.7 6.2 8.0 7.5Korea 5.7 7.7 5.6 6.9 5.8 8.0 8.0 10.2 11.6

East AsiaChina <0.01 1.8 1.9 1.6 1.4 2.0 2.1 4.7 5.2Mongolia 27.6 22.6 24.3 23.0 24.3 22.8 20.5 22.6 24.4


South-east AsiaCambodia 23.8 17.5 21.6 15.5 24.2 17.3 18.4 20.9 20.7Laos 17.3 15.6 18.6 15.1 15.2 20.3 21.2 23.9 28.1Myanmar 12.0 13.6 14.5 13.2 13.1 11.7 12.2 10.6 9.6Thailand 21.4 17.4 13.3 15.1 13.7 13.0 11.4 8.8 6.3Malaysia 5.0 4.7 3.0 2.3 3.2 3.7 4.1 4.5 4.9Viet Nam 6.7 7.0 7.2 7.6 8.2 8.9 8.3 5.9 5.5Philippines 6.6 6.5 4.5 6.1 5.2 3.1 3.8 5.0 6.5Indonesia 12.8 12.5 11.1 12.5 8.3 7.1 6.4 6.0 7.0Source: calculated from FAO data

3 An F-test carried out to test the null hypothesis of equality of variances for the percentage share of bovinemeat in 1961 and 1999. The null hypothesis could not be rejected, suggesting that there has been no change invariability.4 Other correlations were as follows: between 1961 and 1970, 0.95; between 1961 and 1975, 0.87; between1961 and 1990, 0.80 and between 1961 and 1995, 0.74. The correlations were calculated using data for the 19countries shown in Table 1.2.

5

Poultry meat faces no major cultural, religious or social prejudices, unlike other meats5. This featureplus the high feed conversion efficiency of poultry - in particular chicken - means that poultry hasplayed, and will continue to play, an important part in meeting future food needs. The averagecontribution of poultry meat to protein consumption for the countries under study increased from4.2 percent in 1961 to 9.9 percent in 1999 (Table 3). It is obvious that the increases were across theboard although it is also clear from the information in the table that in some countries (for exampleViet Nam and China), there was substantial variability between years. The coefficient of variationcalculated using the data for all countries in 1999 was 68 - less than the 86 calculated using the datafor 1961. However, the variability in the contribution made by poultry meat to protein consumptionas measured by the variance was not statistically different in 1961 from 19996. As was the case forbovine meat, the correlation between the percentage contribution made by poultry meat to proteinintake from livestock was positive, indicating that a high contribution by poultry meat in one yearwas associated with a high contribution in other years. The correlation between the contributionmade by poultry meat in 1961 and in later years showed the same pattern as for bovine meat in that itfell over the years7.

Table 3 Poultry meat's percentage share of protein from the consumption of livestock products

Country 1961 1965 1970 1975 1980 1985 1990 1995 1999


East AsiaChina 8.6 5.3 7.4 6.3 6.8 5.9 7.0 9.7 10.7Mongolia 0.2 0.2 <0.01 <0.01 0.2 <0.01 <0.01 <0.01 <0.01

South AsiaIndia <0.01 <0.01 <0.01 <0.01 1.5 1.2 1.1 2.0 1.9Nepal 1.3 1.3 1.3 1.2 1.2 1.1 2.2 2.3 2.2Pakistan 0.7 0.7 0.7 0.7 1.4 2.6 2.8 3.9 3.6Sri Lanka 2.3 3.2 4.3 5.2 4.0 4.0 5.1 8.5 8.5Bangladesh 1.9 3.3 4.8 3.7 4.3 3.8 4.2 5.6 5.1

South-east AsiaCambodia 4.8 7.0 5.4 5.6 9.1 6.7 5.7 5.8 7.3Laos 13.5 15.6 15.7 9.4 6.1 7.8 9.1 8.0 7.9Myanmar 3.6 3.7 7.9 6.6 7.1 9.6 7.3 9.4 12.8Thailand 10.3 10.1 12.1 15.1 15.7 15.8 17.3 19.2 19.8Malaysia 7.8 10.7 13.2 13.9 12.7 16.9 19.8 25.1 28.3Viet Nam 6.7 6.0 5.2 6.3 11.0 8.9 8.3 5.2 8.9Philippines 4.6 5.3 4.5 5.1 7.5 6.2 5.5 8.3 10.2Indonesia 4.3 4.2 3.7 3.6 5.6 7.1 9.6 12.9 9.6

Source: calculated from FAO data

5 Menasveta (2000) makes the same comment about fish in South-east Asia.6 The F value calculated to test the null hypothesis that the variance was the same in 1961 as in 1999 was 0.29,clearly not in the rejection region for the null hypothesis.7 For example, the correlation between poultry's percentage share of protein from livestock in 1961 andpercentage share in 1965 was 0.94 and between 1961 and 1999 it was 0.48.

6

Pigmeat is the most important source of animal protein in China and Viet Nam. In both countries,pigmeat provided over 30 percent of the protein intake sourced from livestock. Chinese pigmeatproduction has not kept pace with the growth in the output of other meats in China and this isreflected in the decline in relative importance of pigmeat in Chinese diets (Longworth, Brown andWaldron 2001). In the high-income group of countries, pigmeat's relative importance increased. Thiswas most noticeable in the Republic of Korea where its percentage share of livestock based proteinincreased from negligible levels in the mid-1980s to just over 16 percent by 1999. In Australia andNew Zealand, pigmeat consumption has been bolstered by its image among consumers, concernedabout the health problems said to be associated with the consumption of red meat, as "the other whitemeat". Consumption of pigmeat in India and elsewhere through South Asia plays only a minor partin contributing to protein intake, reflecting religion (Bangladesh and Pakistan) and cultural factors(India, Sri Lanka and Nepal). The high apparent consumption of pigmeat in Indonesia is a puzzlegiven that Indonesia is primarily a Muslim country. The fact that several million Indonesians are ofChinese extraction - these people would be expected to have a strong preference for pork - alongwith the presence of other minorities whose religion does not prevent them consuming pork, goespart of the way to explaining the high level of pigmeat consumption. In Thailand and Malaysia, thepercentage share of animal protein from pigmeat has been declining, reflecting the increasedimportance to consumers in both countries of poultry. The part played by pigmeat in the Philippines,Myanmar and Laos has been changeable, although for the Philippines at least it seems the relativeimportance of pigmeat as a source of animal protein has been increasing over the last ten years(Table 4).

Table 4 Pigmeat's percentage share of protein from the consumption of livestock products

Country 1961 1965 1970 1975 1980 1985 1990 1995 1999

High-income countriesAustralia 3.7 3.8 4.7 4.0 5.3 5.6 6.2 6.9 7.1New Zealand 5.5 5.5 4.6 3.6 4.5 5.4 5.2 5.9 7.7Japan 2.6 3.9 5.3 6.7 8.0 7.7 8.1 8.4 8.9Korea <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 13.0 15.2 16.3


South AsiaIndia 1.6 1.7 1.7 1.6 1.5 1.2 2.2 2.0 1.9Nepal 1.3 1.3 1.3 1.2 1.2 1.1 2.2 2.3 2.2Pakistan <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01Sri Lanka <0.01 <0.01 <0.01 <0.01 1.0 <0.01 <0.01 <0.01 <0.01Bangladesh <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01


7

The average contribution that milk, in the form of drinking milk or milk based products, makes toprotein intake from livestock products declined from 13.4 percent in 1961 to 12 percent in 1999 forthe countries being studied8. The variability across countries was not different in a statistical sense in1999 from the variability across countries in 19619. It is clear that for the countries of South Asia,milk plays a much more important role in nutrition than in any of the other regions. In India, forexample, milk has provided over 40 percent of the protein intake from livestock products, while inNepal and Pakistan, milk's contribution was over 30 percent for each of the years shown in Table 5.Milk is an important source of calcium, and it would be difficult for a child to meet its calciumrequirements relying only on a cereal-based diet (World Bank 2001). Smil (2000) points out thatmammalian milk production is an inherently efficient energy conversion process. Feed/milk ratiosfor the most efficient dairy cows is less than 0.6, which means that between 55 and 67 percent ofgross energy in the feed can end up as food energy in milk. He also points out that lactoseintolerance (or lactase deficiency) affects people in the Asia-Pacific region. This has not been aninsurmountable problem as the data in Table 5 suggest. The frequent consumption of small quantitiesof milk, rather than the consumption of a large amount at one time, and consumption of fermenteddairy products causes few if any problems in populations characterised by lactose intolerance (Smil2000).

Table 5 Milk's percentage share of protein from the consumption of livestock products

Country 1961 1965 1970 1975 1980 1985 1990 1995 1999

High-income countriesAustralia 21.0 20.2 19.8 16.7 15.6 16.7 16.6 18.5 14.1New Zealand 16.7 12.6 22.4 22.9 20.3 25.6 22.3 8.3 9.9Japan 6.4 8.1 8.3 7.9 8.0 7.5 8.1 7.7 7.4Korea <0.01 <0.01 <0.01 0.8 3.2 4.0 4.0 2.9 4.7


South AsiaIndia 43.5 39.0 41.4 39.7 41.8 51.8 46.7 46.0 44.7Nepal 48.7 46.8 46.2 45.2 39.5 34.8 33.0 33.0 33.0Pakistan 39.1 38.3 39.6 38.1 34.7 34.0 33.7 32.4 40.1Sri Lanka 17.0 22.3 19.4 20.8 24.2 23.0 23.5 22.0 23.8Bangladesh <0.01 <0.01 1.6 1.9 2.1 <0.01 <0.01 <0.01 <0.01

South-east AsiaCambodia 9.5 7.0 5.4 2.8 6.1 2.7 1.1 2.3 2.4Laos 3.8 1.6 1.4 <0.01 <0.01 <0.01 1.5 2.3 2.2Myanmar 7.2 8.6 5.3 6.6 7.1 8.5 8.5 9.4 8.5Thailand 3.4 2.9 1.2 0.6 0.7 1.7 2.2 3.2 4.2Malaysia 11.3 8.7 5.4 5.1 11.5 6.8 4.1 3.6 3.7Viet Nam 2.2 2.0 1.0 1.3 1.4 1.1 1.0 0.7 0.7Philippines 4.0 2.4 3.0 1.4 1.9 1.5 2.9 1.7 1.6Indonesia 4.3 4.2 3.7 3.6 2.8 2.4 3.2 2.6 2.6Source: calculated from FAO data

8 The term "milk" used in this chapter covers drinking milk and products made from milk.9 This was tested using an F test. The null hypothesis was that the variances in 1961 and 1999 were notdifferent. The calculated value for F was 1.11 while the critical value was at the 5 percent level of significancewas 2.21.

8

Returning again to the data in Table 5, it was found that the correlation between the contributionmade by milk to protein consumption in 1961 with the contribution it made in 1999 was almost thesame as for 1961 and 1965 at around 0.9010. This indicates that for the years studied - spanningalmost four decades - there has been a fair degree of stability in the relative importance of milk as asource of protein across countries.

Eggs are a key source of protein throughout the Asia-Pacific region. For the very poor people,particularly those living in rural areas, eggs usually from village flocks may be the only significantsource of animal protein in their diets. Hence it would be expected that as income levels increase, theimportance of eggs relative to other sources of animal protein would decrease. Data were notavailable for this study to verify this so we cannot be definite about this point. For China, Malaysia,Thailand and Japan, eggs represented 10 percent or more of the animal based protein consumed bythe average person. Since 1990, the relative importance of eggs in the diet of the average Malaysianand the average Thai has declined. In Japan and in China, the importance of eggs has remainedrelatively constant over this period. On the other hand, in Australia and New Zealand, both high-income countries, the relative importance of eggs as a source of protein declined markedly since the1970s.

Table 6 Egg's percentage share of protein from the consumption of livestock products

Country 1961 1965 1970 1975 1980 1985 1990 1995 1999

High-income countriesAustralia 5.0 4.9 5.1 4.6 4.9 4.2 4.0 2.6 2.7New Zealand 8.4 8.2 8.1 6.9 7.1 5.6 5.6 4.5 5.9Japan 12.0 14.5 14.4 12.2 11.6 10.8 11.1 11.3 11.6Korea, Rep of 7.5 10.8 16.9 10.7 12.8 11.1 9.4 8.5 8.0

East AsiaChina 17.1 10.5 11.1 10.9 10.8 14.7 14.1 16.9 17.0Mongolia <0.01 0.2 0.2 0.2 0.4 0.5 0.6 <0.01 <0.01

South AsiaIndia 1.6 1.7 1.7 3.2 3.0 4.7 4.4 4.0 3.9Nepal 2.6 2.6 3.8 3.6 3.5 2.2 3.3 3.4 3.3Pakistan <0.01 <0.01 <0.01 1.4 2.8 2.6 2.8 2.9 2.7Sri Lanka 3.4 4.3 4.3 3.9 6.1 6.0 8.2 5.9 5.4Bangladesh 1.9 3.3 3.2 3.7 4.3 3.8 4.2 3.7 6.8


The variability in the role played by eggs as a protein source across countries appears to becomingless pronounced. This is indicated by the finding that there was a statistically significant difference in 10 The correlation between 1961 contribution and 1999 contribution was 0.92, while the correlation between1961 and 1965 contributions was 0.98.

9

the variance of the contribution made by eggs to animal protein intake in 1999 and in 1961. Thecoefficient of variation was also less (66 in 1999 compared with 105 in 1961), suggesting again thatthe importance of eggs as an animal protein source was becoming more similar across countries overtime.

Mutton and goat meat is important as a source of animal protein in Mongolia and also in NewZealand. It also plays a role to some degree in Australia, Pakistan, Bangladesh and Nepal. However,for the countries of South-east Asia, FAO statistics indicate that mutton and goat meat is of veryminor importance. It is interesting to note nonetheless that aid programmes have been put in place toincrease the production of mutton and goat meat. (One of these programmes is described in Box 14in Chapter 4 of this report). The contribution of mutton and goat meat to the animal proteincomponent of diets in Laos, Thailand and Viet Nam for most years included in this analysis was lessthan a tenth of a percent on average. FAO statistics indicate that the importance of mutton and goatmeat is declining. The average contribution of these meats to the animal protein component of thediet in the countries shown in Table 7 fell from 5.8 percent in 1961 to 4.6 percent in 1999.Variability across countries in the proportion of animal protein coming from mutton and goat meatwas not significantly different in a statistical sense between 1961 and 1999 (Table 7).

Table 7 The percentage share of mutton and goat meat in protein fromthe consumption of livestock products

Country 1961 1965 1970 1975 1980 1985 1990 1995 1999

High-income countriesAustralia 22.6 18.2 17.9 11.3 9.7 11.2 10.6 8.9 8.2New Zealand 23.3 22.2 20.5 17.4 16.3 13.4 15.9 18.5 16.1Japan 0.4 0.7 1.1 1.0 0.4 0.4 0.4 0.2 0.2Korea, Rep. of <0.01 <0.01 <0.01 0.8 <0.01 0.5 0.4 0.3 0.3


South AsiaIndia 4.8 6.8 5.2 3.2 4.5 3.5 3.3 3.0 2.9Nepal 7.9 10.4 9.0 8.3 9.3 7.6 7.7 9.1 7.7Pakistan 5.8 6.4 7.2 8.6 9.7 10.5 10.1 11.1 6.8Sri Lanka 1.1 1.1 1.1 1.3 1.0 1.0 <0.01 0.8 <0.01Bangladesh 3.8 3.3 3.2 3.7 2.1 3.8 6.3 7.4 6.8

South-east AsiaCambodia <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01Laos <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01Myanmar <0.01 1.2 <0.01 <0.01 <0.01 1.1 1.2 1.2 1.1Thailand <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01Malaysia 1.4 0.7 0.6 0.5 0.8 0.3 0.6 0.5 0.5Viet Nam <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01Philippines <0.01 <0.01 0.5 0.5 0.5 1.0 0.8 0.8 0.8Indonesia 2.1 2.1 1.9 3.6 1.4 2.4 2.1 1.7 1.7Source: calculated from FAO data

10

Livestock as a source of calories and fat

Food availability is sometimes measured in terms of calories per person. At the global level, foodavailability per person increased from 2 300 kcal per day in the early 1960s to over 2 700 kcal perday in the 1990s. In East Asia, kilocalories per day averaged 1 750 in 1961-63 and in South Asia2 030. By the early 1990s, availability had grown to 2 670 kcal in East Asia and 2 300 in South Asia.Some of the changes were dramatic: in China for example, per person food supplies in 1961 to 1963averaged 1 659 kcal, while by the early 1990s, availability had increased to 2 713 kcal. Caloriesupplies are projected by FAO to be 3 030 kcal per person in East Asia for 2010 and 2 450 kcal forSouth Asia. Livestock products are expected by most analysts to continue to have a major part inachieving these increases.

Of the developing countries shown in Table 8 and Table 9, the one that came closest to Australia andNew Zealand in terms of calories and fat in the diet derived from livestock products is Mongolia.The calorie intake from livestock products of the average Mongolian in 1991 was 876.9 kcal per daycompared with 960.9 kcal per day in Australia and 1 112.2 kcal per day in New Zealand. Rapidgrowth has been occurring in China - the 1999 level of 567.4 kcal per day was over 10 times thelevel in 1961. In the other countries, the 1999 level was usually only two to three times the 1961level at most.

Table 8 Kilocalories per person per day derived from animal products

Country 1961 1965 1970 1975 1980 1985 1990 1995 1999


East AsiaChina 55.4 115.6 111.4 132.9 172.0 232.4 307.0 465.0 567.4Mongolia 1050.2 991.8 998.9 1 021.90 943.5 832 915.1 834.0 876.9

South AsiaIndia 113.4 103.9 100.6 109.3 117.6 154.8 163.7 181.2 191.8Nepal 146.9 146.9 150.1 159.4 158.6 160.1 160.9 154.4 160.2Pakistan 272 276.6 273.6 271.5 273.6 288.1 335.5 389.5 429.2Sri Lanka 100.9 113.4 107.3 89.0 116.1 117.9 113.6 139.9 150.3Bangladesh 61.5 67.9 68.3 61.1 56.0 60.0 59.8 62.0 66.5


11

The situation with regard to livestock products as a source of fats was similar to that with regard tolivestock as a source of kilocalories. Australia and New Zealand consumers obtained 66.2 and 83.4 gof fat per day on average, respectively, from livestock products. For consumers in both countries,there has been a substantial decline since the 1960s, reflecting concerns about the effects on health ofa high level of animal products in the diet (Smith and Riethmuller 2000). In Nepal and Bangladesh,the increase in fat per person from livestock products was only slight and average consumptionremained at low levels, while for Mongolia there was a decline from 83.2 g per person per day in1961 to 65.9 g per person per day in 1999. For the other countries in Table 9, the movement has beenin the opposite direction, with 1999 consumption of fat from livestock often substantially higher thanin the 1960s. For the average person living in China, intake of fat from animal products increasedmore than tenfold between 1961 and 1999 from just over 4 g per day to over 48 g per day. This iswell above the average consumption of fats from animal products in Japan and in the Republic ofKorea. It is also the highest percentage increase for any of the countries shown in Table 9. Theexpansion of western style fast food restaurants in the Asia-Pacific region has attracted somecriticism. In Thailand, for example, critics have pointed the finger at fast food restaurants forcontributing to obesity problems among the children of the middle and upper income earners livingin urban areas (see for example Malisuwan 1997 and Paengnoy 2001).

Table 9 Fat per person per day in grams derived from animal products

Country 1961 1965 1970 1975 1980 1985 1990 1995 1999




South-east AsiaCambodia 3.9 6.5 9.3 6.5 2.7 9.6 10.2 11.5 12.2Laos 6.7 8.7 7.8 6.3 8.2 7.7 8.8 10.8 10.8Myanmar 5.1 5.6 6.5 6.4 7.1 8.1 6.1 6.6 7.7Thailand 11.9 12.4 14.2 12.7 14.2 16.8 16.8 20.8 19.0Viet Nam 11.0 11.2 10.0 8.4 8.9 13.3 14.5 19.2 22.9Philippines 13.4 15.6 17.8 15.3 16.6 13.4 20.3 21.7 25.5Indonesia 3.2 3.3 3.3 3.6 4.4 6.0 7.3 8.3 8.6Source: calculated from FAO data

The information thus far presented has discussed the contribution of the various livestock products toprotein, carbohydrates and calorie intake. The next part of this chapter will briefly outline the annualconsumption of different livestock products to complete the picture on livestock productconsumption. The country coverage is slightly expanded to include Brunei Darussalam and theDemocratic Republic of Korea (Korea, DPR).

12

The consumption of livestock products

People living in Australia, New Zealand and Mongolia had by far the highest average consumptionof bovine meats. In Australia, consumption was 42.4 kg per person in 1999, much the same level ofconsumption as in 1961. Australian consumption peaked at over 70 kg per person in the mid-1970swhen Japan, a major export market for Australian beef, closed that market to imports to protectelements of the Japanese industry. Much of this beef went onto the Australian market, driving downprices and increasing the quantity consumed. Since then, per person consumption in Australian hasfallen. New Zealand consumption has tended to follow the same path as Australia's albeit at a lowerlevel. Per person consumption in Mongolia started off at about the same level as that in Australia andNew Zealand, but by1999 it had fallen to just over 32 kg per person. In the two most populatedcountries in the Asia-Pacific region - India and China - consumption of bovine meats increased, butby substantially different amounts. China's per person consumption in 1999 (4 kg) was 400 timesconsumption in 1961 (0.1 kg). In India, the increase over the same period was much more modest -from 2.3 kg per person in 1961 to 2.7 kg per person in 1999. In South-east Asia, consumptionincreased between 1961 and 1999 in all countries, with the exception of Thailand where per personconsumption declined (Table 10).

