Agribusiness, Community/Rural/Urban Development, Demand and Price Analysis, International Relations/Trade,

Brian, Hilbun

Kennedy, P. Lynn

Lee, Young-Jae

English

Research Papers in Economics

1
SHORT- &  LONG-RUN  EFFECTS  OF  SEAFOOD  IMPORTS  ON  DOMESTIC  PRICE
j Youngjae Lee
Assistant Professor/Research
Department of Agricultural Economics and Agribusiness
117 Martin D. Wooding Hall, Louisiana State University, Baton Rouge, LA 70803
Ylee@agcenter.lsu.edu
P. Lynn Kennedy
CC i i A l i f Crescent City Tigers Alumni Professor
Department of Agricultural Economics and Agribusiness
181 Martin D. Wooding Hall, Louisiana State University, Baton Rouge, LA 70803
LKennedy@agcenter.lsu.edu
Brian M. Hilbun
Research Associate
fA i l l i dA ib i Department of Agricultural Economics and Agribusiness
181 Martin D. Wooding Hall, Louisiana State University, Baton Rouge, LA 70803
BHilbun@agcenter.lsu.edu
Poster prepared for presentation at the Agricultural & Applied Economics Association’s 2011
AAEA & NAREA Joint Annual Meeting, Pittsburgh, Pennsylvania, July 24-26, 2011
C i h 2011 b j dd i ilb All i h d Copyright 2011 by Youngjae Lee, P. Lynn Kennedy and Brian M. Hilbun. All rights reserved.
Readers may make verbatim copies of this document for non-commercial purposes by any means, 
provided that this copyright notice appears on all such copies2
SHORT- &  LONG-RUN  EFFECTS  OF  SEAFOOD  IMPORTS  ON  DOMESTIC  PRICE
YOUNGJAE LEE, P. LYNN KENNEDY, & BRIAN M. HILBUN
Department of Agricultural Economics and Agribusiness, Louisiana State University
INTRODUCTION
Producers are quite concerned about adverse movements in prices caused by economic shocks. In the
U.S. seafood market, fish producers are concerned about imports because domestic prices may be
adversely affected by the influx of imports. Such suspected inverse effects of imports are based on
the substitutability of imports for domestic products. For examples, domestic catfish producers are
naturally concerned about imported catfish because domestic producers assume that imported catfish
serves as a substitute for domestically produced catfish. Also, domestic catfish producers have
concerns about the imports of other related fishery products (e.g., like shrimp) because these
products also have the possibility of serving as catfish substitutes, displacing domestic catfish
consumption. However, own imports could be complementary in their relationship to domestic
catfish, while cross imports could be viewed as substitutes for domestic catfish. The reason for this
assumption may be that for products that are relatively small in volume and are sold in local or
regional markets is not supplied by domestic producers for the entire domestic market but could, with
MODELFRAMEWORK
1. Dynamic Structural Analysis
Quantity’s short-run price effect is usually measured by a quantity elasticity (or price flexibility). Barten
and Betterndorf (1989) developed a series of dynamic inverse demand models for fish which are usually
used to analyze the short-run effect that quantity has on price. In particular, a Differential Inverse
Rotterdam Demand System (DIRDS) more clearly reflects the original properties of sample data than any
other variants of inverse demand systems because of less restrictions in the model. For example, although
the estimated coefficients of the quantity elasticity by other variants is complemented by the mixing of
parameters in order to obtain unbiased own quantity elasticity, the estimated coefficients of quantity
elasticity of DIRDS cannot be complemented by these parameters, implying that if the sample data that
were used in the DIRDS were not consistent with microeconomic theory, the estimated quantity elasticity
would be inconsistent with economic theory as well. For example, the sample data violate the negativity
condition of own quantity on price then one would obtain a non negative own quantity elasticity
RESULTS
1. Short-Run Relationship among Fish Prices
Table 1 shows empirical short run quantity elasticities among the seven fish types. All fish show substitutability in
both own and cross effects. For example, the first row of Table 1 shows negative quantity elatisticities domestic
catfish (Catfish (D)), and imported catfish, trout, tuna, shrimp, tilapia, and salmon have on domestic catfish price.
These results are different from the results of the impulse-response analysis, implying that there is a difference
between the short- and long-run effect of imports on domestic price.
Table 1. Short-Run Quantity Elasticity
Catfish (D) Catfish Trout Tuna Shrimp Tilapia Salmon
CADP -0.597 -0.009 -0.007 -0.266 -0.918 -0.033 -0.183
CAIP -0.639 -0.042 -0.001 -0.229 -0.602 -0.093 -0.161
SAIP -0.847 -0.002 -0.163 -0.261 -0.604 -0.023 -0.092
SHIP -0.22 -0.003 -0.002 -0.133 -0.520 -0.019 -0.114
exposure of cheaper imports of like goods, cause the domestic product to be nationally distributed
through the aid of distributors at the national level. In this case, own imports do not compete with the
