LEAD Livestock, Environment and Development initiativeImpact of Changing Market Forces and Policies on Structural Change in the Livestock Industries of Selected Fast-Growing Developing Countries
Final Research Report of Phase I - Project on Livestock Industrialization, Trade and Social-Health-Environment Impacts in Developing Countries


©FAO Photo Christopher L. Delgado, Ph.D.
Senior Research Fellow
International Food Policy Research Institute (IFPRI)
2033 K St., N.W.
Washington, D.C. 20006, USA
e-mail: c.delgado@cgiar.org

Clare A. Narrod, Ph.D.
Livestock Economist (Natural Resources)
Animal Production and Health Division
Food and Agricultural Organization of the United Nations (FAO)
Room C-539
Viale delle Terme di Caracalla
00100 Rome, Italy
e-mail: clare.narrod@fao.org

June 28, 2002

Table of Contents


This report is submitted to the Food and Agricultural Organization of the United Nations by IFPRI in partial fulfillment of Letter of Agreement PR20803 from FAO to IFPRI, dated October 25, 2001 as amended by FAO on November 8, 2001. It incorporates comments received on a preliminary draft dated May 31, 2002. Grateful acknowledgement of project funding support is made to the Livestock, Environment, and Development (LEAD) initiative housed at FAO, and supported in this instance by the Department for International Development (DFID) of the United Kingdom and the European Commission, with additional support from the core programs of FAO and IFPRI.


Table of Contents


Preface

List of contributions by country collaborators

I. The Livestock Revolution

1.1. Amazing Numbers and High Stakes
1.2. The Consumer Rules
1.3. The Supply Side and Meat Prices
1.4. A Changing of the Guard in the Livestock Sector?

II. A Changing World for Livestock Producers

2.1. Forces Promoting Vertical Coordination
2.2. Increased Demand for Improved Animal Health, Food Safety, and Minimal Environmental Impact
2.3. The Increasing Complexity of Livestock Trade and Rapidly Rising Stakes in Animal Disease Control

III. The Changing Global Technological Context for Poultry and Pork Production

3.1. Major Areas of Technological Change in the Global Livestock Industry
3.2. Global Technology Transfer for Poultry and Pigs

IV. Country Case Studies of Structural Change in Markets and Policy Environment Impacting the Production, Processing and Marketing of Selected Livestock Products

4.1. The Philippines Hogs and Broilers Case Study
4.2. The India Dairy Case Study
4.3. The India Eggs and Broilers Case Study
4.4. The Brazilian Dairy, Hog, and Poultry Case Study
4.5. The Thai Livestock Sector

V. Conclusions

5.1. Impacts on Socio-Equity Outcomes
5.2. Impacts on Food Safety Outcomes
5.3. Impacts on Environmental Outcomes
5.4. Policy Research Priorities
5.5. Testable Hypotheses

References

List of tables

List of figures

ANNEX I: CRITICAL ISSUES FOR POOR PEOPLE IN THE INDIAN DAIRY SECTOR ON THE THRESHOLD OF A NEW ERA

Executive Summary
I. Overall Dimensions of the Indian Dairy Industry

1.1. Contribution to the National Economy (income and employment)
1.2. Socioeconomic Profile of Dairy Farmers
1.3. Livestock Population Trends
1.4 Demand for Milk and Milk Products
1.5. Trends in Production and Productivity of Milk
1.6. Marketing Channels for Milk and the Role of the Informal Sector
1.7. Changes in the Incentive Structure of the Indian Dairy Industry
1.8. Structural Changes in Milk Production, Procurement and Marketing
1.9. Trade in Dairy Products
1.10. Stakeholder Groups in Indian Dairy Policy and their Interests

II. Government Policy Towards Dairy Development in India

2.1. Pre-Operation Flood Period
2.2. Growth Period - 1970 onward
2.3. Post-Liberalization Period
2.4. Institutional Infrastructure
2.5. Interaction between Institutional Infrastructure and the Informal Sector
2.6. Instruments for Participation of Smallholders in Production and Processing
2.7. Impact of Policy Changes on Industrial Organization of the Dairy Sector
2.8. Food Safety and Quality Issues
2.9. Animal Health and Welfare Issues
2.10. Natural Resource Management Concerns
2.11. The Problem of Overgrazing
2.12. Environmental Pollution in the Milk Processing Sector