Table 10 Per person consumption of bovine meat, kg per year

Country 1961 1965 1970 1975 1980 1985 1990 1995 1999


East AsiaChina 0.1 0.2 0.2 0.3 0.3 0.4 0.9 2.9 4.0Mongolia 44.6 33.4 34.1 33.0 32.1 26.2 26.0 31.8 32.4Korea, DPR 1.7 1.6 1.5 1.6 1.8 2.0 1.8 1.1 0.9

South AsiaBangladesh 2.3 2.2 2.2 1.9 1.4 1.4 1.3 1.2 1.3India 2.3 2.3 2.3 2.3 2.4 2.5 2.8 2.7 2.7Nepal 4.0 4.2 4.3 5.2 6.2 7.8 7.5 7.3 7.4Pakistan 4.8 4.7 4.7 4.6 4.7 4.9 6.1 6.4 6.4Sri Lanka 3.0 3.4 3.0 2.8 2.0 2.1 1.5 1.6 1.5

South-east AsiaBrunei Darussalam 8.1 9.1 9.0 8.5 12.1 14.9 16.6 12.9 17.9Cambodia 2.5 2.5 4.0 2.8 2.1 3.3 4.0 4.5 4.3Indonesia 1.6 1.6 1.7 1.9 1.7 1.7 1.7 2.1 2.0Laos 2.7 2.9 4.0 2.1 3.1 3.9 4.1 5.8 7.3Malaysia 2.2 2.1 1.7 1.7 2.3 3.0 3.6 5.4 5.2Myanmar 2.7 3.0 2.9 2.8 2.9 3.0 2.6 2.6 2.6Philippines 2.4 2.8 2.3 3.2 2.8 1.6 2.3 3.4 4.2Thailand 7.2 7.0 6.7 6.7 6.0 6.4 5.8 5.5 3.9Viet Nam 1.9 2.0 2.1 1.9 1.9 2.4 2.5 2.4 2.3Source: FAO

Table 11 shows per person consumption of pigmeat in China in 1999 was 32 kg. This was more than10 kg ahead of the average consumption in the Republic of Korea, the country with the second

13

highest average consumption of pigmeat in 1999. Per person pigmeat consumption in South Asiawas low: the average Indian and Nepalese, for example, consumed 0.6 kg and 0.5 kg in 1999,respectively. Nonetheless, this was higher than the consumption figure in Sri Lanka of only 0.1 kgper person in 1999. Consumption in all of the high-income countries increased, with the largestpercentage increase occurring in the Republic of Korea. Throughout the countries of South-east Asia,consumption per person also increased. Viet Nam and the Philippines had the highest averageconsumption in 1999 - 17.0 and 13.5 kg per person, respectively. Both countries had similar level ofconsumption to one another in 1961.

Table 11 Per person consumption of pigmeat, kg per year

Country 1961 1965 1970 1975 1980 1985 1990 1995 1999

High-income countriesAustralia 10.30 10.80 13.40 12.50 14.80 16.30 18.40 19.40 19.30New Zealand 15.10 15.30 13.30 11.30 11.60 14.90 13.80 16.10 19.20Japan 2.10 4.00 7.10 10.30 13.40 14.10 15.20 17.40 17.30Korea, Rep. of <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 12.50 18.00 20.70


South AsiaIndia 0.30 0.30 0.30 0.30 0.40 0.50 0.50 0.50 0.60Nepal 0.30 0.30 0.40 0.40 0.40 0.40 0.50 0.50 0.60Sri Lanka 0.10 0.10 0.10 0.10 0.20 0.10 0.10 0.10 0.10


Poultry meat consumption rose in all countries between 1961 and 1999, except for the DemocraticPeople's Republic of Korea (Korea, DPR) and Mongolia. In both of these countries, consumptionwas low in 1961 at 1.4 kg per person in Korea, DPR and 0.2 kg per person in Mongolia. Per personconsumption in Malaysia and Brunei Darussalam has been broadly similar to that in Australia andNew Zealand. In these latter two high-income countries, the growth in the consumption of poultryhas been particularly dramatic. As noted elsewhere in this report, this reflects demand side factors(concerns by consumers about the negative health effects said to be associated with red meat) andsupply side factors (falling real poultry prices due to technical developments in production andprocessing). Average consumption in Indonesia in 1999 was double that for 1980 when it was 1.2 kgper person. Indonesia's growth in poultry consumption has been curtailed by the decline in economiccondition in Indonesia since the financial crisis of the late 1990s. In fact, the data indicate thatIndonesia's per person consumption in 1999 was lower than per person consumption in 1995. It isprobable that the decline was primarily due to production being cut by the large poultry producers inresponse to higher feed prices caused by the fall in value of the Indonesian Rupiah. These producers

14

are heavily reliant on imported feed grains. Obviously, demand would also have been lowered by thedecline in Indonesian incomes that occurred as a result of the crisis. It is interesting to note that in theother countries of the region most harmed by the crisis - Malaysia, the Philippines, Thailand and theRepublic of Korea - average consumption of poultry meat did not decline over the period 1995 to1999.

Table 12 Per person consumption of poultry meat, kg per year

Country 1961 1965 1970 1975 1980 1985 1990 1995 1999

High-income countriesAustralia 4.8 6.3 9.8 13.3 21.0 22.0 24.3 26.2 30.2New Zealand 2.8 3.7 5.3 8.8 10.2 15.0 17.3 25.1 26.9Japan 1.4 2.1 4.7 6.7 10.0 11.8 13.5 14.7 14.8Korea, Rep. Of 0.6 0.7 1.4 1.6 2.4 3.2 6.2 9.3 9.9




Mongolia, Australia and New Zealand had the highest per person consumption of mutton and goatmeat in 1999. Consumption per person in Mongolia was 46.1 kg, in New Zealand it was 28.6 kg andin Australia 16.2 kg. Pakistan, Nepal, Bangladesh and China were the only other countries whereconsumers on average ate more than 1 kg in any of the years 1961 to 1999 (Table 13). Consumptionof mutton and goat meats was virtually insignificant in the South-east Asian region. Mutton and goatmeat is most likely to be consumed in rural villages. Hence, there is the possibility that theconsumption of mutton and goat meat is under reported in the official country statistics that form thebasis of the FAO statistics.

15

Table 13 Per person consumption of mutton and goat meat, kg per year

Country 1961 1965 1970 1975 1980 1985 1990 1995 1999




South-east AsiaBrunei Darussalam 0.1 0.2 0.4 0.5 0.7 0.8 0.6 0.9 1.0Indonesia 0.4 0.3 0.3 0.4 0.4 0.5 0.5 0.5 0.4Laos <0.01 <0.01 <0.01 <0.01 <0.01 0.1 0.1 0.1 0.1Malaysia 0.4 0.4 0.4 0.3 0.5 0.4 0.4 0.6 0.6Myanmar 0.1 0.1 0.1 0.1 0.1 0.2 0.2 0.2 0.2Philippines 0.1 0.1 0.1 0.2 0.3 0.3 0.4 0.5 0.4Thailand <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01Viet Nam <0.01 <0.01 <0.01 <0.01 <0.01 0.1 <0.01 0.1 0.1Source: FAO

Consumption of other meats - these include horse meat, rabbits, camels and microruminants such asguinea pigs - was extremely low in most of the countries shown in Table 14. Mongolia and NewZealand were the only countries where per person consumption was more than 1 kg in 1999.Microruminants require little in the way of inputs, and are raised most often in developing countriesby women and children. They can be fed on kitchen scraps and kept in cages inside the home. Forsome low-income urban households in particular, they may be the only source of animal proteinavailable to the household.

16

Table 14 Per person consumption of other meat, kg per year

Country 1961 1965 1970 1975 1980 1985 1990 1995 1999


East AsiaChina 0.1 0.1 0.1 0.1 0.1 0.2 0.2 0.6 0.6Mongolia 39.6 35.5 25.3 27.7 23.3 20.5 19.1 12.5 16.9Korea, DPR <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01

South AsiaBangladesh 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1India 0.1 0.1 0.1 0.1 0.1 0.2 0.1 0.1 0.1Nepal <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01Pakistan 0.2 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.1Sri Lanka <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01

South-east AsiaBrunei Darussalam <0.01 0.1 0.2 0.4 0.8 0.5 0.2 2.1 0.2Cambodia <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01Indonesia <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01Laos <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01Malaysia 0.3 0.6 0.2 0.2 0.5 0.6 <0.01 <0.01 <0.01Myanmar <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01Philippines 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2Viet Nam <0.01 0.1 0.1 0.1 0.1 0.1 0.2 0.2 0.2Source: FAO

The consumption of milk in the form of drinking milk or dairy products is high in South Asiarelative to consumption in China and in the countries of South-east Asia. In Pakistan, for example,each person consumed the equivalent of 87.2 kg of milk on average in 1999. This was approximatelydouble the consumption in Japan. Consumption in India was 47.5 kg per person and 35.9 kg perperson in Sri Lanka. Both of these 1999 average levels of consumption were well above the averagesfor 1961 for these two countries. Milk consumption in Australia was on a downtrend for the first 20years covered in this study, but since 1980, consumption has been increasing. New Zealand'sconsumption appears to fluctuate and shows no clear pattern (Table 15). One final point in regard tomilk is that school milk programmes have been used extensively throughout the Asia-Pacific regionin recent years, and elsewhere through the developing countries. Those advocating theseprogrammes believe that through these programmes milk consumption will increase in the future.

17

Table 15 Per person consumption of whole milk, kg per year

Country 1961 1965 1970 1975 1980 1985 1990 1995 1999





Table 16 provides details of the average consumption of eggs for the countries examined for 1961 to1999. Malaysian consumption was the highest for those countries not classed as being high-incomecountries. Consumption in Brunei Darussalam was similar to that in the high-income countries,reflecting that country's high average income. As has been the case generally for the other livestockproducts, consumption in the developing countries was higher in 1999 than in 1961. For the high-income countries, consumption in 1999 was lower than in 1961 in Australia and in New Zealandwhile it was the reverse for Japan and the Republic of Korea. In some of the countries of the Asia-Pacific region, programmes have been introduced in an attempt to increase consumption. InThailand, for example, a country where the average consumption was about 140 eggs per person peryear in 2001, the industry has implemented a programme to allay consumer concerns about eggconsumption lifting cholesterol levels. The programme has involved the use of posters, stickers andsigns. Some of the promotion material has included claims that egg consumption retards the onset ofAlzheimer's Disease (Anon 2002).

18

Table 16 Per person consumption of eggs, kg per year

Country 1961 1965 1970 1975 1980 1985 1990 1995 1999





The material so far presented shows that substantial changes in the per person consumption oflivestock products have occurred. The next section will examine whether these changes have resultedin the converging of the consumption of livestock products in the different countries.

19

Convergence in the consumption of livestock products

Attempting to arrive at forecasts of per person consumption of almost any food product is acomplicated task since a raft of economic and non-economic factors drives consumption. Theproblem facing the analyst would be considerably simplified if there were a tendency for diets indifferent countries to become similar over time, or to show a tendency to converge. If convergenceexists, countries where per person consumption was relatively high initially would be expected toshow a slower rate of growth in per person consumption than countries where consumption wasinitially low, and vice versa. Figure 1 illustrates this.

Figure 1 Consumption convergence: an example

Consumption in initial period

Con

sum

ptio

n gr

owth

Con

sum

ptio

n

The figure on the left shows consumption over time for two countries, A and B. Country Ahas a low level of consumption at the start of the test period, while country B has a highlevel of consumption. Consumption in A grows more rapidly than in country B , andeventually at year t, consumption is the same in the two countries - in other words, there hasbeen convergence. The figure on the right shows consumption growth and consumption inthe initial period for six countries. This is the pattern we would expect to find if there isconsumption convergence. Fitting a regression line to the observations, with consumptiongrowth as the dependent variable, would give a negative coefficient on initial consumption.

•

•

•

•

•

•

Time

Country A

Country B

F

A - consumption growth high, butlow initial consumption

C

D

E

B - consumption growthlow, but high initial

consumption

year tinitial year

As a first step in investigating whether convergence exists, the rates of growth in the consumption ofdifferent livestock products were calculated for the period 1961 to 1999 and also for two sub-periods1961 to 1980 and 1980 to 1999. The approach used to calculate these growth rates is outlined in Box1. The growth rates calculated using this approach are in the appendix to this chapter.

20

Box 1 Methodology used to calculate growth in per person consumption of livestock products

Per person consumption in country i of commodity j in year t, (Cijt), is hypothesised to grow fromconsumption in the initial year (Cij0), according to (1.0):

Cijt = Cij0exp(cijt ×t) (1.0)

where cij is the growth rate in country i of commodity j and t is the year

Taking logarithms of both sides, (2.0) and (3.0) are obtained:

ln(Cijt) = ln(Cij0) + cijt t (2.0)

and for year (t - 1)

ln(Cijt-1) = ln(Cij0) + cijt(t - 1) (3.0)

Subtracting (3.0) from (2.0) gives (4.0):

cijt = ln(Cijt) - ln(Cijt-1) (4.0)

The relationship between the "average" growth for the years studied, cij, and the growth in period t,cijt is given by (4.1).

cijt = cij + φt (4.1)

where φt is an error term.

Equation (4.1) was estimated using the statistical package Microfit, part of the Microsoft suite ofsoftware, for each of the three periods 1961 to 1980, 1981 to 2000 and 1961 to 2000. The estimatedvalue for cij was used as a point estimate of the growth rate of per person consumption in country ifor commodity j providing that it was statistically different from zero. If the estimated value of cijwas not statistically significant, consumption growth in that particular country i, for that particularcommodity j, was viewed as being zero.

The procedure followed to test for convergence is described in Box 2. In brief, the test involvedregressing the growth rates for a particular commodity for all of the countries against the initial levelof consumption of that commodity in all of the countries. A statistically significant and negativecoefficient on the variable representing consumption in the initial period indicates the hypothesis ofno convergence in the consumption of livestock products cannot be accepted.

21

Box 2 Methodology used to test for consumption convergence

The model estimated was (5.0).

cij = η0j + η1jCij0 + η2jHi + θij (5.0)

wherecij is the rate of growth in the consumption in country i of commodity j over the test periodCij0 is the consumption in country i of commodity j in the first year of the test periodHi is a dummy variable with a value of 1 if country i is a high-income country and 0 if it isnotη0j, η1j, and η2j are coefficients to be estimatedθij is an error term.

In model (5.0), the estimate of η1j is the item of most interest. If the estimate is negative andstatistically different from zero, this provides evidence that there is convergence in per the personconsumption of commodity j.

The convergence hypothesis was tested using the data on bovine meat, poultry meat, pigmeat,wholemilk and eggs. Three periods 1961 to 1999, 1961 to 1980 and 1981 to 1999 were used to testfor convergence in the consumption of poultry meat, pigmeat, wholemilk and eggs. For bovine meat,1961 to 1999 was the sole period analysed because only five of the countries studied had statisticallysignificant growth in consumption in the other two periods. Results from this analysis ofconvergence are shown in Table 17.

The expected negative sign was obtained on the variable initial consumption in the equationsestimated for bovine meat, pigmeat, wholemilk and eggs for the period 1961 to 1999. This resultsupports the proposition that countries with a low initial level of consumption of bovine meat,pigmeat, wholemilk and eggs were likely to show faster growth in consumption in subsequent yearsthan countries where the consumption of these products was high in 1961. Over time, there wouldtherefore be a tendency for the consumption of livestock products to become more similar than theywere in 1961. This seems not to be the case for poultry meat since the p-value on the estimatedcoefficient is high (0.61).

22

Table 17 Results from testing for convergence in the consumption oflivestock products

Variable 1961-99 1961-80 1981-99Estimatedcoefficient

p-value Estimatedcoefficient


p-value

Bovine meat

Constant 0.0098 0.141.52

Income dummy 0.0397 0.0192.58

Initial consumption -0.0009 0.05-2.10

Poultry meat

Constant 0.0256 0.007 0.0103 0.31 0.0415 <0.0013.08 1.05 5.16

Income dummy 0.0305 0.040 0.0521 0.002 0.0115 0.512.23 3.61 0.67

Initial consumption 0.0020 0.61 0.0076 0.10 -0.0010 0.280.51 1.75 -1.11

Pigmeat

Constant 0.0170 0.030 0.0273 0.020 0.0238 0.152.27 2.63 1.54

Income dummy 0.0294 0.087 0.0478 0.0478 -0.0115 0.711.84 2.17 -0.38

Initial consumption -0.0024 0.15 -0.0046 0.0478 -0.0006 0.81-1.58 -2.17 -0.24

Wholemilk

Constant 0.0147 0.025 0.0190 0.066 0.0148 0.072.44 1.957 1.88

Income dummy 0.0497 0.004 0.0802 0.003 -0.0048 0.813.31 3.30 -0.25


Eggs

Constant 0.0065 <0.001 0.0283 0.012 0.0087 0.484.30 2.80 0.73

Income dummy 0.0206 0.29 0.0418 0.173 -0.0097 0.761.09 1.42 -0.31


23

When the results for the two sub-periods are examined, it is apparent that the convergencehypothesis is less easy to support in the more recent period 1981 to 1999 than in the earlier period1961 to 1980. In the earlier period, the expected negative sign was obtained for consumption in theinitial year. The p-values were also small, indicating that the coefficients were statisticallysignificant. The one exception to this was poultry meat. In the latest period - 1981 to 1999 - thecoefficients on consumption in the initial period (1981) were negative as expected, but they werewithout exception not statistically different from zero. This suggests that in this latest periodconvergence was not occurring

A dummy variable was included in the model to test whether there was any difference in the rate ofgrowth in consumption in the four high-income countries (Australia, New Zealand, Japan and theRepublic of Korea) and the other countries. For the period 1961 to 1999, the dummy variable had apositive coefficient, indicating that once the effect of the low initial level of consumption is removed,growth in consumption in the high-income countries was greater than in the other countries. Thecoefficient was not significant for eggs, indicating no significant difference in the growth ratesbetween the two sets of countries. In the period 1961 to 1980, the story was the same - growth in theconsumption of livestock products was higher in the high-income countries than in the othercountries. Again, it is important to note that this result only holds if the effect on consumptiongrowth of the initial level of consumption is removed. In the more recent period, 1981 to 1999, theresults were quite different. The coefficients on the dummy variable were negative except for poultrymeat, and they were also not significant. This latter result indicates that there was no statisticallysignificant difference in the rate of growth of consumption of the products between the two groups ofcountries over this period.

Concluding comments

The material presented in this chapter demonstrates the remarkable growth that has occurred in theconsumption of livestock products in the Asia-Pacific region over the last three to four decades. Astriking feature is the diversity in consumption displayed across countries. In China, pigmeat is thekey livestock product, while in South Asia, it is milk. With the exception of Mongolia, thedeveloping countries are a long way behind the high-income western economies of Australia andNew Zealand in the consumption of most meats. It is possible the gap will narrow because of a fall inconsumption in the high-income countries and an increase in consumption in the developingcountries. For bovine meat, pigmeat, eggs and wholemilk, there is evidence that countries with lowper person consumption in 1961 showed more rapid consumption growth in subsequent years thancountries where per person consumption was high in 1961. If this result holds for the future, perperson consumption of these products across countries will become increasingly similar. However,the cultural, religious and economic differences between the countries are so great that dietarydifferences are unlikely to ever completely disappear.

The information in this chapter is for the countries in aggregate. There are major differences betweenconsumers of the same country. In China, for example, Cai et al. (1999) have pointed out consumersliving in more economically advanced regions have higher beef consumption than consumers livingin other parts of the country. They also explain that there are differences within China betweenvarious ethnic groups. These differences exist even if the consumers live in the same towns andcities. It is interesting to note that Cai et al. cite a 1998 article in the China Daily that reported meatconsumption in Harbin, the capital of Heilongijang province in Northeastern China of 50.2 kg perperson per year. A similar point was made for 1996 for Indonesia by Dobashi et al. (1999). Theyclaim that more than 50 percent of Indonesia's broiler meat production was consumed in metroJakarta. Bouis and Haddad (1990) found from their household surveys in the Philippines thatexpenditure shares on meat, eggs and fish differed, depending on the socioeconomic status of thefarm household. This issue of differences within countries is of importance. It may be that theincreases in average consumption of livestock products observed over recent years are severely"distorted" by high-income households in urban areas increasing their consumption by large

24

amounts. These households may well be consuming livestock products at levels not dissimilar to theaverage levels in the high-income countries. Hence, more disaggregated analysis than that presentedhere - focussing, for example, on particular income groups within the countries examined - would beinsightful.

References

Anon 2002. Campaign to sell merits of eating eggs: consumption set to rise 3.1% this year. BangkokPost, 25 January.

Bouis, H. E. and L. J. Haddad. 1990. Agricultural Commercialization, Nutrition, and the Rural Poor.Boulder, Lynne Rienner Publishers.

Cai, H., J. W. Longworth and M. D. Barr. 1999. The mass market for beef and beef offal in EasternChina. Department of Primary Industries and Hunt and Hunt Lawyers, Brisbane.

Dobashi, I., J. Fallon, F. C. Eizmendi, M. Loureiro, K. Matchett, R. Parrish and B. Raquet. 1999. TheValue Chain for Poultry. Pacific Basin Economic Council Working Committee on FoodProducts, March.

Grigg, D. 1999. The changing geography of food consumption in the second half of the twentiethcentury. The Geographical Journal, 65(3).

Hussain, M. 1992. Meat marketing and pricing in Bangladesh. Meat marketing and pricing in Asiaand the Pacific region. Bangkok, FAO, 46-50.