domestic product of like nature but are rather complementary to the domestic product, while cross
imports could be viewed as being substitutes.
OBJECTIVE
This study seeks to identify short-run and long-run effects that fish imports have on domestic price.
This challenge will be resolved by using two different methodologies, namely, Dynamic Structural
Analysis and Impluse Response Analysis.
PREVIOUS RESEARCH
Fish price formation has been investigated by agricultural economists (Barten and Bettendorf, 1989;
Eales, Durham, and Wessells, 1997; Asche, Bremnes, and Wessells, 1999; Beach and Holt, 2001;
Holt and Bishop, 2002; and Gary-Wong and McLaren, 2005). Fish have unique features as a
condition of own quantity on price, then one would obtain a non-negative own quantity elasticity.
Furthermore, cross quantity elasticities exactly reflect the sample data used in DIRDS. Therefore, this
study uses DIRDS to reflect the exact effects of own and cross quantity reflected by the sample data
during the period of this study, which will be helpful to understand the historical relationships among
seven fish used in this study. The DIRDS is expressed as :
(1) , i,j = 1,2,3,…,7,
where wi is fish i’s expenditure share, is the Divisa volume index, hij is quantity elasticity
coefficient, and hi is the scale elasticity coefficient.
This study follows the procedure of normalization for price and quantity data as suggested by Lee
and Kennedy (2009). For the seven types of fish used in this study, the DIRDS is estimated. For
econometric estimation, this study follows estimation procedure suggested by Berndt and Savin (1975) as
a means of fixing singularity in the covariance matrix of the model. The short-run quantity elasticity
betweenf i sh i and j will be identified as substitutes if and complements if
2. Long-Run Relationship among Fish Prices
In Table 2, the symbols ‘S’a n d‘ C’ are used to represent substitutes or complements based on the significant
positive or negative responses, respectively, of price to shocks over the four-period time horizon. ‘S’a n d‘ C’
indicate that the price responses were uniformly positive or negative, whereas the symbols ‘S*’a n d‘ C*’d e n o t e
cases in which the responses over the four-period time horizon were mixed (both positive and negative), with the
sum of the statistically significant responses being positive and negative, respectively. The number in parentheses
is the number of significant response(s) during the four-period horizon. For example, S*(3) simply means that there
are three significant responses during the four-period horizon with the aggregate being positive, whereas C(2)
means that there were two significant responses and both were negative. Of the 43 results reported in Table 2, the
majority (27) represent uniform responses, with the remainder exhibiting mixed responses denoted by an asterisk,
‘*’, as indicated above.
j j ij i i i q h Q h w ln ln ln Δ + Δ = Δ ∑ π
∑ Δ = Δ
j j j q w Q ln ln
0 / < + = j i ij ij w w h f
TIIP -0.395 -0.004 -0.002 -0.27 -1.122 -0.043 -0.204
TRIP -0.227 -0.012 -0.001 -0.178 -0.803 -0.054 -0.007
TUIP -0.327 -0.004 -0.001 -0.249 -0.850 -0.009 -0.409
p y g ) q
commodity group. For example, seasonality in fish demand and/or supply causes price variations or
cycles in a specific time interval. Bose, Bodman, and Campbell (2006) indicated a strong likelihood
that fish price series may contain significant seasonal components. Also, perishability leads to one to
the study of inverse demand systems in which price variation is explained by quantity variation as
opposed to traditional economic models where quantity variation is explained by price variation.
Barten and Bettendorf (1989) provided a justification of the use of an inverse demand system for
describing price variation in terms of quantity variation because fish supply is very inelastic in the
short run. And homogeneity has raised questions about which fish species belong to a common
market or the long-run price relationship between fish species. Cointegration tests are usually
adopted for this objective. There are many studies related to fish price formation. However, most of
them have separately considered these properties (Barten and Bettendorf, 1989; Lee and Kennedy,
2008 and 2009) or only as being partially integral (Asche, Salvanes, and Steen, 1997; and Bose,
Bodman, and Campbell 2006). Recognizing these features of fish, this study tried to identify the
short- and long-run responsiveness of domestic seafood market to imports.
betwee s i ad j w be de t ed as subst tutes ad co p e e ts
.
2. Impulse-Response Analysis
Impulse response analysis is utilized to describe the impacts of shocks on prices and their propagation
mechanism over time. An impulse response function can be written in a Vector Moving Average (VMA)
form as follows:
(2) ,
where, Pt is a 7×1 vector of price variables, μ is a 7×1 vector of means (constants), is a 7×7 coefficient
matrix and εt-i is the innovation sequence. The matrix has the following interpretation:
(3) ,
, as indicated above.
It can be seen from Table 2 that the response to own-price shocks is positive and significant for all cases as
expected. In the absence of significant income effects symmetry is also to be expected, in the sense that if fish j is
found to be a substitute/complement to fish i,t h e nf i s hi is found to be a substitute/complement to fish j.T h e r ea r e
21 possible pair wise relationships in the seven-species demand system, but, as can be seen from Table 2, there are
only 10 cases in which the impulse-response is significant in both directions. Of these cases, seven are
substitutionary and four are complementary in relationship. In particular, the condition of symmetry is satisfied for
domestic and imported catfish. Table 2 shows that imported catfish is a complement of domestic catfish and
domestic catfish (and vice versa). However, trout, tuna, shrimp, tilapia, and salmon did not satisfy the symmetry
condition. For example, imported shrimp is a substitute for domestic catfish but domestic catfish is a complement
of imported shrimp.
0 / < + = j i ij ij w w h f
j i ij ij f
∑
∞
=
− + =
0 i
i t i t P ε φ μ
() n
P
i T
t
n t φ
ε
= ⎟ ⎟
⎠
⎞
⎜ ⎜
⎝
⎛
Δ
Δ +
Table 2. Results of Impulse Response for Four-Period Time Horizon
CADP CAIP SAIP SHIP TIIP TRIP TUIP
CADP S*(4) C*(2) S*(4) C*(2) C*(2) C*(3)
CAIP C*(3) C*(3) C*(2) C*(3) S*(2) C*(1) g p p
DATA
This study uses domestic catfish and imported catfish, trout, tuna, shrimp, tilapia, and salmon data.
We originally obtain monthly price and quantity data of these products from different sources for the
period spanning from January 1989 to December 2007. Price and quantity data for domestic catfish
come from the National Agricultural Statistics Service (NASS). Price and quantity data for domestic
catfish is for round weight processed catfish. Quantity and value data for imported fish were obtained
from the National Marine Fisheries Service (NMFS). Using these monthly data, we then combine
data to obtain quarterly data. The unit prices of imported fish are obtained by dividing the total value
by the volume of imports. The obtained quantity and price data represent an actual quantity amount,
like pounds, and an actual price, like dollars per pound. Whenever needed, we normalized these data
following the method as suggested by Lee and Kennedy (2009).
where, ‘n’a n d‘ T’ represent time horizon and transpose operators, respectively. For example, the jkth (i.e.,
jth row, kth column) element of matrix identifies the consequences of a one unit increase in the innovation
of the jth price variable at time ‘t’ for the value of the kth endogenous price variable at time ‘t+n’, keeping
all other innovations constant (Hamilton, 1994).
Using a VMA-in-level model, impulse-response functions were generated for four-period horizons
with three lags and with rank ordering based on market value. Following the interpretation of expression
(3), other things being equal, two fish are said to be substitutes on the demand side when an increase in
the prices of one fish ‘j’causes the demand for another fish ‘i’to increase, which, given supply, leads to an
increase in the price of fish ‘i’ (a positive price relationship), and vice versa. When two fish are
complements to each other, a decrease in the price of one fish ‘j’ results in an increase in the demand for
another fish ‘i’ which leads to an increase in the price of fish ‘i’ (a negative price relationship), and vice
versa. In this regard, significant positive and negative responses over time can be seen to respectively
indicate the substitutability and complementarity relationships between fish types.
REFERENCES:
BartenA.P., and L.J. Bettendorf. Price Formation of Fish:An Application of an Inverse Demand System.
European Economic Review 33 (1989): 1509-1525.
Hamilton, J.D. Time Series Analysis, Princeton University Press. Princeton, NJ. 1994.
Lee, Y-J, P.L. Kennedy, and B.M. Hilbun.ADemand Analysis of the Korean Wine Market Using an Unrestricted
Source Differentiated LA/AIDS Model. Journal of Wine Economics 4(2) (Winter 2009): 185-200.
Bose, S., P.M. Bodman, and H.F. Campbell. Estimation and Significance of Long-run Relationships among Fish
Prices. International Journal of Oceans and Oceanography 1(2) (2006): 167-182.
CAIP C( 3 ) C( 3 ) C( 2 ) C( 3 ) S( 2 ) C( 1 )
SAIP S*(3) S*(3) C*(4) C*(4) C S C*(3)
SHIP C*(2) S*(2) S*(4) C*(4) S*(2) C*(3) C
TIIP S*(4) C*(3) C C C*(4) S*(4) S
TRIP S*(2) C*(3) S*(3) C*(4) S*(3) C*(3)
TUIP S S C*(2) C C*(2) C*(2) C*(3)

Analysis of the Korean Wine Market Using an Unrestricted Source Differentiated LA/AIDS Model.

Estimation and Significance of Long-run Relationships among Fish Prices.

Price Formation of Fish:An Application of an Inverse Demand System.

Time Series Analysis,

Short- & Long-Run Effects of Seafood Imports on Domestic Price

Short- & Long-Run Effects of Seafood Imports on Domestic Price

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