III. Changing Economics of Dairy Production and Processing

3.1. Changes in Domestic Prices
3.2. World Market Prices and Impact on Domestic Prices
3.3. Pricing of Inputs, Animal Health Care, and Breeding Facilities
3.4. Provision of Credit for Different Sizes of Farmers
3.5. Outlook for Technological Development and Spin-offs of Other Developments on the Indian Dairy Industry
3.6. Outlook for Feed Costs under the WTO and Domestic Policy Reforms
3.7. Costs of Dairy Procurement for Different Types of Marketing Agents
3.8. Impact on Cost and Return Structure

IV. Impact of Commercialization of Dairy Sector on Socioeconomic-Health-Environment (SHE) Outcomes

4.1. Impact of Likely Changes on the Structure of the Production and Processing Sectors
4.2. Outlook for Small-Scale and Informal Sector Dairy Marketing Agents
4.3. Outlook for Trade in Indian Dairy Products
4.4. Impacts on Household Nutrition, Women's Income and Employment, and Human Health
4.5. Impact of Rural and Peri-Urban Dairy Production Systems on Human Health and the Environment
4.6. Issues, Constraints and Policy Strategies for Keeping Smallholders Involved with the Development of the Dairy Sector
4.7. Issues, Constraints and Policy Strategies for Environmentally Sustainable Growth in the Indian Dairy Sector

References

ANNEX II: LIVESTOCK INDUSTRIALIZATION, TRADE AND SOCIAL-HEALTH-ENVIRONMENT ISSUES FOR THE INDIAN POULTRY SECTOR

Units of Conversions
Glossary
Executive Summary
I. The Overall Dimensions of the Indian Poultry Sector

1.1. Poultry Industry Making Significant Strides in Production
1.2. Structure of the Poultry
1.3. Regional Variations in Poultry Development
1.4. Demand for Poultry
1.5. Marketing
1.6. Trends in Productivity
1.7. Incentives to Producers
1.8. Production and Processing: Structural Changes
1.9. Employment in Poultry Sector
1.10. Trade Scenario
1.11. Select Stakeholder Groups and their Views
1.12. Policy Making in India

II. Policy Issues

2.1. Policies Affecting the Sector during Pre-Reform Era
2.2. Institutional Infrastructure
2.3. Market Reforms and Trade Liberalization Era
2.4. Food Safety Issues: A Review
2.5. Food Safety Issues: Steps by Government and Processors
2.6. Impact of Policy Changes on Industrial Organizations: Some Issues
2.7. Complementarities: A Case of Processors and Contract Farming
2.8. Issues and Impact of SPS and TBT Regulations
2.9. Some Issues Related to Animal Health Welfare
2.10. Waste Disposal Concerns for Producers
2.11. Environmental Pollution in Poultry Products
2.12. Conflicts Between Poultry Productions, Producers/Processors, and Local Population over Environmental Issues

III. The Economics of Poultry Production and Processing

3.1. Trends in Domestic Prices of Poultry and Other Products
3.2. Trends in World Market Prices of Poultry
3.3. Trend in Cost Prices of Different Inputs
3.4. Import Policy Regime
3.5. Availability of Credit
3.6. Incentive Schemes for Clean Technology
3.7. The Outlook for Technological Development
3.8. Outlook for Feed Costs under WTO
3.9. Cost of Poultry Procurement

IV. Commercialisation of the Poultry Sector and Its Impact on Socio-Economic Health Environment Outcomes

4.1. Predicted Impacts of Likely Changes over the Next 20 Years
4.2. Outlook for Small Scale and Informal Sector Poultry Marketing Agents
4.3. Outlook for Trade in Poultry
4.4. Impacts on Household Nutrition, Human Health and Employment
4.5. Impact of Rural and Urban Production Systems on Human Health and Environment
4.6. Identification of Issues, Constraints, and Policy Strategies

V. Summary and Conclusions
Annexure I: Estimation of Price and Income Elasticities
Annexure II: Financial Assistance for Setting-up Poultry Farm
Annexure III: India’s Exports and Imports of Poultry Products by Countries
Annexure IV: List of Stakeholders Contacted
References
Statistical Sources

ANNEX III: A SYNTHESIS OF CHANGES IMPACTING ON PARTICIPATION OF SMALLHOLDERS IN THE GROWING MEAT MARKET IN THE PHILIPPINES