Kuntowijoyo.1991. Bergesernya Pola Pangan Pokok di Madura: Sekitar Kesulitan MempertahankanKonsumen Jagung (The shift of the staple food in Madura: the challenge to maintain cornconsumers). Pangan, 2(9): 20-5.

Longworth, J. W., Brown, C. and Waldron, S. 2001. Beef in China: Agribusiness Opportunities andChallenges. Brisbane, University of Queensland Press.

Malisuwan, N. 1997. "Giant" Thai teens now dwarfing mom and dad. The Nation, Page, 3 September

McCalla, A. F. and C. L. Revoredo. 2001. Prospects for Global Security: A Critical Appraisal ofPast Projections and Predictions. International Food Policy Research Institute (IFPRI),Washington DC.

Mulyo, J. H. 2000. A comparative study of meat consumption in two household types in Yogyakarta,Indonesia. Department of Economics. University of Queensland, Brisbane.

Paengnoy, A. 2001. Modern diets threatens affluent children's health. The Nation, 1 February.

Simoons, F. J.1978. Traditional use and avoidance of foods of animal origin: a cultural historicalview. Bioscience, 28(3): 178-84.

Smil, V. 2000. Feeding the World: a Challenge for the Twenty-First Century. Cambridge, Mass.MIT Press.

Smith, D. and P. Riethmuller. 2000. Consumer attitudes to food security in Japan, the United Statesand Australia. British Food Journal, 102(11): 837-57.

25

Stanton, R. 2001. Healthy Cooking. Sydney, Murdoch Books.

van der Zipf, A. J.1999. Animal food production: the perspective of human consumption, production,trade and disease control. Livestock Production Science, 59: 199-206.

World Bank 2001. Livestock Development, the Environment, Poverty and Global Food Security: Astrategy paper for the World Bank (Draft). Washington DC.

26

Appendix 1.

Results from estimating growth equations (equation in box 12 Bovine hides in India)

Bovine meat

1961-99 1961-80 1981-99CountryEstimatedcoefficient

and t-statistic


and t-statistic


and t-statistic

p-value

Australia 0.0008 0.0381 -0.0118

New Zealand -0.0084 0.46 0.0058 0.68 -0.0225 0.23-0.73 0.43 -1.24

Japan 0.0497 0.002 0.0623 0.033 0.0370 0.0043.40 2.30 3.25

Korea, Rep. of 0.0699 0.027 0.0600 0.292 0.0799 0.0092.30 1.09 2.91

China 0.0971 <0.001 0.0578 0.0178 0.1363 <0.0013.95 1.40 5.02

Mongolia -0.0084 0.626 -0.0173 0.54 0.0005 0.98-0.49 -0.63 0.02

Korea, DPR -0.0167 0.186 0.0030 0.690 -0.0365 0.132-1.35 0.41 -1.56

India 0.0042 0.14 0.0022 0.33 0.0062 0.251.50 1.00 1.19

Bangladesh -0.0150 0.276 -0.0261 0.31 -0.0039 0.73-1.11 -1.05 -0.35

Nepal 0.0162 0.002 0.0231 0.001 0.0093 0.243.35 4.10 1.21

Pakistan 0.0076 0.15 -0.0012 0.86 0.162 0.0581.46 -0.18 2.03

Sri Lanka -0.0182 0.096 -0.0213 0.144 -0.0151 0.37-1.71 -1.53 -0.92

BruneiDarussalem

0.02090.60

0.55 0.02110.53

0.60 0.02060.36

0.73

Cambodia 0.0143 0.34 -0.0092 0.73 0.0377 0.0030.97 -0.35 3.38

Indonesia 0.0059 0.53 0.0032 0.77 0.0086 0.590.63 0.30 0.55

Laos 0.0262 0.19 0.0073 0.83 0.0408 0.0331.35 0.22 2.31

Malaysia 0.0226 0.20 0.0023 0.94 0.0429 0.0281.30 0.08 2.39

Myanmar -0.0009 0.85 0.0038 0.53 -0.0057 0.53-0.19 0.64 -0.65

Philippines 0.0147 0.58 0.0081 0.87 0.0213 0.410.56 0.17 0.85

Thailand -0.0161 0.028 -0.0096 0.18 -0.0227 0.083-2.29 -1.40 -1.84

Viet Nam 0.0051 0.46 nc 0.0101 0.260.76 1.17

Note: The estimated coefficient can be multiplied by 100 to provide average growth rates inpercentages.

27

Poultry


and t-statistic


and t-statistic


and t-statistic

p-value

Australia 0.0484 <0.001 0.0777 0.001 0.0191 0.103.94 3.88 1.72

New Zealand 0.0595 0.003 0.0680 0.039 0.0510 0.0293.23 2.22 2.38

Japan 0.0621 <0.001 0.1035 <0.001 0.0206 0.0046.28 7.89 3.32

Korea, Rep. of 0.0738 <0.001 0.0730 0.006 0.0746 0.0114.25 3.15 2.82

China 0.0598 <0.001 0.0247 0.011 0.0948 <0.0015.62 2.85 5.96

Mongolia nc nc nc

Korea, DPR -0.0063 0.696 0.0161 0.076 -0.0288 0.36-0.39 1.88 -0.94

India 0.0289 0.34 nc 0.0578 0.050.97 2.07

Bangladesh 0.0182 0.41 0.0213 0.59 0.0151 0.490.82 0.55 0.70

Nepal 0.0107 0.54 nc 0.0213 0.430.63 0.81

Pakistan 0.0643 0.005 0.0578 0.05 0.0707 0.0463.01 2.07 2.14

Sri Lanka 0.0432 0.038 0.0407 0.22 0.0457 0.0852.16 1.27 1.92

BruneiDarussalem

0.04851.74

0.09 0.08332.07

0.05 0.01370.36

0.72

Cambodia 0.0276 0.09 0.0132 0.54 0.0420 0.0971.73 0.63 1.75

Indonesia 0.0456 0.028 0.0365 0.179 0.0548 0.092.28 1.40 1.78

Laos 0.0013 0.95 -0.0227 0.45 0.0252 0.270.069 -0.765 1.13

Malaysia 0.0617 <0.001 0.0558 <0.001 0.0676 <0.0017.35 5.78 4.87

Myanmar 0.0372 0.033 0.0420 0.04 0.0324 0.272.22 2.27 1.14

Philippines 0.0319 0.14 0.0400 0.21 0.0239 0.441.51 1.31 0.80

Thailand 0.0378 0.007 0.0403 0.04 0.0354 0.0882.86 2.21 1.81

Viet Nam 0.0209 0.195 0.0185 0.27 0.0233 0.411.32 1.15 0.84

28

Pigmeat


and t-statistic


and t-statistic


and t-statistic

p-value

Australia 0.0165 0.07 0.0191 0.26 0.0140 0.061.87

New Zealand 0.0063 0.60 -0.0139 0.42 0.0265 0.110.53 -0.82 1.67

Japan 0.0555 0.002 0.0975 0.004 0.0134 0.243.29 3.34 1.22

Korea, Rep. of nc nc nc

China 0.0695 <0.001 0.0861 0.019 0.053 <0.0014.02 2.58 6.33

Mongolia 0.0076 0.91 0.0365 0.51 -0.0213 0.860.12 0.68 -0.19

Korea, DPR 0.0098 0.60 0.0435 0.001 -0.0239 0.490.54 3.85 -0.71

India 0.0182 0.23 0.0151 0.58 0.0213 0.1651.21 0.57 1.45

Bangladesh nc nc nc

Nepal 0.0182 0.153 0.0151 0.33 0.0213 0.311.46 1.00 1.05

Pakistan nc nc nc

Sri Lanka nc nc nc

BruneiDarussalem

0.01380.37

0.71 -0.0046-0.14

0.890.43

0.03210.48

0.63

Cambodia 0.0408 0.34 -0.0397 0.1212 0.080.96 -0.81 1.85

Indonesia 0.337 0.06 0.0096 0.74 0.0578 0.0081.94 0.34 2.97

Laos 0.0111 0.55 0.0138 0.67 0.0084 0.670.60 0.43 0.44

Malaysia 0.0147 0.28 0.0205 0.37 0.0088 0.581.09 0.92 0.57

Myanmar 0.0170 0.29 0.0388 0.086 -0.0048 0.831.08 1.81 -0.21

Philippines 0.0158 0.38 0.0079 0.71 0.0237 0.430.89 0.38 0.81

Thailand 0.0097 0.71 0.0111 0.78 0.0084 0.810.38 0.28 0.24

Viet Nam 0.0226 0.05 -0.0142 0.13 0.0594 0.0022.05 -1.61 3.59

29

Wholemilk


and t-statistic


and t-statistic


and t-statistic

p-value

Australia -0.0115 0.272 -0.0144 0.31 -0.0086 0.59-1.11 -1.04 -0.55

New Zealand -0.0151 0.63 0.0136 0.74 -0.0438 0.37-0.48 0.34 -0.91

Japan 0.0254 0.001 0.473 <0.001 0.0037 0.623.79 5.11 0.51

Korea, Rep. of 0.1059 0.053 0.1550 0.11 0.0569 0.292.00 1.67 1.10

China 0.0354 <0.001 0.0055 0.61 0.0652 <0.0014.06 0.52 6.52

Mongolia 0.0139 0.32 0.008 0.96 0.0269 0.251.01 0.0552 1.18

Korea, DPR 0.0768 <0.001 0.1425 <0.001 0.0110 0.354.43 5.71 0.97

Bangladesh 0.0026 0.78 -0.0068 0.65 0.0120 0.270.28 -0.46 1.13

India 0.0146 0.077 0.0004 0.98 0.0288 0.0041.82 0.03 3.31

Nepal -0.0050 0.19 -0.00512 0.15 -0.0048 0.48-1.34 -1.50 -0.72

Pakistan 0.01305 0.26 -0.0044 0.025 0.0306 0.191.13 -2.44 1.36

Sri Lanka 0.0200 0.44 0.02419 0.485 0.0158 0.700.78 0.714 0.40

BruneiDarussalem

0.02940.84

0.41 -0.0189-0.48

0.64 -0.0189-0.48

0.64

Cambodia -0.0110 0.60 -0.0269 0.42 0.0048 0.85-0.54 -0.82 0.19

Indonesia 0.0111 0.42 0.0197 0.25 0.0197 0.250.82 1.19 1.19

Laos 0.0053 0.92 0.0897 0.24 0.0897 0.240.10 1.22 1.22

Malaysia -0.0025 0.95 0.0314 0.54 -0.0363 0.48-0.070 0.63 -0.72

Myanmar 0.0051 0.80 -0.0088 0.79 0.0191 0.450.25 -0.27 0.78

Philippines -0.0107 0.83 -0.0277 0.63 0.0063 0.94-0.21 -0.49 0.76

Thailand 0.0329 0.33 -0.0380 0.42 0.1037 0.030.98 -0.83 2.35

Viet Nam -0.0182 0.64 -0.0365 0.64 nc-0.48 -0.48

30

Eggs


and t-statistic


and t-statistic


and t-statistic

p-value

Australia -0.0163 0.074 0.0005 0.96 -0.0321 0.04-1.83 -0.05 -2.20

New Zealand -0.0100 0.32 -0.0051 0.57 -0.0149 0.42-1.00 -0.58 -0.82

Japan 0.0199 0.01 0.0316 0.03 0.0083 0.062.71 2.29 2.05

Korea, Rep. of 0.0500 <0.001 0.0800 <0.001 0.0191 0.063.58 3.28 2.01

China 0.0541 <0.001 0.0138 0.01 0.0943 <0.0014.85 2.87 3.38

Mongolia -0.0182 0.65 0.0578 0.23 -0.0943 0.132-0.47 1.26 -1.58

Korea, DPR 0.0085 0.52 0.0079 <0.001 -0.0186 0.440.65 4.52 -0.79

India 0.0424 <0.001 0.0446 0.05 0.0401 0.0033.57 2.12 3.48

Bangladesh 0.0342 0.12 0.0365 0.27 0.0319 0.281.62 1.14 1.12

Nepal 0.0059 0.65 0.0062 0.55 0.0056 0.820.46 0.61 0.23

Pakistan 0.0788 0.002 0.121 0.01 0.0365 0.053.37 2.90 2.09

Sri Lanka 0.0258 0.26 0.0393 0.37 0.0123 0.381.16 0.92 0.91

BruneiDarussalem

0.03061.20

0.24 0.06662.93

0.009 -0.0053-0.12

0.91

Cambodia 0.0119 0.29 0.0238 0.20 nc1.08 1.33

Indonesia 0.0424 0.039 0.0659 0.03 0.0188 0.522.14 2.43 0.66

Laos 0.0405 0.12 0.0684 0.16 0.0127 0.511.61 1.47 0.67

Malaysia 0.0481 <0.001 0.0759 <0.001 0.0204 0.095.02 5.97 1.79

Myanmar 0.0223 0.21 0.0213 0.32 0.0233 0.421.28 1.02 0.82

Philippines 0.0293 0.07 0.0375 0.18 0.0210 0.221.88 1.40 1.28

Thailand 0.0011 0.92 -0.0129 0.13 0.0151 0.490.10 -1.58 0.71

Viet Nam 0.0076 0.53 -0.0269 0.09 0.0420 0.0130.63 -1.79 2.74

31

2. Has higher growth in livestock production in Asia been associatedwith greater variability in Asian livestock production ?§

One of the most noticeable developments to have occurred in the agricultural sectors of countries inthe Asia-Pacific region over the last couple of decades has been the rapid growth in many - but notall - parts of the livestock sector. This growth has come about because of a combination of factors onthe supply side as well as the demand side. New capital-intensive technologies have made possiblethe production of poultry and pigmeat in industrial style production facilities across Asia in countrieswhere land is limited. This has greatly increased the supply of pork and poultry meat for domesticconsumption or for sale on export markets. According to FAO's index of livestock production, theproduction of livestock products in the Asian and Pacific region increased almost six fold (from 28.7to 165) between 1961 and 2000.

The development of the livestock industries has not occurred without criticism. Concerns have beenraised about the environmental implications of the almost unrestrained growth that has beenoccurring in the industrialized livestock sector. The disposal of manure from the pig farms that are apart of this sector in many countries is a major problem in some areas, for example. The possible lossof genetic diversity in the livestock sector, the effect on income distribution and asset prices, and theimpact on other agricultural and non-agricultural industries, are additional considerations. On theother hand, others see growth in the livestock industries as playing an important part in improvingthe nutritional status of low-income households, in providing employment to workers with fewalternatives, and as providing income-generating opportunities to people living in rural areas. Manyof these issues are not well understood and for that reason are the subjects of ongoing research in theFAO.

The issue that this chapter sets out to examine is whether there exists any association betweenincreased livestock production in a country and the variability of this production in the same countryover time. This particular issue appears to have received little if any attention on the part of analystsyet it is important. Variability of production could be viewed as a negative externality for consumersand producers. Low-income consumers are generally not well equipped to cope with fluctuatingprices that accompany variable production. For example, they are likely to lack the means to pay thehigher prices that accompany shortages and they may lack the ability to stockpile during periods ofhigh production. Producers may find planning more difficult when faced with a highly variableenvironment. Unlike their counterparts in developed countries, producers in developing countriesoften do not have available to them risk reducing instruments such as futures markets or insurance.In developing countries where such schemes have been tried, they have not always been successful(Box 3). At the macro level, stability in the domestic production of food is important for developingcountries that usually lack the financial resources to turn to international markets to meet domesticshortfalls. In addition, developing country governments faced with variations in domestic productionmay come to believe that market intervention on their part is the way to even out fluctuatingproduction.

An opposing view is that variability is a necessary part of any market since it reflects changes in theeconomic environment, creating incentives and opportunities for those involved in the market.Changes in market prices associated with production variability will provide producers withopportunities to make profits and resources will move into and out of activities depending uponchanges in relative prices. Certain industries will contract and others will expand. Likewise inprinciple, consumers will adjust their consumption behaviour depending upon changes in the pricesfor different commodities in the market. While these changes in producer and consumer behaviourwill occur, there will be some costs associated with such changes. Whether these are significant in a

§Alicia Rambaldi is thanked for comments on this paper. She is not to blame for any errors.

32

particular industry or for a certain groups of consumers or producers is a question that can only beresolved through research.

Box 3 Sri Lanka's experience with livestock insurance

Abeyratne (2001) offers the following description of livestock insurance in Sri Lanka. It was firstintroduced into Sri Lanka in 1974. Initially it was designed to provide insurance cover to dairy cattleimported and distributed to farmers under an IDA/SRL Livestock Project. The scheme's conditionswere revised from time to time. However it was not popular with dairy farmers, and the insurancewas limited only to those farmers who were receiving bank loans for dairying. The insurance schemewas later expanded to cover buffaloes and goats. These schemes too were mostly limited to animalsobtained on loan schemes either from banks or other sources. Today cattle, buffalo and goatinsurance is made available through private insurance companies as well. Although attempts weremade to formulate insurance programme for poultry, no scheme ever materialized due to the highrisk and higher premiums that would be needed for such high-risk projects. Discussions were held tofind out whether it would be possible to offer insurance to parent breeders. As yet, this has nothappened.

The data and methodology

The data on livestock production came from the web site of the Food and Agriculture Organizationof the United Nations (FAO). Coverage extended from 1961 to 2000. Two subperiods were alsoexamined: these were 1961 to 1980 and 1981 to 2000. The methodology used to calculate growthrates is described in Box 4. This methodology is the same as that used in Box 1.1 of Chapter 1 tocalculate growth in consumption.

Box 4 Methodology used to calculate production growth

To find the growth rates, production in country i of commodity j in year t, (Yijt), is hypothesised togrow from production in the initial year (Yij0), according to (1.0):

Yijt = Yij0exp(gijt×t) (1.0)

where g is the growth rate in country i of commodity j and t is the year

Taking logarithms of both sides, (2.0) and (3.0) are obtained:

ln(Yijt) = ln(Yij0) + gijtt (2.0)

and for year (t - 1)

ln(Yijt-1) = ln(Yij0) + gijt(t - 1) (3.0)

Subtracting (3.0) from (2.0) gives (4.0), and from this (4.1):

gijt = ln(Yijt) - ln(Yijt-1) (4.0)

gijt = gij + ξt (4.1)

where gij is the average growth rate for the period studied and ξt is an error term.

33

Equation (4.1) was estimated using the statistical package Microfit for each of the three periods 1961to 1980, 1981 to 2000 and 1961 to 2000. The estimated value for gij was used as a point estimate ofthe growth rate in country i for commodity j providing that it was statistically different from zero atthe 10 percent level or better. If the estimated value of gij was not statistically significant, growth inthat particular country i, for that particular commodity j, was viewed as being zero.

Data for 19 countries in the Asia-Pacific region and for up to eight livestock products for each ofthese countries were examined. Table 18 contains a listing of the countries and the commoditiesinvestigated. Data were not available for every product for every country. For example, Pakistan, asa strict Muslim country, does not have a pig industry, while Australia, New Zealand and Japanproduce little or no buffalo meat. Although there are differences across countries, in general goatmeat, mutton and lamb, duck meat and buffalo meat are products that come mainly from smalltraditional farms and few tradeable inputs are used in their production. Data quality is an issue for anumber of the countries examined. One of the reasons for this is that livestock information has notalways been collected in a systematic fashion, and/or may involve a number of different agencieswith differing objectives. Box 5 discusses this in relation to the data on China's beef industry.

Box 5 Government agencies involved in information collection for China's beef industry

There are many government bodies responsible for the collection and collation of agricultural data inChina. These include the Ministry of Agriculture, National Bureau of Statistics, GeneralAdministration of Customs, State Meteorological Bureau, State Bureau of Industry and CommerceAdministration, State Development Planning Commission, State Internal Trade Bureau, Ministry ofChemical Industry, Ministry of Railways and the All-China Federation of Supply and Marketing Co-operatives. Information collection methods include sample survey, bottom to top reporting, casestudy and core investigations. Smith (2001) makes the following points in relation to China's data.

• In most cases the information is designed only for the use of the particular line agency that hascollected it. Access to data by other agencies is heavily restricted. This leads to efficiency lossesand increased cost. Although the situation is being partially remedied by the setting up ofinformation collation agencies such as the Ministry of Agriculture Information Center, theoverlap and lack of openness of much of the collected data remains a serious problem.

• Multiple information channels and bottom to top reporting hierarchies have led to distortions offigures for political considerations. Output and production data is a strong reflection onadministrative performance. Many figures are exaggerated at all levels in the hierarchy in orderto win political advantage.

• In many cases there is a lack of co-ordination of agricultural information standards betweenvarious agencies and also between provinces. This relates to data definitions, statistical gatheringtechniques, modification methods and standardized point and period data standards.

• Funding for beef industry development programmes is heavily dependent on past performancelevels of indicators such as cattle inventory, turn off and beef production. There is a strongincentive for officials at all levels to overstate statistics relating to the beef industry at theiradministrative level. Villages, towns and counties can all receive potentially large increases infunding if they can show that beef industry development has been successful. According to theNational Bureau of Statistics, it is not easy to overstate land area or grain production, but it isvery easy to overstate animal inventories and turn of numbers. Also when surveys are carriedout, officials may direct sampling towards administrative units that have atypically highproduction figures.

• Slaughter numbers and beef production figures are not collected at slaughterhouse level. This isbecause the majority of beef production occurs at small slaughterhouses under privateownership. Supervision, inspection and taxation of these facilities is not widespread.

34

Tab

le 1

8 C

ount

ry a

nd c

omm

odity

cov

erag

e fo

r the

ana

lysi

s

35

How much has meat production grown in the countries of Asia-Pacific?