I. International Agreements, Trade Policies, Sectoral Regulation and Liberalization Policies

A. International Agreements
B. Domestic Trade Policy Environment
C. Sectoral Regulation and Liberalization

II. Market Developments and Scaling-up in the Livestock Sector

A. The Hog Sector
B. The Broiler Industry: Towards Tighter Integration

III. Scaling Up and Effects of Concerns Over the Environment, Health, and Social Equity

A. The Hog Sector

1. Environmental and Health Concerns
2. Animal and Human Health Concerns
3. Food Safety Concerns
4. Social Equity Concerns

B. The Broiler Sector

1. Emerging Demand for Food Safety
2. Environmental Concerns
3. Social Equity Issues

IV. Possible Scenarios Concerning the Scale and Organization of the Pig and Poultry Sectors

A. Influence of Changes in the External Environment

V. Domains of Policy Reform Relevant to Social, Health and Environment Objectives of the Livestock Sector

A. Policy Domain

1. Trade Liberalization
2. Domestic Market Reforms
3. Basic Public Infrastructure Reforms
4. Social Equity: Participation in Domestic Marketing and Processing
5. Environmental and Health Externalities

B. Policy Options

1. Trade liberalization as a strategy for controlling the trend towards market concentration by integrators.
2. Domestic Market Reforms
3. Basic Public Infrastructure Reforms
4. Social Equity
5. Wider Participation in Livestock Marketing and Meat Processing
6. Environment and Health Externalities

References

ANNEX IV: IMPACT OF INTERNATIONAL MARKET FORCES, TRADE POLICIES, AND SECTORAL LIBERALIZATION POLICIES ON THE PHILIPPINES HOGS AND POULTRY SECTOR

I. Introduction
II. Agriculture and Livestock Trade: The External Environment

2.1. The Changing Character of International Trade in Agriculture
2.2. Asia’s Growing Appetite for Meat
2.3. Philippine Trade in Hogs and Poultry Products and Corn
2.4. Domestic Trade Policy Environment: The Protection Pendulum

III. Agriculture vs. Industry: And the Pendulum Swings

3.1. Philippine Trade Policy: From Protectionism to Competitiveness

3.1.1. Before the 1990s: The Early Years
3.1.2. Reforms in the 1990s: In Pursuit of Competitiveness

3.2. Trade Policy for Hogs and Poultry

3.2.1. Tariffs on Hogs and Pork
3.2.2. Tariffs on Poultry

3.3. Competitiveness in Corn: A Critical Link

IV. Mechanics and Dynamics in Trade Policy Setting for Hogs and Poultry

4.1. The Tariff-Setting Mechanism
4.2. Political Dynamics of Hogs and Poultry Tariffs

4.2.1. Tariff Simplification: EO 413/470
4.2.2. AFTA: Implications on Hogs and Poultry
4.2.3. WTO Commitments: MAV “Technical Errors” for Pork and Poultry Meat

4.3. The Political Economy of Hogs and Poultry Trade Policy: A Synthesis

4.3.1. Stakeholder Analysis
4.3.2. Determinants of Trade Policy on Hogs and Poultry

V. Structural Changes in Supply and Demand

5.1. Hogs: Continuous Growth, Increasing Integration
5.2. Poultry: Rapid Growth, Rapid Change
5.3. Feed Milling: A Mixed Bag

VI. Hogs, Poultry and Sustainability: Social, Health and Environmental Outcomes

6.1. Social Implications
6.2. Health Implications
6.3. Environmental Impacts

VII. Beyond Hogs and Poultry: Relationship with Other Livestock Sectors
VIII. The Medium Term Outlook: Even More Growth

8.1. Summary and Synthesis

References
List of tables
List of figures

ANNEX V: GRASSROOTS VIEWS OF THE STAKES IN A RISING LIVESTOCK SECTOR IN THE PHILIPPINES

I. Introduction

A. Factors Affecting Scale of Operations
B. Potential Impacts of Intensification
C. Towards Sustainability of Small Scale Livestock Enterprises in the Philippines
D. Description of the Research Sites

II. Grassroots Views of the Stakes in the Rising Swine Sector in the Philippines

A. National Trends
B. Profile of Swine Producers

1. Age
2. Education
3. Gender
4. Socioeconomic Groups
5. Location of Business
6. Extent of Formal Sector Capital Investment
7. Participation of the Poor in Commercial Marketing
8. Barriers to Effective Participation of the Poor in the Industry
9. Role of Government in relaxing barriers
10. Institutional and Policy Constraints
11. Case Study of contract farming involving small scale producers
12. Key Elements of Success in Smallholders' Involvement in Contract Farming

C. Views of Stakeholders on Events/Issues Relating to Production and Marketing

1. Near Markets
2. Far From Market

D. Level of Awareness of Smallholders to Changes in Policies

1. Trade Policies
2. Domestic Policies
3. Health Policies
4. Environmental Policies
5. Perceived Impact of Policies to smallholders group

E. Stakeholders' Views of the Outlook of the Industry

1. Near Market
2. Far from Market

F. Social, Health and Environmental Issues in a Changing Policy and Market Environment

1. Impact on the sustainability of smallholder enterprises
2. Impact on incomes and employment at the household level
3. Impact on the economic and social position of women in the household
4. Impact on the household nutrition and the well being of children

G. Conclusions

III. Grassroots Views of the Stakes in Rising Poultry Sector in the Philippines

A. National Trends
B. Profile of Poultry Producers

1. Age
2. Education
3. Gender
4. Social Groups
5. Location of the Business
6. Extent of Formal Sector Capital Investment
7. Participation of the Poor in Commercial Marketing
8. Barriers to Effective Participation of the Poor
9. Case Study of a Small Contract Grower for Broiler
10. Key Elements of Success of Smallholders in Contract Farming

C. Grassroots Views on Events/Issues Relating to Production and Marketing of Broilers

1. Near Markets
2. Far from Market

D. Level of Awareness of Smallholders to Changes in Policies

1. Trade and Domestic Policies
2. Health and Environmental Policies
3. Perceived impact of changing policies by broiler producers

E. Stakeholders' Views of the Outlook of the Industry

1. Near Market
2. Far from Market

F. Social, Health and Environmental Issues in a Changing Policy and Market Environment

1. Impact on the sustainability of smallholder enterprises
2. Impact on incomes and employment at the household level
3. Impact on the economic and social position of women in the household
4. Impact on household nutrition and the well being of children

G. Conclusions

References

ANNEX VI: ISSUES AND POLICY OPTIONS FOR ADDRESSING ENVIRONMENTAL AND HUMAN HEALTH RISKS ASSOCIATED WITH GROWTH IN SMALL- AND LARGE-SCALE SWINE AND POULTRY PRODUCTION IN THE PHILIPPINES

I. Introduction
II. Nature and Source of Environmental and Public Health Issues

A. Resource Degradation and Pollution Risks

III. Growth in Conflicts Between Swine and Poultry Producers and Residential Communities

A. Evidence of Conflict
B. Growth in Numbers and Seriousness of Conflicts
C. Differential Issues by Size Category of Producer
D. Typical Pathways To Resolution Of Conflicts

IV. Review of the Environmental, Public Health, and Food Safety Policies Affecting Swine and Poultry Production

A. Environmental Policies: What Pressures Led to the Adoption of These Policies by Producers?
B. Public Health Policies: What Pressures Led to the Adoption of These Policies?
C. Food Safety Concerns: What Pressures Led to the Adoption of These Policies?
D. Role of Foreign Agencies or Markets in Promoting Environmental or Public Health Actions

V. Issues Involving Market and Institutional Constraints to the Adoption of Pollution Control Practices and Technologies by Smallholder and Larger Scale Swine and Poultry Producers

A. Presence or Absence of Financial or Institutional Incentives to Control Pollution or Environmental Degradation
B. Evidence of Uncaptured Externalities From Pollution at Different Scales of Operation
C. Institutional Options for Improving Environmental Outcomes in the Swine and Poultry Sectors
D. Impacts of Vertical Coordination on Environmental Outcomes in the Swine and Poultry Sectors
E. Differences in Regulations or Enforcement of Regulations by Scale of Operation

VI. Issues Involving Market and Institutional Constraints to the Adoption of Improved Practices and Technologies for Public Health and Food Safety Assurance by Smallholder and Larger Scale Swine and Poultry Producers