In 1961, total meat production in the countries studied was 9 600 000 Mt, and by 2000, total meatproduction had grown by more than 900 percent to 90 919 000 Mt. China was the largest meatproducer, accounting for 26.27 percent in 1961 (2 500 000 Mt) and 70.88 percent in 2000(64 400 000 Mt). India had the second highest production of meat followed by Australia. For both ofthese countries, their relative shares declined because of the rapid growth in Chinese production. TheRepublic of Korea (South Korea) was the only country where the share of meat production increasedbetween 1961 and 2000: its share of production among the countries studied rose from 1.09 percentto 1.79 percent (Table 19).

Table 19 Total meat production in the Asia-Pacific region andthe share of each country, 1961 to 2000

Year Unit 1961 1965 1970 1975 1980 1985 1990 1995 2000

East AsiaChina % 26.27 44.18 42.31 44.94 50.06 54.61 59.60 66.35 70.88Mongolia % 1.71 0.98 0.96 1.03 0.77 0.59 0.49 0.29 0.25

South AsiaIndia % 17.38 11.68 11.07 10.08 8.83 8.16 7.64 6.17 5.31Pakistan % 3.77 2.62 2.55 2.54 2.41 2.47 2.60 2.55 1.93Bangladesh % 1.74 1.31 1.36 1.08 0.71 0.68 0.60 0.51 0.47Sri Lanka % 0.40 0.34 0.31 0.26 0.18 0.14 0.10 0.12 0.10Nepal % 0.64 0.46 0.45 0.45 0.43 0.43 0.37 0.28 0.26

South-east AsiaIndonesia % 3.48 2.45 2.38 2.40 2.26 2.72 2.84 2.62 2.13Philippines % 3.44 2.98 3.06 2.72 2.67 1.84 2.14 1.95 1.95Malaysia % 1.05 0.80 0.90 1.09 0.99 1.10 1.22 1.32 1.13Thailand % 4.32 3.24 3.68 3.35 3.03 3.06 2.59 2.52 2.06Viet Nam % 3.96 2.80 2.38 1.91 1.84 2.25 2.10 1.90 2.17Laos % 0.20 0.17 0.17 0.09 0.10 0.10 0.09 0.09 0.09Myanmar % 1.10 0.87 1.06 0.90 0.84 0.81 0.49 0.42 0.49Cambodia % 0.28 0.29 0.41 0.24 0.08 0.23 0.23 0.21 0.21

High-income countriesAustralia % 14.43 11.80 11.44 11.02 9.01 6.43 6.01 4.53 4.01NewZealand

% 7.64 5.22 5.53 4.80 3.81 3.43 2.19 1.83 1.47

Japan % 7.08 6.91 9.06 9.97 10.31 9.03 6.87 4.38 3.32Korea, Rep.of

% 1.09 0.91 0.93 1.12 1.65 1.92 1.85 1.94 1.79

Total Kt 9 706 15 464 18 095 22 204 29 538 38 340 51 023 72 712 90 919

Source: Calculated from FAO data

Of the different types of meat, pigmeat has been the most important meat in terms of quantityproduced. In 1961, pigmeat represented 30.26 percent of total meat production. Beef and veal wasnext in importance followed by mutton and lamb. Pigmeat had become even more dominant by 2000when it represented over 55 percent of the meat produced. Poultry meat had displaced mutton andlamb in second place while beef and veal was the third most important meat (Table 20).

36

On the one hand, the importance of pigs is not altogether unexpected. Pigs have bioenergetic featuresthat make them efficient producers of meat. Pigs have a low basal metabolism, and as a result at themid-point of their growth will channel almost two-thirds of their metabolised energy into weightgain whereas the share for a 300 kg steer is about 45 percent and between 50 and 60 percent forchickens (Smil 2000). Pigs also have a short gestation time, reproduction starts at four to eightmonths of age, pregnancy lasts 114 days on average, and litter sizes range from eight to eighteen (Smil 2000). They can also eat a wide range of feedstuffs. On the other hand, there are manycultural, religious and social biases against pigs that make the growth in pigmeat production perhapsa little surprising. Some of these are discussed in Chapter 4.

Table 20 Relative shares of different meats in the Asia-Pacific region, 1961-2000

Year Mutton& lamb

Beef& veal

Pigmeat PoultryMeat

Goatmeat

Othermeat

% % % % % %1961 13.92 22.34 30.26 13.63 4.42 15.441965 9.37 18.05 47.59 10.69 3.07 11.231970 9.60 17.05 47.06 12.97 2.93 10.391975 6.95 18.46 47.97 14.12 3.05 9.451980 5.96 14.73 53.57 15.19 2.73 7.831985 5.29 11.66 58.19 14.51 2.77 7.581990 4.41 11.98 58.23 16.17 2.95 6.271995 3.71 12.32 55.03 20.16 2.78 6.002000 3.52 12.23 55.69 21.10 2.55 4.91

Source: Calculated from FAO data

Average rates of growth in total meat production were found to be statistically different from zerobetween 1961 and 2000 in all countries with the exception of Mongolia and New Zealand. Notunexpectedly in light of the information presented in Table 19 on each countries' share of production,the highest rate of growth was for China where the growth in total meat production averaged 8.28percent for each year. The Republic of Korea (shown in the following figures as South Korea) hadthe second highest average rate of growth at approximately 7 percent. Most of the other countrieswhere growth in total meat production occurred recorded growth rates in the range of 3 to 4 percentper year on average (Figure 2).

Figure 2 Annual growth in total meat production, 1961-2000

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

Austra

lia

New Z

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d

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n

South

Kor

ea

China

Mon

golia

India

Nepal

Pakist

an

Sri La

nka

Bangla

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Mya

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Thaila

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ysia

Vietna

m

Philipp

ines

Indo

nesia

Gro

wth

(%

)

37

In the two subperiods 1961 to 1980 and 1981 to 2000, there were differences between the countriesin patterns of growth. In 10 countries growth occurred in both subperiods; in two countries (Japanand Australia) growth occurred only in the first subperiod and in four countries (Cambodia, Laos, SriLanka and Bangladesh) growth was recorded in the second subperiod but not the first. Mongolia andNew Zealand did not show any statistically significant growth in either of the two subperiods(Figure3).

Figure 3 Growth in total meat production, 1961-80 and 1981-2000

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Austra

lia

New Z

ealan

d

Japa

n

South

Kor

ea

China

Mon

golia

India

Nepal

Pakist

an

Sri La

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Bangla

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dia

Laos

Mya

nmar

Thaila

nd

Mala

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Vietna

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Philipp

ines

Indo

nesia

Gro

wth

(%

)

1961-80 1981-2000

Growth rates were calculated for the other livestock products shown in Table 18. These are inAppendix A of this chapter. A number of features stand out:

• China's beef and veal production increased by over 11 percent between 1961 and 2000, with thegreatest increase occurring between 1981 and 2000. During this period, production increased byan annual average of more than 14 percent. In the earlier period, growth averaged 8 percent eachyear. The next largest average growth occurred in the Republic of Korea (just over 6 percent),followed by Laos (slightly below 6 percent). In most other countries, the average increasebetween 1961 and 2000 was in the range of 2 to 3 percent each year.

• The largest percentage change in buffalo meat production between 1961 and 2000 took place inCambodia. The increase averaged 8 percent. China's growth averaged around 7 percent between1961 and 2000; for the two subperiods, growth was slightly higher between 1981 and 2000.

• Chicken meat production expanded in all of the countries, with the exception of Mongolia andLaos. The subperiod of greatest growth for Australia, New Zealand, Japan, the Republic ofKorea, Myanmar, Sri Lanka and the Philippines was the first 1961 to 1980. In the other countrieswhere production growth occurred - including India and China - the largest expansion took placebetween 1981 and 2000. Pakistan and Malaysia were the two countries to record the largestaverage growth in production.

• Growth in the production of cow milk in the Republic of Korea was remarkable; it increased onaverage between 1961 and 2000 by over 19 percent each year (Box 6). Thailand was the countrywith the next largest increase. Only 12 of the 19 countries recorded growth in production thatwas statistically different from zero between 1961 and 2000. India and Pakistan - two countrieswhere the consumption of milk and milk products is a key part of the diet - recorded broadlysimilar proportionate increases in production between 1961 and 2000.

38

• Pakistan, China, Bangladesh and Indonesia experienced the highest growth rates in eggproduction between 1961 and 2000 - over 6 percent on average each year. Australia, NewZealand and Mongolia were the only countries not showing a statistically significant increase inproduction.

• Mutton and lamb production failed to expand in most countries in the Asia-Pacific region. Chinahad the highest average growth. Production in Australia and New Zealand, both significantsuppliers of sheepmeat to world markets, remained stable.

• The production of pigmeat increased by an average of over 8 percent per year in China between1961 and 2000, implying there would be a more than doubling of production every nine years.Between 1961 and 1980, growth averaged over 10 percent a year. The Republic of Korea andJapan showed the next largest increase in production, with increases close to 8 percent and 6percent, respectively.

Box 6 Changes in the distribution of Republic of Korea dairy farms by number of head

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10000

15000

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There has been a marked structural change in the South Korean dairy industry, with a decline inthe number of very small farms - those having 4 or fewer head of cattle. This development inKorea is similar to the experience of Japan. The increase in the average herd size has resulted inan improvement in management. This, combined with an increase in the number of dairy cattle inSouth Korea, is behind the growth in milk production.

The index of variability in production

An index of variability in the production of each livestock product was calculated for each countryproducing that product. The methodology followed is described in Box 7. In brief, a trend level ofproduction was calculated using the estimates of production growth presented already. The index ofproduction was found using the trend levels of production and the actual levels of production. Theadvantage of this index other the commonly used measure of variability - the coefficient of variation- is that it takes into account any trend that exists in the data.

39

Box 7 The index of variability in production

The first step in calculating the index of variability involved finding the trend value (5.0). This wasestimated from the growth rates found using (4.1). The proportionate deviation of this trend valuefrom the actual value was then found for each year using (5.1). The final step involved calculatingthe standard deviation of the proportionate deviations using (6.0). This standard deviation was usedas the index of variability in production.

Tijt = exp[gij + ln(Yij,-1)] (5.0)

Dijt = Yijt - Tijt (5.1)Yijt

Iij = Σ(Dijt - Dijt)2 (6.0) t - 1

wheretijt is the trend value for livestock product i in country j in year t

gij is the growth rate for livestock product i in country j

Yij,-1 is the production of livestock product i in country j, lagged one year

Dijt is the difference between the actual production (Yijt ) of livestock product i incountry j in year t, and the trend level of production from (6.0), expressed as aproportion of actual production (Yijt) and

Iij is the index of variability for product i in country j

Values calculated on the index of variability for total meats for 1961 to 2000 are shown in Figure 4.Cambodia, the Philippines and the Republic of Korea obtained the highest values on the indeximplying the greatest variability in production, while India and Nepal had the lowest values,implying the least variable production. There was a group of countries - Australia, Japan, NewZealand, Myanmar, Thailand, Indonesia and Sri Lanka - that obtained similar values on this index,indicating that their production variability was broadly the same for the period 1961 to 2000.

Figure 4 Index of variability for total meat production, 1961-2000

The index of variability was calculated for the different livestock products. These are in Appendix B.

0

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0.16

Austral

ia

New Zeal

and

Japan

Korea

China

Mongo

liaInd

iaNep

al

Pakist

an

Sri Lan

ka

Bangla

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dia Laos

Myanm

ar

Thaila

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Viet N

am

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ines

Indon

esia

Inde

x of

var

iabi

lity

40

The index of variability in production and production growth

To test whether there was any statistical relationship between the index of variability and growth inthe production of livestock products, (7.0) was estimated:

Iij = β0j + β1jgij + β2jHij + β3jGij + νij (7.0)where

Iij is the index of variability for country i and commodity j

gij is the growth in country i of production in commodity j

Hij is a dummy variable that takes a value of 1 for high-income countries, and 0otherwise

Gij is a dummy variable that takes a value of 0 if the estimated growth rate was notstatistically significant at the 10 percent level, and 1 otherwise

β0j ,β1j ,β2j and β3j are coefficients to be estimated

νij is an error term

The results from fitting this model to the data for the period 1961 to 2000 are shown in Table 21.

Table 21 Results from regression of the index of variability against production growth,the high income dummy and the significance of growth dummy, 1961 to 2000

Model Estimated coefficient t-statistic p-value

Beef and vealConstant 0.0764 4.79 0.0002Growth 0.5001 1.39 0.1835High-income dummy 0.0383 1.70 0.1098Growth dummy -0.0251 -1.29 0.2147

Buffalo meatConstant 0.1067 4.38 0.0011Growth 0.0825 1.54 0.1511Growth dummy -0.0712 -2.09 0.0602

PigmeatConstant 0.1986 3.36 0.0056Growth 1.1000 0.78 0.4494High-income dummy -0.0189 -0.34 0.7396Growth dummy -0.1509 -2.59 0.0236

Chicken meatConstant 0.3278 5.70 <0.0001Growth -3.0404 -3.26 0.0053High-income dummy 0.01728 0.3852 0.6859Growth dummy -0.0395 -0.4124 0.7055

41

Model Estimated coefficient t-statistic p-value

Duck meatConstant 0.0435 2.95 0.0121Growth 1.6642 0.53 0.6069High-income dummy 0.2520 1.75 0.1054Growth dummy -0.4341 2.67 0.0206

Mutton and lambConstant 0.1615 2.65 0.0228Growth -0.1924 -0.17 0.8695High-income dummy -0.0018 -1.25 0.2378Growth dummy 0.0985 1.11 0.2900

Goat meatConstant 0.4291 3.46 0.0042Growth -5.4188 -3.04 0.0096High-income dummy 0.6546 3.39 0.0049Growth dummy -0.0851 -0.56 0.5852

Total meatConstant 0.0261 1.06 0.3090Growth 0.4417 1.13 0.2790High-income dummy 0.0258 1.17 0.2631Growth dummy 0.0031 0.18 0.8576

Hen eggsConstant 0.0349 0.32 0.7505Growth -0.0001 -0.49 0.6318High-income dummy 0.0928 0.82 0.4257Growth dummy 0.1290 1.27 0.2251

Cow milkConstant 0.0977 5.59 <0.0001Growth 0.7982 3.80 0.0018High-income dummy -0.0224 -0.98 0.3447Growth dummy -0.0544 -2.46 0.0263

The results presented in Table 21 indicate the following:

• For the sample countries over the period 1961 to 1999, there was a statistically significantinverse relationship between the growth in the production of chicken meat and variability inchicken meat production. This suggests those countries where domestic production has increasedthe most were also the countries where production variability decreased. The conclusion fromthis is that the vulnerability of consumers to shortages of domestically produced chicken meathas not increased with increased domestic production.

• A statistically significant and positive relationship between the growth in cow milk productionbetween 1961 and 2000 and the variability in cow milk production over this period existed in thecountries included in this study. In other words, countries that experienced the greatest increasesin production were also likely to have the greatest production variability.

42

• Apart from chicken meat and cow milk, the only other livestock products where there was aninverse relationship between production growth and the index of variability were mutton andlamb, goat meat and hen eggs. However, with the exception of goat meat, the p-values werehigh. This indicates that for mutton and lamb and hen eggs, it would be difficult to reject thehypothesis of no relationship between production growth and the index of variability inproduction. Goat meat makes a relatively minor contribution to meat production and itsimportance has been declining.

• In those countries where statistically significant growth did occur in the production of buffalomeat, pigmeat, duck meat and cow's milk, production variability of these commodities tended tobe lower than in those countries where statistically significant growth did not occur. This isindicated by the finding that the coefficient on the growth dummy was negative and statisticallysignificant in the models estimated for these products.

• Production variability in the different livestock products did not appear to be any differentbetween the high-income countries (Australia, Japan, New Zealand and the Republic of Korea)and the others. The only exceptions to this were for goat meat, beef and veal and duck meat. Forthese commodities, the p-values on the high-income dummy were close to 0.10, indicating thatthe hypothesis of no relationship between the index of variability and the high income dummycould be rejected. These results indicate that the variability of production in these livestockproducts is greater in the high-income countries than in the low and middle-income economiesincluded in the study.

Concluding comments

The results in this paper show the extent of the growth that has occurred in the livestock industries ofthe countries of Asia. It is apparent that growth rates differ between countries and between thelivestock industries. These changes have effects that extend beyond the livestock sector. Forexample, growth in the poultry meat and pigmeat industries has enormous implications for feedresources since it signals a shift from pasture based production systems for livestock to industriesbased upon cropping. Countries with inadequate local feed production have had to turn to imports tomeet the feed needs of these industries. In Indonesia, for example, imports of animal feed accountedfor 11.4 percent of the value of agricultural imports in 1985-86 and 12 percent in 1996-97. Thisdependence on imports of animal feeds led to the collapse of the poultry industry in 1998 since thatindustry was dependent upon imports for 70 percent of its feed requirements (Suryana, Bahri andWahida 1998). An expanded livestock sector also has implications for the environment and for fooddistribution and marketing systems (Steinfeld 1998; Smil 2000). With pigmeat and poultryrepresenting such a high proportion of the meat consumed in the Asia-Pacific region, improvementin feeding in these industries could provide substantial payoffs in terms of greater production fromthe same level of feed. Smil (2000) argues that the pig's omnivory presents tremendous opportunitiesfor tapping underutilized or wasted feed resources ranging from unmarketable bananas to leucaenaleaf meal and from cocoyams to seaweeds. On the other hand, technological breakthroughs in the useof pastures could swing the balance in favour of ruminants.

An association between growth in production and variability in production was discovered for only alimited number of the livestock products, the most important of which were chicken meat and cowmilk. For the former, it seems that increased production has led to reduced variability in production,while for the latter increased production has been associated with increased variability. This suggeststhat the countries of the Asia-Pacific region have been able to expand these industries without havingto deal with production shortfalls or oversupply.

43

References

Abeyratne, A. S. 2001. Perspectives and Strategies for the Asian Livestock Sector in the next Threedecades (2000 - 2030) - Sri Lanka. Unpublished report prepared for FAO, Bangkok.

Smil, V. 2000. Feeding the World: a Challenge for the Twenty-First Century. Cambridge, Mass.MIT Press.

Smith, D. 2001. Data issues and reliability in the Chinese beef industry. mimeo.

Steinfeld, H.1998. Livestock production in Asia and the Pacific region: current status, issues andtrends. World Animal Review.

Suryana, A., S. Bahri and Wahida. 1998. Key agricultural and agribusiness policy issues inIndonesia. mimeo.

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Appendix 2A.

Growth in the production of livestock products in the Asia-Pacific region, 1961-2000

Growth in beef and veal production,selected countries in the Asia-Pacific region

0

2

4

6

8

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16

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1961-2000 1961-80 1981-2000

Growth in buffalo meat production,selected countries in the Asia-Pacific region

-6

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-2

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China

India

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1961-2000 1961-1980 1981-2000

45

Growth in chicken meat production,selected countries of the Asia-Pacific region

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1961-2000 1961-80 1981-2000

Growth in production of cow milk (whole fresh),selected countries of the Asia-Pacific region

0

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1961-2000 1961-80 1981-2000

46

Growth in duckmeat production,selected countries in the Asia-Pacific region

0

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1961-2000 1961-80 1981-2000

Growth in goatmeat production,selected countries in the Asia-Pacific region

-20

-15

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-5

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Austra

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1961-2000 1961-80 1981-2000

47

Growth in hen egg production,selected countries in the Asia-Pacific region

0

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ades

h

Cambo

dia

Laos

Mya

nmar

Thaila

nd

Vietn

am

Indo

nesia

Philip

pine

s

Gro

wth

(%

)

1961-2000 1961-1980 1981-2000

Growth in mutton and lamb production,selected countries in the Asia-Pacific region

-25

-20

-15

-10

-5

0

5

10

15

Austra

lia

New Z

ealan

d

Japa

n

South

Kor

ea

China

Mon

golia

India

Nepal

Pakist

an

Bangl

ades

h

Mya

nmar

Philip

pine

s

Indo

nesia

Sri La

nka

Gro

wth

(%

)

1961-2000 1961-80 1981-2000

48

Growth in pigmeat production,selected countries of the Asia-Pacific region

0

2

4

6

8

10

12

14

16

Austra

lia

New Z

ealan

d

Japa

n

Korea

China

Mon

golia

India

Nepal

Sri La

nka

Cambo

dia

Laos

Mya

nmar

Thaila

nd

Vietn

am

Philip

pine

s

Indo

nesia

Gro

wth

(%

)

1961-2000 1961-80 1981-2000

Growth in poultry meat production,selected countries in the Asia-Pacific region

0

2

4

6

8

10

12

Austra

lia

New Z

ealan

d

Japa

n

Korea

China

Mon

golia

India

Nepal

Pakist

an

Sri La

nka

Bangl

ades

h

Cambo

dia

Laos

Mya

nmar

Thaila

nd

Vietn

am

Philip

pine

s

Indo

nesia

Gro

wth

(%

)

1961-2000 1961-80 1981-2000

49

Appendix 2B.

The index of variability in the production of livestock products inthe Asia-Pacific region, 1961-2000

Country Beef & veal Chicken meat Mutton& lamb

Pigmeat Buffalo meat

China 0.091 0.054 0.053 0.093 0.011Cambodia 0.120 0.135 0.249 0.213India 0.038 0.052 0.040 0.034 0.025Indonesia 0.061 0.119 0.174 0.100 0.136Korea, Rep. of 0.186 0.098 0.478 0.190Laos 0.105 0.124 0.104 0.122Malaysia 0.107 0.061 0.095Mongolia 0.129 0.647 0.090 0.477Nepal 0.018 0.049 0.018 0.030 0.051Pakistan 0.026 0.117 0.091 0.035Philippines 0.098 0.143 0.023 0.119 0.166Srilanka 0.069 0.113 0.111 0.171 0.070Thailand 0.057 0.084 0.324 0.155 0.069Viet Nam 0.079 0.114 0.062 0.032Bangladesh 0.085 0.133 0.199 0.094Australia 0.097 0.076 0.126 0.067New Zealand 0.097 0.123 0.066 0.073Myanmar 0.028 0.121 0.107 0.127 0.035Japan 0.131 0.071 0.300 0.103

Country Duck meat Hen eggs Cow milk Goat meat Total meatChina 0.058 0.057 0.089 0.073 0.074Cambodia 0.101 0.036 0.076 0.142India 0.037 0.060 0.209 0.017Indonesia 0.114 0.150 0.130 0.136 0.060Korea, Rep. of 0.262 0.765 0.147 1.750 0.099Laos 0.078 0.104 0.037 0.238 0.083Malaysia 0.982 0.087 0.936Mongolia 0.368 0.079 0.138 0.079Nepal 0.140 0.082 0.017 0.015 0.020Pakistan 0.125 0.091 0.099 0.093 0.037Philippines 0.110 0.099 0.083 0.221 0.086Srilanka 0.236 0.118 0.227 0.104 0.056Thailand 0.086 0.085 0.161 0.159 0.063Viet Nam 0.107 0.063 0.057 0.090 0.044Bangladesh 0.111 0.131 0.053 0.134 0.085Australia 0.125 0.065 0.044 0.406 0.065New Zealand 0.950 0.061 0.057 0.651 0.061Myanmar 0.219 0.091 0.119 0.083 0.064Japan 0.043 0.041 0.059

50

3. Vertical integration and the livestock industries ofthe Asia-Pacific region

The industrialization of agriculture is, according to Rhodes (1993), nearly as old as agriculture itself.He points out that industrialization involves a switch from agriculture based upon a fixed resource(land) to one based upon manufactured and hence variable resources. The other key characteristic ofindustrialization is the development of contractual arrangements between producers and other in themarketing chain. These arrangements have given rise to vertical integration among producers andmarketers. The World Bank (2001) points out that vertical integration linking input suppliers,producers, processors and supermarkets is already the common production structure in northwestEurope and parts of the USA. Industrialization of the livestock industries has been occurring throughmany of the countries of the Asia-Pacific region. For example, the poultry industry of both Thailandand Indonesia has undergone industrialization over the last three decades (Ranong 1999; Soedjana1999), with 80 percent of poultry production in Thailand in the mid-1990s coming from only tenlarge, vertically integrated companies supplying feed and day old chicks to medium- and large-scaleproducers under contract (World Bank 2001). A number of issues of concern to policy makers areassociated with this type of development. These include the effect on the environment of large-scalelivestock production facilities and how the small livestock farmers (the backyard producers), somuch a part of the livestock sector in developing countries, will fare in the face of competition fromlarge-scale producers. The purpose of this chapter is to examine the issue of vertical integration withparticular reference to the livestock sector of countries in the Asia-Pacific region.

What is vertical integration?

Vertical integration occurs when a single firm can produce complementary products and servicesmore profitably than a number of firms. Activities are complementary when carrying out one activityreduces the cost of doing the other (Berlin 2001). Put somewhat differently, vertical integrationrefers to the common organization of an industry across a number of components of the value chainand to increased standardization of production at each stage of the production process. Maturingfirms in a vertically integrated industry are likely under certain conditions to try to control more partsof the production process. According to Dobashi et al. (1999), in the poultry industry, there are threelevels of integration. These are:

• Non-integrated - firms tend to act as individual business units. Non-integrated industries arelikely to be found in developing countries. A small subsistence farm producing food only for theneeds of the farm household would be an example of a non-integrated firm.

• Semi-integrated - involves the processor taking over some parts of the production process tocontrol the quality and quantity of output. In the broiler industry, the firm rearing the poultrymay be involved in the production of parent stock or in running the hatchery operation.

• Integrated - large corporate entities control all levels of the value chain from feed milling todelivery at the retail level. Firms involved in pigmeat production might own the feedmills usedto manufacture the animal feed; they might also be involved in the breeding of pigs for thefattening operation; these firms might also own the slaughtering facilities and retail outlets to sellthe product.

Vertical integration is becoming an increasingly noticeable feature of the livestock industries in thecountries of the Asia-Pacific region. Vertical integration does not appear to be a particularlyprominent feature of the cropping industries, although it has been used in Thailand's canned cornindustry and also in that country's cashew industry, as well as for some plantation crops in Malaysia,the Philippines, Sri Lanka and Indonesia.

51

How do the arrangements in the livestock industries operate?

There are differences across countries in the way that integration arrangements operate, but typicallyit displaces the decision making authority from the farmer to the downstream producer or processor,turning farmers into quasi-employees (Reardon and Barrett 2000). In the Philippines, the contractsthat have been used for pork production are based upon the farmers possessing labour and theproduction facilities such as housing for the animals. These facilities are often built with financeprovided by the firms involved in meat processors. High financing costs for the development ofproduction facilities and for the purchase of stock are said to be behind the high cost structure of thatpart of the Philippine broiler industry in the hands of the small independent growers (Dobashi et al.1999).

The nucleus farm arrangements that have been used in Indonesia and elsewhere in South-east Asiaare a form of horizontal integration (Box 8). Horizontal integration, unlike vertical integration,involves relationships between farms at the same stage in the production process. For example, alarge company owned farm producing pigs could be horizontally integrated with a small operationowned and operated by an independent producer. The large farms provide technical expertise andother variable inputs such as animal feed and veterinary services to the small farm. The operator ofthe small farm provides labour and fixed inputs such as land and housing for the livestock. The largefarms avoid incurring high fixed costs through this form of arrangement and the operator of the smallfarm learns how to manage livestock in a manner likely to increase the marketability of the livestockproduct produced on that farm.

Box 8 Indonesia's nucleus plasma scheme

The nucleus plasma scheme (Pola Inti Rakyat) was first introduced in 1993. It was aimed atimproving smallholder farmers in partnership with the live cattle import industry. Programmes usedin the cropping industry and in the chicken industry motivated the development of the programme.The scheme had three components:

• the fattening of imported feeder cattle in partnership with existing feedlot businesses;• the provision of feedstuffs direct to the feedlots from smallholder farmers;• the maintenance and upkeep of breeding cattle owned by the small holder farmer.

Adnam and McCarthy (1998) identify a number of problems with the fattening part of the scheme. Itwas sometimes difficult to find equitable financing arrangements for cattle, feed and the feedlotfacilities. The small numbers of cattle and the scattered distribution of nucleus herds made it difficultto provide sufficient supervision and technical support. As a result, profits for farmers and for thefeedlot operator suffered. Misappropriation of feed provided by the farmer or the feedlot operatorsometimes occurred. In the provision of feedstuffs, the programme was more successful. This part ofthe scheme centred on the village cooperatives providing funding and an assured market for feedproduced by farmer members. Higher yielding seed and better fertilizer use led to an improved levelof technology. Under the breeding component of the scheme, 10 percent of imported cattle were tobe made available to small holders. While most feedlot operators could comply with thisrequirement, the government's 1997 directive that this percentage should be increased to 20 percentbecame a major impediment for many feedlot operators.

The terms and condition of vertical integration arrangements in Thailand vary widely, but theyusually specify the quality of the product and the price (Burch 1996). While the private sector hasbeen responsible for the contractual arrangements, guidelines for the development of the agro-industries laid down by the government for 1987 to 1991 state that contract farming would be one ofthe production systems encouraged by the government (Burch 1996).

52

Reasons for vertical integration

A number of reasons have been suggested to explain the emergence of vertical integration. Berlin(2001) and the references cited therein, reviews these so the discussion here will be brief.

The avoidance of transaction costs is one possible reason for vertical integration. It is argued thatcosts inevitably arise as firms bargain and disagree in the normal course of conducting business.Transaction costs include all expenses and foregone opportunities that arise because ofdisagreements as well as the expenses incurred to avoid potential disagreements. The most importantdeterminant of transaction costs in the view of some writers [for example Williamson (1985), citedin Lazonick (1994)] is the degree of asset specificity. In the poultry industry, firms might invest insheds to house the birds. The value of these sheds is dependent upon the firm maintainingrelationships with other firms, such as those supplying the birds kept in the sheds and/or the feedgiven to these birds. Assets used in an industry do not need to be physical. Knowledge of customerrequirements is an example of a relationship-specific or idiosyncratic asset. This takes time todevelop and firms may be reluctant to expend resources to develop them if there is the belief that itsrelationship with other firms will break down.

Transaction costs are likely to be greater the more unpredictable the operating environment of theindustry. An exchange rate change, for example, will require a response by a livestock producingfirm using imported inputs, such as animal vaccines or animal feed. Its adaptation to the exchangerate change will have implications for other firms that it has dealings with. Efficiency losses mayresult from firms expending resources in bargaining with one another about which firm should bearthe burden of the change in the industry's environment, rather than using the resources in moreproductive activities.

Transaction costs can arise if a product is not standardized. In the livestock industries, feed qualityand animal quality are just two of the features of the industry where differences in quality can arise.The producer wanting to guarantee access to animal feed of a particular quality - the operator of abroiler farm or a pig rearing operation, for example - can handle this by backwardly integrating witha firm supplying animal feed. This strategy has been used in the Philippines, in Indonesia, and inThailand. The case for doing this is strengthened if the costs of integrating are less than thetransaction costs incurred through not integrating. In countries where the legal system is welldeveloped, producers are able to rely on the legal system rather than integrating with the feedsupplier to ensure the quality of their inputs. However, in a number of the countries of the Asia-Pacific region, legal institutions are not well developed and the enforcement of legal rulings may bedifficult to implement.

Love and Burton (1997) see vertical integration as a strategy that might be used by firms to reducecompetition or extract market rents. Industry structure is also behind the argument made by Mossand Schmitz (2000). They point out that there may be a case for vertical integration if there are asmall number of suppliers of an input required by a firm further along the production process. Thefirms supplying the input, because they are few in number, might decide to collude. In theory, theycould raise the input price and threaten to refuse to supply the firm needing the input with the inputunless they are given the high price11. For this to happen, it has to be assumed that none of the input-supplying firms will cheat on the other input-supplying firms. Consumers would be the clear losersunder this scenario.

11 This argument seems to be a variant of double marginalization or the chain of monopolies problem. Amonopoly manufacturer of an input used by a downstream firm, that is also a monopolist, might set a priceabove marginal cost of production. Thus the user of the input faces a price higher than it would if it couldpurchase the input in a competitive market. In turn, the downstream firm will sell its output at a price higherthan its marginal cost of production. The result will be that too little output will be produced at too high a price.

53

In the Philippines, where there are a small number of feed mills12, poultry farms have integrated withthe feed mills, lending credence to the argument made by Moss and Schmitz (2000). They argue thatas the number of firms increases, the need for vertical integration decreases, and instead firms willenter into contracts with one another.

Another form of vertical integration involves firms integrating forward into the distribution system.Lazonick (1994) stresses the importance of integrating product distribution with production to givefirms a competitive advantage over their rivals through product innovation and economies of speed.Superior production processes enables an enterprise to speed up the flow of work through its plantwithout sacrificing product quality, thus cutting unit production costs through spreading out its fixedcosts. This cost cutting phenomenon is economies of speed (Lazonick 1994). Moss andSchmitz (2000) suggest forward vertical integration is a strategy that firms might follow to reinvestprofits. For example, a pork producer might see investment in a fast food restaurant as a good use ofthe profits generated from producing the pork. It also provides the producer with a way ofdiversifying risk.

Dobashi et al. (1999) list three broad factors driving integration of the poultry industry: marketownership and margin control; biosecurity; and economies of scale (particularly in processing). Theycontrast the poultry meat industry with the egg industry where the product (eggs) goes through littleor no processing. In the egg industry, large firms exist side by side with smaller and often marginalproducers able to supply the market on a seasonal basis. In the Philippines, the livestock producer,Monterey Farms Corporation, established retail outlets in the mid-1990s to sell meat productsproduced by Monterey. This was seen as a way of dealing with concerns that Philippine consumersmight have about the quality of the product being sold to them13. The Charoen Pokphand Group (CP)in Thailand also operates fast food outlets to sell poultry meat, not just in Thailand but also in China.It also produces chickens for its poultry operations to meet its biosecurity concerns at the productionstage. Reardon and Barrett (2000) contend that smaller farmers commonly have trouble meetingstringent quality and safety requirements. This, they say, gives capital-intensive and medium andlarge sized farm operations the advantage in contract farming that is a part of integrationarrangements.

The World Bank (2001) says that there are considerable economies of scale in poultry, pig and dairyproduction, especially in the important area of disease control. The view of Johnson and Ruttan(1993) is that the evidence for economies of scale in agricultural production is not clear, althoughthey acknowledge that in the purchasing of inputs, in marketing and processing economies mightexist (Box 9).

12Dobashi et al. (1999) point out that in 1997, the largest 34 of the 264 feedmills operating in the Philippinesaccounted for 61 percent of the aggregate capacity. Among the top 34 feedmills, those belonging to the largepoultry integrators such as the San Miguel Corporation, Swift Foods, Inc., Vitarich Corporation and PurefoodsCorporation accounted for 42 percent of rated capacity.13 The specific incident related to an outbreak of foot and mouth disease in 1995 and in 1996, principally in thepork industry but also present in the beef and carabeef industries, This caused concern among consumers. Atthe time, there were press reports in the Philippines saying that the disease could be passed onto consumers.

54

Box 9 Economies of scale and agricultural production

Johnson and Ruttan (1993) examined the experiences of large-scale agricultural projects in sixdifferent developing countries: the Tanganyika Groundnut Scheme (1947 to 1949); the MolinosNacionales sorghum project in Venezula (1964 to 1966); the Dez agribusiness programme in Iran(1968 to mid-1970s); Projeto de Jari forest and rice project in Brazil (1967 to the present); thePhilippine Corporate Farming Project, started in 1974; and the Hershey's Hummingbird Farm inBelize (1976 to 1992). The key assumption underlying these projects is economies of scale - gaininga more than proportional increase in output for a given increase in all inputs. Economies of scalearise due to the following:

• The use of lumpy inputs, such as machinery or management, might lead to economies of scale inthe short run. Over the long run, the minimum scale of operations is likely to increase, with theresult that the economies disappear. Biological and chemical inputs are likely to be scale neutral.

• External economies of scale allow larger farms to buy inputs such as capital, storage, transportand marketing and distribution services at a lower price than is possible for smaller farms. Thismeans that larger farms may have an advantage over smaller ones without necessarily beingmore technically efficient.

In some situations, Johnson and Ruttan (1993) say scale diseconomies might exist, and this has beenused as a justification for land reform. Situations where this can occur are where labour marketsmight not exist, where transaction costs in labour markets are high and where the effort of hiredlabour is affected by level of supervision.

Johnson and Ruttan conclude that the consensus is that agriculture is generally not characterized byeconomies of scale. In the US, changes in the relative price of capital and labour led to a substitutionof capital for labour. If there are no economies of scale, then this substitution will occur at all farmsizes. A large part of the capital that is used in the US is machinery. Since machinery allows farmersto work larger areas of land, it may not be all that surprising that farm sizes have been increasing.The seasonal nature of the production cycle limits the opportunity for gains from specialization anddivision of labour. This is seen by some as a reason for limited opportunities associated withexpansion beyond the size of the family farm. Further reasons favouring the family farm are thatfamily labour is inherently more productive than hired labour. Monitoring costs are likely to be muchlower with family labour than is the case with hired labour. Further, decisions on the spot are partand parcel of agriculture. With no managers around, hired labour might be unwilling and/or unableto make a decision. As risk increases, it has been argued that farm size should decrease. However,Johnson and Ruttan (1993) note that little work has been done on this relationship. Related to this, ithas been observed that it is not a good idea to pool risk across farmers in a given area because of thehigh covariance of their natural risk. Hence, in risky environments, small farms may be better thanlarge ones. Wealth tends to offset this in the sense that wealthy farmers have been found to be moreimmune to risks imposed by the weather. Industrial projects are generally perceived to be less riskyin developing countries than agricultural projects, with the result that the more industrialized theagricultural project, the less risky it is considered to be.

55

Effects of integration

There has been very limited analysis of the economic effects associated with large-scale integratedlivestock farms. Rhodes (1993) says that the industrialization of animals is a threat to the family farmsince he regards the family farm as having few advantages over factory style production. This latterform of production has greater access to capital and skilled management and labour than the familyoperated farm. Industrialization in dairy and pork production in the United States has aroused morecomplaints, according to Rhodes (1993), than has been the case with beef and poultry. He attributesthis to the fact that demand for pork and dairy products in the United States has grown much slowerthan the demand for broilers and beef. As a consequence, the "direct competitive struggle for marketshare between the family farm and the new giant producers has been more direct and obvious"(p.1138).

To gain an indication of the advances in productivity associated with industrialization of thelivestock sector, the experience of the United States is insightful since presumably gains of a similarorder of magnitude are potentially available to industrialized agriculture in developing countries:

• The poultry industry in the United States is a highly mechanized and concentrated industry(Johnson 1995). The birds used in the industry have been developed through intensive researchand have pedigrees protected by patents and trade secrets. This has led to the broiler industry andthe egg industry both experiencing enormous gains in output, shown by the fact that the feedconversion in 1920 averaged 13 kg of feed to one kg of broiler meat. By 1990, the conversionrate was 1.9 kg of feed to one kg of broiler meat. For the egg industry, the change has been noless spectacular: in 1930 hens averaged 93 eggs per year, but by 1983, the average was 246 eggsper year (Johnson 1995). Processing of poultry meat has also experienced dramatic changethrough the industry adopting new technology. In 1959, the United States industry processedseven million birds, with the typical plant handling about 3 000 birds per hour. In 1997,65 million birds were processed and the throughput of a typical plant was 32 500 birds per hour.By 2005, 125 million birds are forecast to be processed each year, with processors handling62 500 birds per hour (Dobashi et al. 1999).

• According to Gomez (2000), the first major technology advance in the pork industry in theUnited States took place in the early 1970s when the animals were moved from pastures toconfinement. Since then, the size of farms in the industry has increased markedly (Johnson1995). Gomez (2000) points out that those supporting large-scale pig farming in the UnitedStates argue large farms have lower production costs achieved through economies of scale.

Large farms that characterize the industrialized livestock sector are seen as being in a better positionto counterbalance a food processing sector and input suppliers (such as the suppliers of animalmedicines) that has become increasingly concentrated through merger and acquisition activity amongfirms. Negative consequences of large farms are that they displace small family farms, they harm theenvironment and they result in profits flowing away from the local community14. Gomez (2000) setsout to address the issue of the impact of large sized farms in the industry on rural communities usingpooled time series cross-sectional data on a sample of 1 106 towns and cities in Illinois. Thedependent variable was "gross town output" which was based upon sales tax receipts. It was foundthat contrary to popular belief, large-scale pig farming does not contribute to the vitality of localcommunities. Indeed, the results indicate large farms tend to hinder economic growth in ruralcommunities. Gomez (2000) notes that "little has been done to measure the economic impact of largeswine farms on rural communities" (p.6).

14 A counterargument to the criticism concerning the environmental consequences of large industrial farms isthat they could help preserve the environment since livestock on such farms are held in a concentrated area.This could allow more of the natural landscape to be preserved, with weeds less likely to be spread and so on.

56

Evidence on the effect of vertical integration on the small farming operations integrated with thelarge companies is difficult to find. Burch (1996) presents data suggesting that in the case of thebaby corn industry in Thailand, farmer returns have been poor with the daily return below thegovernment minimum wage. The World Bank (2001) cites experience from the Philippines whereWorld Bank funding of smallholder broiler production (500 to 3 000 birds) was not successful sincethese firms were crowded out by multinational business enterprises. Reardon and Barrett (2000), indiscussing the effects of agroindustrialization on small farmers, landless labourers and artisan serviceproviders, conclude that no clear pattern yet exists as to whether the gains for these groups fromagroindustrialization outweigh the losses.

Foreign involvement in integrated livestock industries

Foreign involvement in the integrated livestock operations in the countries of the Asia-Pacific regionis not uncommon. It is of interest to note that some of the foreign investors have the same localpartner. In Viet Nam's dairy industry, for example, VINAMILK is the local partner to Austdairy,Ashta International and is also reported to have a minority interest in Friesland Frico Domo'soperation. Kraft (USA) is also reported to be working with VINAMILK to develop new dairyproducts for the Viet Namese markets. The dairy sector is of significant interest to branded dairycompanies because of the potential demand for products ranging from shelf stable sweetenedcondensed and powdered milks for the mass market to fresh milk and soft dairy products for urbanniches.

In some cases, industries with high environmental impact, such as poultry and pig production, havebeen moved from high-income countries in the face of opposition from communities concernedabout the environmental impact of these industries. Weatherspoon et al. (2001) argue along theselines to explain why agribusiness firms from developed countries have expanded into developingcountries. The developed countries, with rising regulatory costs related to consumer concerns aboutanimal welfare, waste management and labour welfare, seem to offer less scope for firms to reachprofit growth goals, compared to developing countries. Stagnant demand in developed countries isdue to a number of factors. These include concerns about the linkage between the consumption ofanimal products and heart disease and obesity. Outbreaks of bovine spongiform encephalopathy(BSE) in the late 1990s and its association with Jacob-Creutzfeldt disease in humans are additionalfactors. Investment activity is not only from developed countries to developing countries. Movementhas also occurred in the opposite direction as the example in Box 10 indicates.