A. Institutional Options for Improving Public Health and Food Safety in the Swine And Poultry Sectors
B. Impacts of Vertical Coordination on Public Health and Food Safety Outcomes in the Swine and Poultry Sectors
C. Differences in Regulations or Enforcement of Regulations by Scale of Operation

VII. Specific Domains of Policy Reform and Policy Options to Address Environmental Externalities, and Environmental Sustainability of Small- and Larger-Scale Swine and Poultry Production
VIII. Specific Domains of Policy Reform and Policy Options to Address Public Health and Food Safety Concerns Arising From Small- and Larger-Scale Swine and Poultry Production
IX. Conclusions
References
Websites
List of tables
Appendix A
List of articles

Article 1: GENERAL PROVISIONS
Article 2: ISSUANCE OF PERMIT
Article 3: IMPLEMENTATION
Article 4: MONITORING/REPORTING
Article 5: PROVISION OF INCENTIVES
Article 6: EFFECTIVITY

ANNEX VII: LIVESTOCK INDUSTRIALIZATION, TRADE AND SOCIAL-HEALTH-ENVIRONMENT ISSUES FOR THE BRAZILIAN POULTRY, DAIRY, AND SWINE SECTOR

1. STRUCTURAL CHANGES IN THE BRAZILIAN AGRIBUSINESS SECTOR

1.1. Macroeconomic Settings
1.2. Sector Settings
1.3. General Policy Changes and Performance of the Agribusiness Sector

2. BACKGROUND ON BRAZIL’S LIVESTOCK SECTORS

2.1. Poultry
2.2. Swine
2.3. Milk

3. INTERNATIONAL AGREEMENTS AND TRADE POLICIES

3.1. Tariffs and subsidies
3.2. Nontariff Barriers

4. ADJUSTMENTS TO STRUCTURAL CHANGES

4.1. Poultry
4.2. Pork
4.3. Milk

5. SOCIAL, HEALTH AND ENVIRONMENTAL IMPACTS

5.1. Social Impacts
5.2. Health Impacts

5.2.1. Brazil’s Sanitary Control System

5.3. Environmental Impacts

6. IMPACTS ON INDUSTRIAL ORGANIZATION AND MARKETING PRACTICES
7. CHANGES IN OUTPUTS AND INPUTS SUPPLIES

7.1. Swine
7.2. Poultry

8. EVIDENCES ON SCALE ECONOMIES

8.1. Broiler Producers
8.2. Swine Producers
8.3. Milk Producers

9. LIKELY CHANGES IN THE SUPPLY CHAINS
REFERENCES

ANNEX VIII: LIVESTOCK INDUSTRIALIZATION, TRADE AND SOCIAL-HEALTH-ENVIRONMENT ISSUES FOR THE THAI POULTRY, DAIRY, AND SWINE SECTOR

Introduction
1. Trade Liberalization In Agriculture And Livestock

1.1. Trade Policies
1.2. Thailand’s Commitments in the Agreement an Agriculture

2. Poultry

2.1. Broiler
2.2. Layers

3. Pigs

3.1. Background and History of Pig Industry Development in Thailand
3.2. Development of Pig Production in Thailand in the Past 15 Years

3.2.1. Breeds of pigs
3.2.2. Nutrition
3.2.3. Pig Housing
3.2.4. Pig farm management
3.2.5. Pig diseases and vaccination program
3.2.6. Pig waste handling and treatments
3.2.7. Pig marketing

3.3. Problems of Pig Production in Thailand

3.3.1. Diseases
3.3.2. Breeds and breeding
3.3.3. Nutrition and feeding
3.3.4. Environment
3.3.5. Problems with animals and public health

3.4. Scale of Production
3.5. Future of Pig Production in Thailand in the Medium Term (5 Years)

4. Dairy Cattle

4.1. Introduction
4.2. Growth and Government Policies

4.2.1. Cooperative Organization and Marketing Policy

4.3. Production Structure and Changes in Technological Development

4.3.1. Factors Affecting Scaling Up

4.4. Environment, Animal Welfare and Food Security

5. The Environment Impact of Livestock Industry in Thailand

5.1. Introduction
5.2. Swine
5.3. Poultry

6. Scaling Up and its Effects on the Livestock Sector: A Brief Synthesis

6.1. Scaling up in Livestock Production in Thailand
6.2. Effects of Scaling Up

References