Box 10 Investment plans of Charoen Pokphand

In early 2002, the Thai company Charoen Pokphand announced plans to invest 265 million Baht infarm and food businesses in Belgium and China. According to a report posted on the web sitewww.bangkokpost.com on 17 January 2002, this investment will involve the establishment by 2004of three subsidiaries - two in China and one in Belgium - to oversee new investments. CPAquaculture (Beihai) Co will be established in the Beihai Industrial Zone in China's Guangxiprovince. It will produce and distribute up to 30 000 Mt of fish feed since the demand and growthpotential is viewed by CP as being substantial. The other Chinese investment will involve theestablishment of a Thai restaurant chain - called Bua Bann - in Shanghai through CP Food Products(Shanghai). The investment in Belgium will be made to sell and distribute throughout the EuropeanUnion processed meats and other food products produced by Charoen Pokphand Foods Plc.

In contrast with the stagnant demand in developed countries for livestock products, Rosegrant et al.(2001) project, using the IMPACT model developed by the International Food Policy ResearchInstitute that by 2020 people living in the developing countries will eat 70 percent more meat thanpeople living in the developed countries. Per person consumption will be 38 percent of the per

57

person consumption of the developed countries (Delgado et al cited in van der Zijpp 1999). A varietyof other reasons could be behind the involvement of foreign firms. These include intellectual capitalpossessed by the foreign firm, the presence of trade barriers restricting access to the country'smarket, cultural linkages and membership of the home country and the foreign country in the sametrading bloc (Henderson, Handy and Neff 1996).

Foreign investment in integrated production might also occur as a means of getting aroundregulatory barriers in the host country. The existence of import tariffs or non-tariff barriers might bethe rationale for a company setting up production facilities in the country with those barriers, ratherthan producing outside of the country and exporting to it. Foreign investment might also take place iffirms believe that by so doing they can minimize production costs or take advantage of governmentsubsidies. For example, in China, preferential taxation arrangements and the establishment ofeconomic cooperation zones have been government measures designed to encourage foreigninvestment, while in Thailand relief from the payment of import duties and special taxationarrangements have been among the measures used. The time required for investment approval,related to land ownership issues, and the risks associated with investing in agriculture have been -according to Suryana et al. (1998) - some of the factors behind the low rate of private investment inIndonesia's agriculture. They point out that from 1989 to 1996, the proportion of agriculturalinvestment approvals was around 12 percent of the total while agriculture represented only 2.8percent of foreign investment in Indonesia.15 Research reported by Everhart and Sumlinski (2001)draws attention to the importance to investors in developing countries of government stability,transparency in decision making and the level of corruption in the public sector. They argue thatgovernment instability, a decision making process that is not transparent and the presence ofcorruption in the public sector amount to an investment tax and can be a strong disincentive forinvestment.

Within countries, investment activity varies across industries. Viet Nam illustrates this. The meat andegg sectors of Viet Nam are said to be less attractive to foreign investors for several reasons. Theseare as follows:

• the local meat and egg market is highly price sensitive. It is also commodity driven and revolvesaround highly localized wet market distribution channels;

• the poor state of processed meat market and industry (including the individual state-ownedbusinesses that operate in the sector) and the animal feed supply sector;

• the lack of local ability/infrastructure to develop meat exports combined with• the poor image of Viet Namese livestock products abroad, and• a preference on the part of consumers for animal products from the wet market is a disincentive

for investment in food processing industries.

Government intervention and the integration of the livestock industry

Governments in the Asia-Pacific region in general seem to have adopted a laissez faire approach tovertical and horizontal integration by large companies in the livestock industries, although there havebeen instances where intervention has occurred. Indonesia is one such example of intervention thatwas intended to protect the small farmers (Box 11). In other countries of the region, the incentivesprovided to foreign investment may have led to greater vertical integration than would otherwisehave been the case. These incentives include reduced taxes, relief from the payment of import dutiesand subsidized inputs such as electricity. Restrictions on foreign ownership of land may also be afactor.

15 The share of livestock in domestic investment was 6.4 percent in 1996 and 4.1 percent in 1989. For foreigninvestment, the shares were 12.5 percent and 12 percent, respectively.

58

Box 11 Indonesia's regulation of the poultry industry

Government intervention occurred in Indonesia's poultry industry during the 1980s with the aim ofredistributing economic opportunity among producers in the poultry industry. This industry wasrapidly developing, mainly through large, vertically integrated production units controlled by feedmanufacturers and/or processing companies. Suwartini et al. (1997) explain the policy. They pointout that in the 1970s, the Indonesian Government employed an incentive approach to increase theparticipation of small producers through technology transfers and credit schemes. By the 1980s,small, independent producers were being excluded from the developments and this became a sourceof concern for the government. A policy, known as Keppres 50/1981, was introduced in 1981 toregulate the scale of production. The policy tried to increase the participation of small producers inthe industry by limiting the size of production units to 10 000 birds for layer farms and 15 000 forbroiler farms (Dobashi et al. 1999). Large-scale farms and cooperatives were also required todiversify into feed making and poultry breeding to supply these inputs to the smaller independentfarmers. According to Suwartini et al. (1997), this policy was modified in 1984 to create the nucleusfarming system. As mentioned earlier, in this system which is a form of horizontal integration, largerenterprises (sometimes these were farmer cooperatives) were expected to promote the developmentof smaller, independent producers through marketing their products as well as supplying them withinputs. Critics of the scheme said that it did little to reduce the growth of vertical integration, as therewas an increase in the proportion of broiler production under contract during the 1980s. In 1990when the policy was officially lifted, the government regulated the maximum scale of broiler chickenproduction to 15 000 birds per cycle, Since then, further deregulation has occurred since the industryis increasingly being given an export orientation.

Suwartini et al. (1997) estimated welfare effects of the government intervention, on the assumptionthat it would shift the supply curve back to the left. They used a partial equilibrium model in theiranalysis and focussed on demand and supply at the wholesale level. Lack of data was a problem inthe analysis, a point made also by Dobashi et al. (1999). This was particularly so with regard toproducer prices and wholesale production. The econometric results that Suwartini et al. (1997)obtained - estimated using linear models for demand and supply with annual data for 1972 to 1992 -indicated that the 1981 policy measure caused a structural change in the industry and lowered output.Corn price, lagged six months, was used as a proxy for input prices in the supply model, but it wasfound to be not significant. Beef was used as a substitute for chicken in the demand model and wasfound to be statistically significant, but the cross-price elasticity value was not given. The incomeelasticity was 2.8. Losses in consumer and producer surplus occurred under the policy. The changein consumer surplus at the wholesale level with no middlemen was -Rp289 per person while forproducers the loss was Rp314 per person. At the retail level, per person consumer welfare loss wasRp349, while at the farm gate, per person producer surplus loss was Rp135. Under the policy,middlemen also lost Rp119 per person. When combined with population, the per person lossestranslated into a loss of 0.1 percent of total Indonesian income. From the viewpoint of consumers,the policy represents a welfare loss equal to 14 percent of consumer expenditure on poultry meat,while for producers the loss in producer surplus is about 8 percent of average annual producerrevenue from chicken meat production. Suwartini et al. (1997) draw attention in their paper to theirestimate that the producer welfare loss is about 22 percent of the total loss to society, despiteproducers being the intended beneficiaries of the policy.

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Examples of the integration of the livestock industries in the Asia-Pacific region

According to de Dios (1994), a perennial problem for the meat processors in the Philippines is thedifficulty of obtaining a continuous supply of meat. Large firms that dominate the Philippinelivestock sector have tried to overcome this problem by backward integrating or by contract growing.The largest of the firms is the San Miguel Corporation. Its interests range from beer and bottleddrinks to dairy, processed meats, cooking oils, animal feed (from brewing by products), poultry andlivestock (including cattle). Republic Flour Mills (RFM) started with flour milling and expanded intofeed milling, pig and poultry production, fruit juices, processed meats and margarine, and ice cream.General Milling began its operations with flour and feed milling, corn processing, poultry productionand pig production. Other products produced by General Milling include pasta, snack-foods, edibleoil and processed milk Purefoods started off as a meat processor in the 1956 and diversified in the1980s into pork and poultry meat production. It is also involved in tuna canning, flour milling, pastamaking and the marketing of powdered milk de Dios 1994. By the late 1990s, most broilers in thePhilippines came from major poultry integrators such as San Miguel Corporation, Swift Foods, Inc.,Vitarich and Purefoods. Independent farmers, usually purchasing chicks and feed, or feedconcentrate, were supplying between 15 percent and 25 percent of the industry (Dobashi et al. 1999).

The Charoen Pokphand Group (CP), mentioned earlier in this chapter, is an important Thai firm. Itwas established by two Chinese brothers in 1921 in Bangkok's Chinatown (Burch 1996). By 1956,they had set up a feedmill and by the early 1970s, they were supplying the feed to contract poultryproducers, processing the poultry from these producers and exporting it to Japan. The CP Groupapplied this same strategy to other industries, including pork and prawns in Thailand as well as inother countries through South-east Asia. The CP Group holds the Thai franchise for the SevenEleven convenience store chain, and is a partner in the Makro supermarket chain in Thailand. Itoperates petrol stations, some of which share their sites with Chester Grill (a fast food chain ownedby CP), and it is also the franchise holder for Kentucky Fried Chicken in a number of Chinese cities.China is where its main overseas businesses are located. CP was operating 75 feedmills and poultrybreeding facilities that turned out 260 million day-old chicks in 1994 (Burch 1996).

There are many other examples of firms involved in the livestock industries that have integrated theiroperations. A number of these are listed in the appendix to this chapter. Quite often they spanindustries, and are involved in operations sometimes far removed from livestock.

Concluding comments

Vertical integration is a feature of the livestock industries in the developing countries of the Asia-Pacific region that is likely to become even more important in coming decades. This will happenprimarily because of the growth that is occurring in the demand for poultry and pigmeat, theproduction of which lends itself to industrial style farming because of its capital intensive nature.Small farms play an important role at present in contributing to the food needs of those living inurban areas through participation in wet markets and informal marketing channels. However, itseems likely this role will be gradually taken over by large vertically integrated farms with thecontinued expansion of western style marketing systems in urban areas due to the almost inevitablesocial and economic changes that favour this style of marketing system. In the short to medium term,small farms are unlikely to face competition from the large vertically integrated firms in rural areas.The low incomes typically found in rural areas and the limited supporting infrastructure such asroads and communication facilities provide little incentive for the large vertically integratedoperations to set up in rural areas. The vertically integrated firms can play an important part inimproving product quality and in disseminating technologies to small farmers. Those that are foreignowned are a source of capital for the economy in which the investment is being made. They mightalso create export market opportunities for the host country in their home markets conferring anotherbenefit to the host country in the form of export earnings. There is a clear information deficiency

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surrounding the net effect of a highly integrated agriculture in developing countries and clearlyadditional research into this issue seems warranted, particularly the impact on the rural poor.

References

Adnam, A. and M. McCarthy. 1998. Indonesian "Beef" Market Study. Angus Adnam and Associates,Brisbane.

Berlin, M. 2001. "We control the vertical": three theories of the firm. Federal Reserve Bank ofPhiladelphia Business Review (Third Quarter): 13 - 22.

Burch, D. 1996. Globalised agriculture and agri-food restructuring in southeast Asia: the Thaiexperience. Global and Agri-food restructuring. D. Burch, R. E. Rickson and G. Lawrence.Aldershot, Avebury: 323-45.

de Dios, L. C. 1994. Meat and Dairy Processing Industry: Impact of Trade Policies on Performance,Competitiveness and Structure. Manila, Philippine Institute for Development Studies.

Dobashi, I., J. Fallon, F. C. Eizmendi, M. Loureiro, K. Matchett, R. Parrish and B. Raquet. 1999. TheValue Chain for Poultry. Pacific Basin Economic Council Working Committee on FoodProducts, March.

Everhart, S. S. and M. A. Sumlinski. 2001. Trends in Private Investment in Developing Countries:Statistics for 1970-2000 and the Impact on Private Investment of Corruption and the Qualityof Public Investment, Discussion Paper Number 44. International Finance Corporation,Washington DC.

Gomez, M. I. 2000. Impact of concentration in hog production on economic growth in rural Illinois:an econometric analysis. Annual Meeting of American Agricultural Economics Association.Tampa, 31 July - 2 August.

Henderson, D. R., C. R. Handy and S. A. Neff, Eds. 1996. Globalisation of the Processed FoodsMarket. Agricultural Economics Report Number 742. Washington D.C., United StatesDepartment of Agriculture.

Johnson, N. 1995. The Diffusion of Livestock Breeding Technologies in the US: Observations on theRelationship between Technical Change and Industry Structure. Department of Agriculturaland Applied Economics, University of Minnesota, St Paul.

Johnson, N. and V. Ruttan. 1993. Why are farms so small? Department of Agricultural and AppliedEconomics, University of Minnesota, St Paul.

Lazonick, W. 1994. Business Organization and the Myth of the Market Economy, CambridgeUniversity Press.

Love, H. A. and D. M. Burton. 1997. A rationale for captive supplies. Caswell, J.A. and Cotterill,R.W. Strategy and Policy in the Food System: Emerging Issues. Washington D.C., FoodMarketing Policy Center, Department of Agricultural and Resource Economics, Universityof Connecticut and Department of Resource Economics, University of Massachusetts,Amherst, 23-38, 1997.

Moss, C. B. and A. Schmitz. 2000. Vertical integration and trade policy: the case of sugar. AnnualMeeting of the American Agricultural Economics Association. Tampa, 31 July - 2 August.

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Ranong, V. N. 1999. The financial crisis and the livestock sector in Thailand. FAO, The implicationsof the Asian economic crisis for the livestock industry. Bangkok, FAO, 175-202, 6-9 July1999.

Reardon, T. and C. B. Barrett.2000. Agroindustrialization, globalization, and internationaldevelopment. An overview of issues, patterns and determinants. Agricultural Economics, 23:195-205.

Rhodes, V. J.1993. Industrialisation of agriculture: discussion. American Journal of AgriculturalEconomics, 75(5): 1137-40.

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

Soedjana, T. D. 1999. Impact and implications of the economic crisis on livestock production,marketing and consumption in Indonesia. FAO, The implications of the Asian economiccrisis for the livestock industry. Bangkok, FAO, 121-150, 6-9 July 1999.

Suryana, A., S. Bahri and Wahida. 1998. Key agricultural and agribusiness policy issues inIndonesia. unpublished manuscript

Suwartini, E., H. G. Coffin and K. Gunjal.1997. Economic welfare effects of policy inducedstructural change in the Indonesian poultry industry. Agricultural Economics, 16: 237-43.

van der Zipf, A. J.1999. Animal food production: the perspective of human consumption, production,trade and disease control. Livestock Production Science, 59: 199-206.

Weatherspoon, D., J. Cacho and R. Christy.2001. Linking globalization, economic growth andpoverty: impacts of agribusiness strategies on Sub-Saharan Africa. American Journal ofAgricultural Economics, 83(3): 722-30.

Williamson, O. 1985. The Economic Institutions of Capitalism. New York, Free Press.

World Bank. 2001. Livestock Development, the Environment, Poverty and Global Food Security: Astrategy paper for the World Bank (Draft). Washington DC,

Appendix 3

Examples of companies in Asia-Pacific region that are vertically integrated

Company Source of information Head office Business ActivitiesSan MiguelCorporation

www.sanmiguel.comde Dios (1994)

Philippines BrewingBasic meat productsNon-alcoholic malt beveragesWines and spiritsJuice and juice drinksBottling of waterValue-added meat productsProcessed meatButter, cheese and margarineCoconut and other productsGlass,MetalPlasticsPaper compositeReal estate,

RFM Corporation(Republic FlourMills)

http://www.rfm.com.phde Dios (1994)

Philippines Ice cream, milk and juice productionCans and bottles for soft drinks and waterBottling of waterBroiler productionFeed production for ducks and fishProcessing of meat, canned goods, customized meatproducts, canned tunaFlour production, noodles, spaghetti, macaroni, cake mixesButter margarineBank and Insurance brokersReal estateSemiconductor packages

PurefoodsCorporation

www.com.phde Dios (1994)

Philippines Meat production• pork• beef• chickenFeed productionFlour millingNoodles manufacturing

Vitatich Corporation http://profiles.wisi.com/profiles/scripts/corpinfo.asp?cusip=C60881370

Philippines Live and dressed chicken production covering• day old chicken• day old pulletsProcessed meat productsAnimal and aqua feeds

Alsa Marine andHarvests Limited

http://profiles.wisi.com/profiles/Food.htm

India Processes and package shrimpsOther marine products under controlled feeding andharvesting procedures

Ng Fung HongLimited

http://www.irasia.com/listco/hk/ngfunghong/annual/97/res.htm

Hong Kong Production and distribution of fresh, live and frozenfoodstuffsRetail and supermarket operations marine fishing andprocessing of aquatic productsWine and beverage productionAbattoir and meat processing

Charoen PokphandGroup

http://www.cpthailand.com/index.html

Thailand Fully-integrated operations of agro-industryAquacultureSeeds, fertilizers and plant protectionInternational tradingMarketing and distributionTelecommunicationPetrochemicalsAutomotive and industrial products

Real estate and land developmentSaha Farms www.sahafarms.com Thailand Poultry production involving

grandparent stock farms• parent stock farms• hatcheries• broiler farmsSilo ownership (corn, soybean)Feedmilling

Food and drinkspublic companylimited


Thailand Manufacturing and exporting of• canned fruit and vegetables• canned fruit juices• canned beef

GFPT publiccompany limited


Thailand Frozen chicken and by-productsFeedmillingEviscerated chickenChicken farm

Surapon FoodsPublic CompanyLimited


Thailand Farms, processes and exports frozen seafoods includingshrimps, squid, octopus, prawns, other fishFrozen foods such as breaded shrimp, fried chicken, breadedvegetables

A.G.V. ProductsCorp


TaiwanProvinceof China

Beverages and soft drink productionProduction of preserved fruits and vegetables, frozen, canneddehydrated fruits and vegetablesDairy products such as cheese, fluid milk, creamery butter,ice cream and dry, condensed or evaporated productsGrain milling products including• prepared flour, cereal, rice, feeds products• bakery products such as cake, cookies, crackers and

breakfast cerealsSugar and confectionery products such as candy, chocolateand cocoa productsFats and oils (vegetable oil, animal fats & oils); and otherprepared food and seasons

Chia Hsin Food &Synthetic Fiber Co,Ltd



Feed, flour, cooking oil, meat and poultrySynthetic rubberCommercial, industrial and residential buildings

Chou Chin IndustryCo, Ltd



Canned food, juice drinks, instant foods, babyfoodSales and rental of vending machinesOperation of restaurant and supermarket

Great WallEnterprise



Vegetable oil, feed, flour, corn, soybean, beverage, andother related by-productsMeat processingSecurities investmentOperation of fast food chainsOilseed plantsChicken farmsFeed plants

Tai Fang FoodsIndustry Co, Ltd



Frozen pork and pork related productsFrozen fish, frozen vegetables.

Tai Yu ProductsCorp



Canned foods (meat, fish, chicken, vegetable, fruit, dairyproducts, other instant foods)Cans and other containers.

Uni-PresidentEnterprises Corp



Noodle, dairy products, soft drink, soy sauce, canned pickle,meat products, milk powder, bread, cereal, and frozenFoodstuffs, animal feeds, edible oil, and flourProcurement and distribution – purchasing & sellingcommodity and vending machineOperating franchised bakery chain store

Wei Chuan FoodCorp


TaiwanProvince of

China

Ice cream, canned food, milk powder, MSG, soy sauceAgriculture, stock farmsSupermarketTobacco and wine

Bing-Grae http://profiles.wisi.com/profiles/Food.htm

Korea, Rep. of Dairy and ice-cream productsInstant noodles and snacks

CheiljedangCorporation


Korea, Rep. of Sugar, flour and edible oilsFrozen foods, seasonings, beveragesChemicals for medical-useCosmetics feedstuffsMovies, food supply and bakery

Chun KwangIndustrial Co, Ltd


Korea, Rep. of Various kinds of animal feedstuffsCeramic tiles and filter blocks for cigarettes

Daesang Corporation http://profiles.wisi.com/profiles/Food.htm

Korea, Rep. of Corn sweetenerSeasonings and feedstuffsLysin and various types of frozen foods (noodles, seasonedmeats, lunch boxes)SeasoningsResinCoffeeConstruction businessChemicalsFoods businessHotel businessFertilizerProcessed meat

Daesang Feed Co,Ltd


Korea, Rep. of Feed stuffs for animals such as pigs, cattle and poultry

Dongwon IndustriesCo, Ltd


Korea, Rep. of Canned tuna, frozen foods, frozen fishSeaweed and sesame oilCommercial fishing and leasing of ships

Del Monte PacificLimited


Singapore Fresh fruit products through its own canneryThe group maintains a livestock operation on the plantationarea to maximize the use of residue pulp from pineappleprocessing as feed for cattle

FHTK HoldingsLimited


Singapore Integrated, value-added processes that include planting,sourcing, processing, packaging (including manufacture of itsown packaging materials), cold storage, marketing,distribution, retail and franchise sales of fresh produce anddehydrated products such as fruits, vegetables and otheragricultural products.Foodstuff cold-store, warehousing, imports and exports allkinds of food and foodstuffs

Fraser & NeaveLimited


Singapore Beer, soft drinks and dairy productsGlass productsProperty investment, property developmentWarehousingTheme park operationProviding management services and investment holding

Singapore FoodIndustries Limited


Singapore Manufactures, processes and distributes fresh fruits, chilledand frozen meats, vegetables and other food productsAbattoir related activitiesAuctioneer of pigsProcessing of sea foodsCommercial fishingProvision of technical and management services for agri-foodbusiness and investment holding.

Yeo Hiap SengLimited


Singapore Manufactures and distributes beverages and canned food andproperty investmentProvides bottling services to Pepsi and Cadbury SchweppesDistributes Asian sauces, canned meat products, cannedvegetables, instant noodles and snack foods

PT Japfa ComfeedTbk


Indonesia Chicken breedingPoultry processingAquaculture farmingProcessing, animal feed manufacturingCattle feedlotBeef processingManufacturing of woven bags for packaging of its feedproductsMarine transportation serviceMarine cargoReal estate and investment holding

PT Sari Husada Tbk http://profiles.wisi.com/profiles/Food.htm

Indonesia Powdered milk and other baby foods and food substitutesMilk, chocolate formulaeFull cream milk pastriesBreadsCookies and other milk productsPacking and warehousing facility

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4. The diverse functions of livestock: an Asia-Pacific perspective

Statistics published by government agencies provide information on the production of livestockproducts such as meat, milk, eggs, hides, feathers, wool and skins and products derived from these.However, the role of livestock in developing countries is much broader than this. Livestock areimportant culturally and may be part of religious beliefs and practices (Ashdown 1992; Horowitz2001; Harris 1978); in establishing the status of the farmer (Birner 1999); as providers ofemployment to the farmer and/or family members (Sansoucy et al. 1995); in helping achieve foodsecurity (Food and Agriculture Organization, 1999); as a store of wealth (Council for AgriculturalScience and Technology 2001); as a form of insurance (Fafchamps and Gavian 1996); incontributing to gender equality; in the recycling of waste products and residues from cropping oragro-industries (Ke 1998; Steinfeld 1998); in improving the structure and fertility of soil (de Wit etal. 1997); in controlling pests (Pelant et al. 1999); and for the amusement and recreation of childrenand adults living in rural areas (Abeyratne 2001; Hai 2001).

Many of those functions listed above do not involve marketable output. Consequently analyzes oflivestock industries in developing countries sometimes overlook or downplay the variouscontributions made by the livestock industries to the economy, particularly those that do not involvethe market. Instead, attention might be focussed only on a limited number of activities, such as theability of an animal to produce meat or milk. As much as anything, this reflects the difficultyresearchers and policy advisers face in agreeing which of the functions performed by livestock - suchas those outlined in the previous paragraph - are really important. Further complications are that therole played by livestock is likely to vary within different parts of the one country, and almostcertainly between countries. The functions are also likely to change over time as economicconditions and also as the goals and objectives of livestock owners change. Moreover, it needs alsoto be recognized that many of the functions of livestock are overlapping.

The purpose of this chapter is to make use of examples from the countries of the Asia-Pacific regionto illustrate the diverse roles played by livestock. However, the description of livestock functions isnot intended to be exhaustive. Already Chapter 1 has pointed out that livestock are important as afood source to people living in the Asia-Pacific region. Hence, this role will not be explicitlydiscussed in this chapter.

Employment and the livestock industries

Livestock are an important source of employment. The Indian dairy industry which is smallholderbased, generated income for 24.5 million people in 1987, and an estimated 27.6 million people in2000 (Bansil 2001). Jobs created on farm by livestock include activities such as the cleaning ofmanure and feed refusal from barns, as well as the collection of feed. Information on the labourinvolved in these activities is very limited. Bansil (2001) draws on a survey conducted in the Punjabin 1978-79 that found the average amount labour input in the Operation Flood programme (this isIndia's dairy programme) averaged 1.7 hours per animal per day. Harvesting, transporting andchaffing of fodder accounted for 58 percent of total labour input; feeding accounted for another19 percent of the labour that was used; and milking, watering and sweeping the animal shedaccounted for another 7 to 8 percent of the labour used. Sri Lanka is another country where thelivestock sector is important in providing employment. Abeyratne (2001) says that the pigmeat andcaprine sub-sectors are relatively small, but they provide gainful employment to a large number ofpeople. About 3.5 million of these are traditional Sri Lankan farmers.

Large-scale industrial livestock production facilities such as those found in the intensive poultry orpigmeat industries are capital intensive, but they still provide employment opportunities. Adnam and

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McCarthy (1998), for example, have estimated that a 5 000 head cattle feedlot in Indonesia wouldemploy 10 supervisors and 30 workers, providing a livelihood for 40 families. At the time theyprepared their report (July 1998), there were 46 feedlots in Indonesia with a capacity ofapproximately 130 000 head, leading them to conclude that feedlot employment could support 1 500families. Apart from the direct employment associated with this form of activity, jobs created in ruralareas can have important spillover benefits to the local economy. Farm families tend to spend in theirlocal area, helping to create employment. Developing country research reported by Mellor (2001),for example, has estimated an expenditure elasticity of 1.5 on locally produced non-farm goods andservices.

Livestock industries provide employment for particular groups, but specific details on wages paid,the hours of work involved etc are usually lacking. The cut and carry system is a common feature ofthe livestock industries of many developing countries. It involves labourers collecting grasses fromcommon property areas for large ruminants, usually kept by small farmers. The availability of thisform of employment to rural workers with few alternative employment opportunities is importantsince it is a disincentive for them moving to urban areas, helping at least to stem the urbanizationprocess and the social problems associated with outmigration from rural areas16.

The role of the traditional livestock industries as providers of employment to women needs to bementioned. In most of the developing countries of the Asia-Pacific region, women are responsiblefor household vegetable and fruit production, poultry raising and livestock care. Mumtaz (1995)cites studies in Pakistan indicating that women spend between one-fifth and one-quarter of theirdaily working hours in livestock related activities. According to research published in 1988 andquoted by Mumtaz (1995), a sample of rural women estimated that of 14 livestock production tasks,the work done by males in rural families outweighs that of females in only three. These were thegrazing and watering of animals, the sale of products to agents, and the care of sick animals. In thecleaning of animals and in caring for those that are sick, the work of both sexes was about the same.Women were exclusively responsible for cleaning sheds, manure collection, egg collection andselling produce to villagers. In the Pacific Island Countries (PIC), women often own poultry - inparticular chickens - to provide food for the family. Poultry are rarely sold but may be given as giftsas part of customary obligations. Men in the PIC usually own the cattle and pigs (Ramsay 2001). InChina, a socio-economic survey carried out as background information gathered for a World Bankproject - the China Smallholder Cattle Development Project - found that women provide over 70percent of the labour used in household cattle raising. They can effectively carry out cattle operationssince they involve cow calf operations within the family compound. In its discussion of thesefindings, the Bank noted that the All China Women's Federation has been involved in a number oflivestock credit schemes for women.

Prior to the IMF intervention in the Indonesian economy in 1997, a policy measure was in place inthe smallholder dominated dairy industry of Indonesia requiring that processors use domestic milkbefore they could make use of imports. Riethmuller et al. (1999) point out that although there weresome undesirable economic effects associated with this policy measure, the dairy industry providedat least some employment to over 100 000 operators of small farms and their families. Specificinformation was not gathered in this study on other employment opportunities these people may havehad. It is safe to say their alternatives were limited, illustrating the importance of the dairy industryto the income position and livelihood of these farm households.

16 The Council for Agricultural Science and Technology (2001) says that in Nigeria the promotion of primaryschool education has increased the cost of keeping cattle in tethered or cut and carry systems. This is becauseeducation has decreased the time children have to care for cattle. It is likely the situation is similar in thecountries of the Asia-Pacific region, if not at the moment, then certainly in the future. This may contribute tochanges in production system.

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Equity, income distribution and livestock

Related to the discussion in the last section, smallholder based livestock industries seem able toimprove the income situation of the poor. At the level of the small farmer, cash can be generatedregularly from direct sales of livestock products, such as milk, eggs and manure; occasionally fromthe sale of live animals, wool, meat, feathers and hides; and from fees earned from providing draughtpower or transport services. Delgado et al. (1999) reviewed studies showing the place of livestock inthe income of the rich and poor across a broad range of developing countries. They concluded thatthe general pattern is for the poor to earn a greater share of their income from livestock than the rich.This is because the poor have limited access to land and capital, and so the rearing of livestock usinghousehold waste or common property resources gives them an opportunity to improve their incomeposition. There appears to be no clear consensus among researchers, however, as to the relativeimportance of large ruminants in poverty alleviation compared to smaller species such as poultry,pigs and goats.

Singh (2001) has drawn attention to the opportunity livestock provides for low-income farmers toaccumulate capital, which in turn helps reduce hunger among these farmers. He says that for India“…. 43 percent of people who do not own even a single livestock are malnourished…” (p.23), andthat only 14 percent of those with one bovine animal were malnourished. Singh explains that theaddition of one cattle or buffalo to the assets of farmers reduces the incidence of hunger by 16 and 25percentage points, respectively. In India, cattle and buffalo are not given food that can be eaten bythe farmer and his family. Instead they are able to exist on crop residues, roadside grasses and waste.They convert this material into marketable products such as milk, manure and traction power, not allof which are fully used (see Box 12). Animals play a crucial role in household food security in otherparts of South Asia besides India. In remote pastoral areas of Pakistan, for example, where there islittle or no access to alternative food sources, livestock help supply essential nutritional needsthrough meat and milk.

Box 12 Bovine hides in India

In India hides are damaged due to poor flaying especially in the small and unregisteredslaughterhouses. At present nearly 35 to 40 percent of leather goes to waste (Bansil 2001). Acommittee setup by the Government had recommended the utilization of hides from fallen animals,upgrading of lower grade hides and skins, and commercial cattle farming to increase the quality.According to the forecasts prepared by the Indian Council of Leather Exports and presented byBansil (2001), by the year 2003, nearly 30 percent of the total demand for leather in India wouldhave to be met through imports.

India is one the largest bovine leather producers in the world accounting in recent years for 12percent and 6 percent of global output of heavy and light bovine leather respectively. However, itsshare in the world trade for bovine leather has been rather small, less than 2 percent for light leatherand only 0.6 percent in heavy leather. During the period 1974-76 to 1992, the world trade in bovineheavy leather increased three folds, while India’s exports only doubled. A more striking pictureemerges for bovine light leather since world trade in value terms jumped more than eight times,while the value of India’s exports rose by only 94 percent during the same period. India did notbenefit fully from the fast expanding global market for bovine leather. Till the 1980s, India wasexporting raw and unfinished leather. This has changed over the years, with the share of value-addedproducts increasing continuously. During the mid-1990s, value added products accounted for 81percent of the total leather exports, while the share of finished leather had declined from 22 percentin 1992-93 to 18 percent in 1996-97. The leather industry exhibited tremendous growth as a result ofsimplification of export procedures.

(continues)

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Box 12 Bovine hides in India (cont)

The government’s decision to encourage exports of value added leathers; the liberalization of capitalgood and component imports; increasing costs of production (especially wages); and growingconcern about the negative environmental impact of tanneries in industrial countries helped improvethe competitiveness of Indian leather products. India's competitiveness is also due to low wage ratesin India (Bansil 2001).

Year Cattle and buffalo Hide production Bovine leather exportsmill. Kt US$ mill.

1985 271 823 157.81990 270 830 196.61995 296 930 na2000 314 976 na

Source: FAO, Bansil (2001)

The part that livestock play in poverty alleviation will vary from country to country, depending onthe characteristics of the country and institutional and policy arrangements. In the paper by Singh(2001) referred to in the previous paragraph, the point is made that in India, livestock can improvethe income situation of the poor. Dolberg (2001) says the same for Bangladesh. He, and before himJensen (1997), describes a programme in Bangladesh based upon semi-scavenging poultry thatprovides employment for women in activities such as hatching of the chicks, preparing animal feed,rearing of layers, the collection of eggs and provision of veterinary services. Dolberg (2001) pointsout that there is a tendency for landless farmers to own small animals such as goats and poultry.

Earlier it was noted that in the PICs, poultry kept by women are used as food by the family. Thenutrition of the members of farm households is one dimension of human capital. Fafchamps andQuisumbing (1998) point out that studies have found higher levels of human capital can improve off-farm earnings for farm households. The effect of higher levels of human capital on farm productivityis unclear. It is not only in influencing the income level of the farm household that livestock will playa part. Dolberg (2001) has observed that the most economically vulnerable households are those withthe least assets, and that as asset mix and asset quantity increase, the vulnerability of the householdto financial distress will fall. This suggests that a farm household with some livestock (chickens,goats or pigs, for example) in their asset portfolio will be less vulnerable to income shocks thansimilar households without any livestock in their asset portfolio. Hai (2001) describes the situation inViet Nam and says that many farmers consider pig husbandry as a means of saving. They utilizetheir food leftovers and buy the cheapest food for rearing pigs. As the pig grows, the smallholder’s“savings” in the pig increases. In many farming systems in Viet Nam, pigs constitute the main, if notthe only, capital reserve of farming households. Most importantly, it is a financial reserve that can bereadily realised. The World Bank (2001) say that the "banking function"of livestock is declining inmost parts of the developing world, although they acknowledge it is increasing in other (unspecified)parts. The Bank attributes the decline of this function to the establishment of informal and formalrural finance institutions, such as the Grameen Bank in Bangladesh and the fall in inflation rates inmany countries. Nonetheless, a number of programmes have been developed with the objective ofhelping farmers accumulate assets in the form of livestock. Box 13 describes a Philippine example.

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Box 13 The cattle financing programme for farmer cooperatives in the Philippines

The Land Bank of the Philippines operated a programme entitled the Cattle Financing Programmefor Farmer Cooperatives. This was a breeder dispersal programme and it had two broad objectives:

• to provide low-income farmers with a secondary source of income. These are farmers whoseprimary income sources are rice, corn and other crops. Given that all of these crops are prone toloss through natural disasters such as floods, the farmers may lose all or a substantial part of theirincome;

• to rebuild the cattle population.

The authorities thought these objectives could be met through imports of breeder cattle.Over the period 1992 to 1994, about 20 boatloads - holding approximately 28 000 cattlewere imported from the Northern Territory of Australia - and dispersed to 540 cooperativesrepresenting 18 000 farmers. Farmers in the scheme faced a seven-year loan period, with atwo-year grace period on interest and principal.

The opportunity for participation in the programme depended upon two broad considerations:

• the ability of the farmer to repay the loan. For this to happen, the farmer needs to obtain calvesfrom the breeder obtained under the programme

• the technical ability of the farmer to maintain the herd. Farmers have to complete a trainingcourse, they need to have a cattle shed and they also need to have stand-by forage. The stand-byforage should preferably be Napier grass and farmers should have access to 250m2 per head. Theaverage area of farms targeted in the scheme was 2 ha.

The programme was nationwide, but about 25 percent of the cattle went to the southern island ofMindanao. With regard to ability to repay the loan, it was thought when the programme wasdeveloped that farmers would be able to get three calves in 7 years. However, in some cases, farmerswere unable to get even one calf. In some other cases, the “borrowed” breeder died, but insurancecovered these losses. Imports of breeders under this programme have now stopped and only localbreeders are being used in the programme. So far, about 300 head of locally born cattle from theimports have been dispersed to farmers. The mortality rate associated with the programme has been32 percent over a recent five year period - or about 6 percent per year - and about 13 000 calves havebeen produced over the same period. Given that 41 262 breeders have been financed under theprogramme, it has had limited success. The main problem with the programme has been nutritionand breeding. Industry sources claim farmers lack proper training in nutrition and also are unable todetect when the cow is in heat. Another breeding issue is that of bull use. Because there are limitednumber of bulls to service the cows, sometimes no bull is available when the cow comes into heat.Under revised arrangements, cattle breeding is done on a commercial basis and farmers are requiredto use night corrals - cows must be kept with the bull at night in an enclosure.

Although livestock can improve the income and therefore the nutritional status of low-incomehouseholds, it would be incorrect to assume this can always happen without the use of somemarketable inputs on the part of the farmer. As an example, livestock medicines might need to bepurchased to control an animal disease outbreak on the farm. Incorrect applications of drugs tocontrol diseases or pests may result in drug resistance developing on the farm. Inadequate control ofdisease then raises the likelihood that the animals belonging to other small farmers nearby willbecome infected. This is probably more likely to happen when the animals are grazed communally orwhere there is inadequate fencing. It helps to explain why animals are often tethered if left to grazealone or supervised by the farmer and/or family members. The loss through disease of an animalbelonging to a small farmer can have severe financial consequences for the farmer and the farm

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household extending beyond the loss of the animal. If the animal is a cow or buffalo, the farmer'sability to plough his land to produce food may be adversely affected.

Income distribution will be changed in a number of ways with a change from a traditional productionsystem to a large-scale intensive system. Land values close by the large-scale production facilitymight fall because of the negative externalities associated with the facility. These negativeexternalities include odour pollution and manure runoff. Similarly, land values may be harmed byrelated infrastructure such as roads. This is because roads might disrupt drainage and/or irrigationsystems, reducing the production capacity of neighbouring agricultural land. The income position ofthe small farmers and those associated with the production, processing and marketing of livestockoutput from small farms is likely to be harmed. On the other hand, there may be benefits if theinfrastructure results in improved all weather access for the small producers. While job opportunitiesmay arise in processing, these opportunities will probably not be available to all, such as olderworkers or those caring for children.

Livestock can be used in an emergency situation to improve the economic situation of smallholders.An example of this was the use of poultry flocks of 50 to 60 birds to provide employment forIndonesian who had to return to their villages after the financial crisis of 1997 hit Jakarta and othercities. These birds helped provide eggs and poultry meat after the modern intensive industrycollapsed (D. Steane, pers. comm. 5 June 2001). In Papua New Guinea, a scheme operates in whichday old chicks are sold to villagers in lots of from 50 to 1 000 chicks. The chicks are grown by thevillagers and sold in the local market in an effort to improve their income situation. By the latter partof 2001, the income benefit to villagers from this scheme has not been established (Ramsay 2001).

The importance of livestock manure

Animal manure is valuable as a fertilizer, and improves the soil over and above the simple chemicalnutrients of N, P and K. As an input into the crop cultivation systems, manure is an important linkbetween crop and animal production throughout the developing world (Rodriguez et al. 1998). DeHaan et al. (1996) estimate that livestock produce about US$750 million worth of fertilizer fortropical irrigated agriculture in Asia, and help save about US$650 million worth of fossil fuel in theregion. Not all farmland will necessary benefit from manure application. Gavian and Fafchamps(1996), using field level data from a sample of 60 households found that tenure insecurityencourages farmers to divert scarce manure resources to more secure fields where ever they can.They found that replacing traditional systems with western style tenure through land titling and othermeasures is not necessary: what mattered was whether the field was held permanently ortemporarily.

Manure can be a source of income for small farmers. An example of this is in Viet Nam wherefarmers operating small farms sell manure to plantations for fertilizer and to improve soil quality.The income opportunity this creates for farmers could result in them substituting one species foranother. Tulachan and Neupan (1999) point out that buffaloes give 75 percent more manure thancows. Use of buffaloes rather than cows would reduce the production of milk, affecting nutrition.However, government subsidies on chemical fertilizers disadvantage those among the rural poor whoearn income from the collection and sale of manure. Manure and chemical fertilizer are substitutes,with the result that a subsidy on chemicals will reduce the demand for manure as a fertilizer. Thiswill be reflected in a lower price for manure. To the extent that subsidies on fuel or transport reducethe cost to the farmer of chemical fertilizers, these subsidies will also result in lower manure prices.

Manure, produced through the recycling of residue material by ruminants, is a significant source offuel in many developing countries. It is estimated that 8 percent to 12 percent of the world's

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population depend on manure for heating and cooking (Rodriguez et al. 1998)17. The use ofmanure from ruminants relieves households from spending time in collecting fuelwood, allowingmore time to be spent in farming or other activities. The collection of fuelwood has had a seriousimpact on forest lands, resulting in their degradation. Prasad et al. (2001) and Tulachan and Neupan(1999) discuss this issue in relation to the Himalayan ecosystem.

Religion

The importance of religion as an influence on the consumption of livestock products in the countriesof the Asia-Pacific region has been raised in this chapter on a couple of occasions. There are otheraspects of the livestock industries where religion can also be a factor. Religious issues might becomean issue with the use and disposal of animal by-products, including manure. Mulyono (1998)discusses the waste disposal problem associated with the pigmeat industry in Indonesia's SpecialProvince of Jakarta. Mulyono points out that initiatives tried in the past to use waste associated withpigs for fertilizer or as a source of energy were unsuccessful because of a Muslim prohibition ontouching or consuming any part of the pig.

Livestock production is also influenced by religious customs in the Himalayan kingdom of Bhutanbut at a different stage in the production process. Bhutan's pork industry is relatively large.Productivity in the production of pork meat could possibly be increased by large-scale facilitiesinvolving a couple of hundred breeding sows. However, this would be at odds with religious beliefswhich prevent animal production taking place in facilities of this size because Bhutanese people willnot kill more animals than are required for their own requirements. A strategy to get around thiswould be for farmers to be given responsibility for raising animals on behalf of others and thishappens, with Nepalese workers being used to slaughter animals.

Other issues

Pest controlChickens, geese and ducks help control insect pests and weeds, reducing the need for chemicalweedicides and pesticides. Research from West Java and reported by Riethmuller (1999) indicatedthat for a 1 ha plot, allocating 0.8 ha to rice, 0.1 ha to rice-fish and 0.1 ha to ducks, net returns woulddouble over the traditional rice-rice-fallow practice. Goats can control weeds and at the same timeadd to the income of smallholders involved in plantation crops such as rubber production. Similarlycattle, sheep and goats have been used in Sri Lanka, Malaysia, Indonesia and the Philippines tocontrol weeds and vegetation under coconut trees and oil palm (Devendra 1991).

Social capitalLivestock can help build social capital in rural areas. Social capital, according to Pretty (2001), is thecohesiveness of people in their societies, and comprises trust, common rules, norms and sanctions forbehaviour. Pretty argues that one of the reasons for the emergence of non-sustainable systems is thatsocial capital has been undervalued. Social capital tends to be a public good, which increases withuse. It is hard to imagine it having a market value. Boyle (2001) says that social capital is a term notnormally found in economics. His view is that it refers to the wider social networks and associationsthat households engage in to improve their livelihood strategies. Sharing of animals for ploughing orfor providing draught power for irrigation are examples of how livestock can add to social capital.Another example is the use of animals owned by landless farmers by other farmers engaged in crop

17 The use of dried animal manure as a cooking fuel may have undesirable side effects. Studies of women inIndia and Nepal show that their death rates from chronic respiratory diseases are similar to those of heavysmokers (Economist 1998). On the other hand, Harris (1978) points out that the use of ghee for cooking inSouth Asia is best done with manure as a fuel because of the heat generated by manure and the way it burns.

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production to recycle plant residues on their cropping land into manure. In-kind provision of credit topoor farmers to develop livestock production is a third example. Box 14 provides details of a schemeof this nature in Java.

Box 14 In-kind credit on Java

The World Bank (2001) describes a programme set up in the mid-1980s on the Indonesian island ofJava. Farmers targeted for participation in the scheme were divided into groups of ten, with eachfarmer receiving two female goats or sheep. The leader of each of the groups received training inanimal management. The leader was also given a good quality ram or buck. The Bank explains thateach recipient had to repay four lambs or kids over a period of three years. An evaluation of theproject in 1988 concluded that the project could be used to improve group dynamics of farmergroups, as well as income, animal performance and the level of technology used by farmerparticipants.

TractionThe Council for Agricultural Science and Technology 2001 cites research published in 1985 thatestimates 30 million tractors would be needed to replace the 30 million draught animals used at thattime on small farms in Asia. The Council argues that the use of animals has saved foreign exchangeneeded to purchase fossil fuels. The issue is complicated however since crop yields might be higherwith tractors. Mengjie and Yi (nd) contend that despite increasing trends towards mechanisation,one-third of China's total agricultural output in the 1980s and 19909s was produced using draughtanimals, of which there were about 80 million in 1993. In 1980, they estimated that about 25.6percent of the power source used on Chinese farms came from draught animals with 21.6 percentfrom humans and the balance from machines. By 1990, the relatives shares were 57.8 percent(machines), 29.7 percent (draught animals) and 12.5 percent (humans). They expected the trendtowards machines to continue so that by 2000, the contribution of animals would be down to 17.7percent. The share of human power was expected to be 12.9 percent and machines 69.4 percent. Theuse of animal for traction releases women in particular from drudgery and time consuming task suchas water gathering.

Concluding comments

Livestock industries produce joint outputs in proportions fixed by technology, and they also producegoods that are complements in consumption. For traditional farmers, the social status associated withlivestock ownership may be one of the "outputs" of livestock, and this may be no less important thanthe marketable outputs of livestock. Manure might be the most important "economic" productproduced by livestock on many small farms.

It is apparent that generalizations about the livestock industries in developing countries are difficultto make. However, one generalization that can be made is that the economic consequences oflivestock industries should not be considered in isolation from their social consequences. Thischapter has argued that there is extensive anecdotal evidence to suggest that small livestockindustries play many important social functions. An implication of this is that a case can be made inat least some livestock industries and in some countries/regions for public support of small-scaleproducers.

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References

Abeyratne, A. S. 2001. Perspectives and Strategies for the Asian Livestock Sector in the next Threedecades (2000-2030) - Sri Lanka. Unpublished report prepared for FAO, Bangkok.

Adnam, A. and M. McCarthy. 1998. Indonesian "Beef" Market Study. Angus Adnam and Associates,Brisbane.

Ashdown, S. 1992. Adat and the buffalo in South Sulawesi. P. W. Daniels, Holden, S.,Lewin,E.,Dadi, S., Livestock Services for Smallholders. Yogyakarta, Indonesia, 240-2, 15-21November.

Bansil, P. C. 2001. Employment potential of livestock. FAO, Unpublished report prepared for FAO,Bangkok.

Birner, R. 1999. The Role of Agriculture in Agricultural Development. Ashgate, Aldershot.

Boyle, P. 2001. Theoretical and methodological foundations for the social and cultural domains ofthe Role of Agriculture Project. FAO, 19-21 March, Background paper presented to FirstExpert Meeting on the Documentation and Measurement of the Roles of Agriculture inDeveloping Countries, Rome.

Council for Agricultural Science and Technology. 2001. Role of Animal Agriculture in the HumanFood Supply. Council for Agricultural Science and Technology, 31 August 2001,Iowa.[www.cast-science.org]

de Haan, C., Steinfeld, H. and Blackburn, H. 1996. Livestock production and sustainable resourceuse, Agriculture Technology Notes, Number 16. World Bank. WashingtonDC.[www.wbln0018.worldbank.org/essd/essd.nsf/rural+development/livestock]

de Wit, J., H. G. van de Meer and A. J. Nell.1997. Animal manure: asset or liability? World AnimalProduction Review(88).

Delgado, C., Rosegrant, M., Steinfeld, H., Ehui, S. and Courbois, C. 1999. Livestock to 2020: TheNext Food Revolution. International Food Policy Research Institute. Food and Agricultureand Environment Discussion Paper 28. Washington DC.

Devendra, C.1991. Potential intergration of small ruminants with tree-cropping systems in Asia andthe South Pacific. World Animal Review(66).

Dolberg, F.2001. A livestock development approach that contributes to poverty alleviation andwidespread improvement of nutrition among the poor. Livestock Research for RuralDevelopment, 13(5).

Economist (1998). Dirt poor: a survey of development and the environment. Economist, 346(8060).21 March.

Fafchamps, M. and S. Gavian.1996. The determinants of livestock prices in Niger. Journal ofAfrican Economies, 6(2): 225-95.

Fafchamps, M. and A. Quisumbing. 1998. Human Capital, Productivity and Labour Allocation inRural Pakistan. International Food Policy Research Institute, Discussion Paper No. 48 Brief,Washington DC.

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Gavian, S. and M. Fafchamps.1996. Land tenure and allocative efficiency in Niger. AmericanJournal of Agricultural Economics, 78(2): 460-71.

Hai, L. T. 2001. Pig production in Southern Vietnam. Agrifood Consulting International,Unpublished report, Brisbane.

Harris, M. 1978. Cows, Pigs, Wars and Witches: the Riddles of Culture. New York, Vintage Books.

Horowitz, M. 2001. The culture role of agriculture: scope documentation and measurement. Paperpresented to First Expert Meeting on the Documentation and Measurement of Roles inAgriculture in Developing Countries. FAO. Rome.

Jensen, H. A. 1997. Semi-scavenging poultry flock. Integrated farming in Human Development.Copenhagen, DSR Publishers[http://www.husdyr.kvl.dk/htm/php/tune96/4askovjensen.htm]

Ke, B. 1998. Area-wide integration of crop and livestock: case study-Beijing, in Ho, Y. and Chan, Y.Proceeding of the Regional Workshop on Area-wide integration of Crop-Livestockactivities. FAO. Bangkok

Mellor, J. 2001. Reducing poverty, buffering economic shocks - agriculture and the non-tradableeconomy. FAO, First Expert Meeting on the Documentation and Measurement of the Rolesof Agriculture in Developing Countries. Rome, FAO, 19-21 March.

Mengjie, W. and D. Yi. nd. The importance of work animals in rural China.

Mulyono, S.1998. Intensive livestock production and the problems of its waste product in the SpecialProvince in Jakarta. Proceedings of the Regional Workshop on area-wide integration ofCrop-Livestock activities, 19: 14-17.

Mumtaz, K. 1995. Gender issues in agricultural and rural development. Gender Issues in Agriculturaland rural Development Policy in Asia and the Pacific. Bangkok, FAO, 87-104.

Pelant, R., B. Chandra, J. Pu, N. Lohani, N. Suknaphasawat and G. Xu.1999. Small ruminants indevelopment: the Heifer Project International experience in Asia. Small Ruminant Research,34(3): 249-57.

Prasad, R., Rakesh, Maithel, Sameer, Mirza and Asim.2001. Renewable energy technologies forfuelwood conservation in the Indian Himalayan Region. Sustainable Development, 9: 103-8.

Pretty, J.2001. Towards sustainable food and farming systems in industralised countriesw.International Journal of Agricultural Resources, Governance and Ecology, 1(1): 77-94.

Ramsay, G. 2001. Perspectives and Strategies for the Asian Livestock Sector in the next Threedecades (2000 - 2030) - Pacific Island Countries. FAO, Unpublished report prepared forFAO, Bangkok.

Riethmuller, P. 1999. Appendix: the Indonesian feed and livestock sector. A statistical overview.Livestock Industries of Indonesia prior to the Asian Financial Crisis: RAP Publication1999/37 FAO. Bangkok: 107-39.

Riethmuller, P., J. Chai, D. Smith, B. Hutabarat, B. Sayaka and Y. Yusda.1999. The mixing ratio inthe Indonesian dairy industry. Agricultural Economics, 20(1): 51-56.

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Rodriguez, J. Lylian, T. R. Preston and N. Lam. 1998. Integrated farming systems for efficient use oflocal resources. E. Foo and T. Senta, Integrated Bio-Systems in Zero EmissionsApplications. University of Tropical Agriculture, College of Forestry, Vietnam,www.ias.unu.edu/proceedings/icibs

Sansoucy, R., M. Jabbar, S. Ehui and H. Fitzhugh.1995. Livestock- a driving force for food securityand sustainable development. World Animal Review.

Singh, R. 2001. A Hunger Free India , Sectional Presidential Address, Agriculture Section. 88thSession on the Indian Science Congress. New Delhi, 3-7 January.

Steinfeld, H.1998. Livestock production in Asia and the Pacific region: current status, issues andtrends. World Animal Review.

Tulachan, P. and A. Neupan. 1999. Livestock in mixed farming systems of the Hindu Kush-Himalayas. FAO, Rome.

World Bank. 2001. Livestock Development, the Environment, Poverty and Global Food Security.World Bank, February 2001, Draft Report prepared by the Animal ResourcesThematicGroup, Washington DC.

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5. Weaknesses in the livestock industries of Asia: results from a surveyof livestock policy makers and researchers

An FAO sponsored workshop attended by policy makers, researchers and officials from developingcountries in the Asia-Pacific region was held in Bangkok in February 2001 to consider recentdevelopments in the livestock industries and to discuss what form government policies for theseindustries should take. As part of this process, participants discussed various aspects of the livestockindustries, including the strengths and weaknesses that they believed existed in the livestock sectorsof their own countries. The purpose of this chapter is to outline the findings. Information such as thisis important and useful since it serves to highlight areas where additional research is required and italso helps to identify emerging policy issues.

Methodology

The material presented in this chapter is not based upon a formal survey. Participants at the FAOworkshop provided an overview of the livestock sector in their home countries. Following eachpresentation, there was a general discussion by researchers and policy makers familiar with thelivestock industries in the region. The results are based upon this discussion. An important caveat tothe material in this chapter is that the views and opinions reported here should not be attributed toparticular individuals from the participating countries. The points made about particular countriesoften emerged from discussion about that country by all conference delegates.

The problems mentioned have been grouped into a number of broad categories as follows:

• marketing• infrastructure• political/institutional• production• environmental.

Responses were placed into one of these categories to gain insights into where the main weaknesseswere perceived to exist. Clearly, some of these categories overlap. Furthermore, a clear-cutclassification of the problem in some cases does not exist. No explicit recording of the frequencies ofmentions of particular problems/issues was made. The comments made in the discussion in regard tothe number of times a particular issue was raised are therefore subjective. Table 22 summarises theproblems/weaknesses that were mentioned during the course of the workshop

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Table 22 Problems identified by workshop participants, February 2001

Country Type of problem Specific problem mentioned

Bangladesh Marketing - Restricted market access and low andunstable prices

- Low profits due to payment of highcommissions to too many middlemen

Infrastructure - Minimum availability of extensionservices and facilities

Political - Livestock farmers have limited politicalinfluence and are not well organized tolobby for their industry

Sri Lanka Production - Lack of suitable animals with anadequate genetic potential

- Shortage of feed resources at affordableprices

- Effects of disease both on mortality andproductivity

Indonesia Marketing - Limited market access

Production - Lack of suitable land- Low productivity- A low level of technology- Poor management- Poor quality feed and forage- Poor hygiene- A lack of breeding stock

Infrastructure - Limited access to capitalLaos Production - Feed supply, specifically limited dry

season green growth, and much foragehas low nutritional value

- Disease control- Low productivity

Infrastructure - Inadequate animal health serviceavailable

- Limited technical support andinsufficient proven practical livestockextension

- There is a general lack of technicalknowledge on application of newermore intensive animal productiontechnologies

Marketing - Unstable product price- Processing activities have not been

developed

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Country Type of problem Specific problem mentionedPhilippines Production - Lack of availability of quality stocks of

animals- Recurrent disease outbreaks

Marketing - Poor marketing systems- Low cash flow

Cambodia Production - High animal losses through infectiousdiseases

- Low reproductive and production rates- Production losses through poor

management and internal parasites- Expense of vaccines for some

infectious diseases- Farmers are reluctant to use vaccines or

are unaware of the benefits- Lack of energy and protein sources for

pigs and poultry and during the dryseason for cattle/buffalo

- Little appreciation of the role ofnutrition in production losses

- Little knowledge about local feedsources

Infrastructure - Inadequate and inconsistent supply ofvaccines

Marketing - Poor meat processing and marketingfacilities

China Environmental - Severe degradation in some areas

Infrastructure - Poor infrastructure- Inefficient technical services and

disease control

Political/institutional - Land rights are weak providing littleprotection to farmers

- Weak bargaining power of farmers

Marketing - Distorted price signals- Difficult to gain access to markets

Production - Weak ability to invest in pastureimprovement

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The following observations may be made based upon the responses recorded in this table and uponthe discussion that took place in the workshop.

• A problem that was mentioned frequently by participants involved extension. Research resultsdo not seem to be conveyed adequately to farmers, particularly in regard to feeding practices andanimal health. Since a large part of the responsibility for animal production is with women andto some degree with children (see Chapter 4 of this report), it appears that greater attention needsto be placed on evaluating the most effective way of conveying extension information to thesegroups. Surprisingly, however, it was rare for any mention to be made of the need to evaluate theeconomic merits of different feeding systems. The approach used in many developed countriesof providing extension services on a user pays basis was seen by some participants at theworkshop as introducing a bias against small-scale farmers. This group often does not have theresources to pay for the extension service.

• The "government" was often mentioned as being able to provide solutions to many of theproblems facing the livestock industries. However, livestock farmers were viewed as havinglittle political influence, and so as a consequence according to some participants, their industrywas often given a low priority by government policy makers. Mention was made of theimportance of effective lobbying by farmers to achieve their objectives. Increasing the role ofgovernment seems contrary to the moves being made in many countries to deregulate theireconomies and it may represent dissatisfaction with private sector outcomes that are viewed bysome as downplaying the social dimension of any action.

• Because it was often the case that different government agencies - often with quite divergentagendas - had an interest in livestock, it turned out that in some countries policies lackedconsistency. The claim was made that the agencies sometimes represented different ministries orcame from different levels of government. A number of participants drew attention to thepresence of subsidies in other agricultural and/or non-agricultural industries, and were critical ofthe damage that these subsidies were doing to the livestock industries. Other participantscommented that the multiplicity of organizations/agencies with an interest in livestock meantthat otherwise satisfactory policies failed to operate. The policies were not the problem, it wasthe implementation that caused the problems. One participant stressed the need to get theinstitutional arrangements correct as a way of ensuring that policies operated efficiently so thatunanticipated side effects did not arise. An example of the number of ministries involved in thelivestock industries is provided in Box 15.

Box 15 Government agencies and Sri Lanka's livestock sector

Abeyratne (2001) describes government agencies in Sri Lanka. "The institutional support for thelivestock industry in Sri Lanka is provided both by the state as well as private institutions. The statesector is mainly engaged in policy formulation and implementation and providing the public goodswhile the private sector, input supplies and marketing facilities. Several Ministries and stateinstitutions are involved in livestock policy formulation and implementation and the supply of thepublic goods. The main Ministry responsible for livestock policy formulation is the Ministry ofLivestock Development and Estate Infrastructure. There are other Ministries like, Ministries ofFinance and Planning; Agriculture, Cooperatives and Food; Trade and Commerce; Health; Educationand Higher Education; Mahaweli Development; Industries; Provincial Councils; Social Welfare andSamurdhi Development; Rehabilitation, Lands, Environment, etc. Thus policy formulation andimplementation becomes a rather difficult matter when such a large number of Ministries areinvolved. When such a large number of Ministries are involved in livestock development, it isobvious that most state Departments under each Ministry too will be have something to contribute.Thus implementation of a clear government policy becomes rather a complicated matter."

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• Concerns were expressed about the marketing activities of middlemen, particularly in regard totheir dealings with farmers. With urbanization and rural to urban migration, farmers remaining inrural areas will move away from being purely self-sufficient operations and begin to becomemore active participants in the market. Hence, providing them with market opportunities willbecome an increasingly important issue. Information asymmetries were mentioned as a problem.In the case of Nepal, for example, one participant felt that small farmers would benefit greatlyfrom the establishment, through public funds, of a village based livestock market. Scales for theweighing of livestock would prevent the farmers being exploited by the middlemen/traders, whothrough their experience are apparently much better at gauging the weight and yield of an animalthan the farmer.

• The access of developing countries to export markets was mentioned as a problem fordeveloping country livestock industries. Non-tariff barriers, particularly phyto-sanitaryregulations, represent a form of government intervention in developed countries that developingcountries lack the capacity to influence through negotiations. The reform of these barriers is agoal of the multilateral negotiations being conducted under the auspices of the World TradeOrganization.

• Traditions, cultural practices and religion limit the economic opportunities available to thefarmers in the livestock sector and at the same time represent a drain on available resources.While religion prohibits the slaughter of cows in India, the utilization of by-products such ashides from animals that have died of natural causes is not well organized and as result thispotentially valuable resource is often lost (Chapter 4 of this report provides some background onIndia's hide production). These issues are also of importance in the design of livestock basedprogrammes intended to achieve improvements in human nutrition. In India, for example, thereare cultural biases against the consumption of goat meat and pigmeat and so programmes wherethese meats are intended to play a central part may have limited success.

• Infrastructure, particularly its limited nature, was mentioned as being a problem on a number ofoccasions. The availability of animal medicines and the staff to administer these, and transportand handling facilities, the shortage or unavailability of cold storage facilities andslaughtering/processing facilities were examples of the infrastructure problems that participantsidentified. Regulations also operated to prevent the full utilization of infrastructure. InBangladesh, for example, government regulations disallow the use of slaughtering facilities threedays of each week.

Many - if not all - of the issues raised in Table 1 have also been identified in other fora asproblems/issues. For example, in an Asian Productivity Organization seminar into marketing systemsfor farm products in Asia and the Pacific held in 1989, the problems listed included: inadequatecollection, analysis and dissemination of timely and relevant marketing information; inadequatemarket infrastructure and facilities such as roads and transport, storage and warehouses, packagingand processing facilities; a bias towards production in the provision of institutional credit resulting inlimited loans for marketing purposes; and absence of certified grading system/non-implementation ofproper grading and standards (Asian Productivity Organization 1990). The same organisation inanother seminar, but this time into agricultural cooperatives, found that cooperatives sufferedbecause of marketing problems, government policy and intervention (some participants thought thatthere was too little, while others too much) and a lack of access to credit (Asian ProductivityOrganization 1991). A paper by Riethmuller and Smith (1999) into problems identified byIndonesian dairy experts came up with broadly similar results: the need for improved animalgenetics, better extension and the need for improved animal health. That the same set of problemscontinue to persist is indicative of the degree of difficulty in resolving these problems.

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Concluding comments

Policy makers are faced with the problem of allocating scarce research resources into areas that arelikely to provide the greatest net benefit to the economy funding the research. To help them in thisprocess, research of the type reported in this chapter is invaluable since it helps identify the priorityareas. Production, marketing and infrastructure related issues were seen by the workshop participantsto be of most importance to the livestock industries. Surprisingly, there was very limited discussionof the negative externalities associated with the intensive livestock industries. To a large degree, thiswas possibly a reflection of the belief no doubt held by many "that little or nothing could be done" toremedy these externalities. There would appear therefore to be a potentially high payoff fromdocumenting the various approaches that have been taken in developed countries to help developingcountry policy makers devise feasible options. In the design of any policies, it needs to be recognizedthat a substantial part of agricultural production is provided by resource-poor farmers. This situationdoes not exist in the developed countries where fewer producers are providing an increasing share ofproduction.

References

Abeyratne, A. S. 2001. Perspectives and Strategies for the Asian Livestock Sector in the next Threedecades (2000-2030) - Sri Lanka. Unpublished report prepared for FAO, Bangkok.

Asian Productivity Organization. 1990. Marketing Systems for Farm Products in Asia and thePacific. Tokyo.

Asian Productivity Organization. 1991. Agricultural Cooperatives in Asia and the Pacific. Tokyo.

Riethmuller, P. and D. Smith. 1999. Strengths and Weaknesses of the Indonesian Dairy Industry.Livestock Industries of Indonesia prior to the Asian Financial Crisis: RAP Publication1999/37. FAO. Bangkok.

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