40. To determine the responsiveness of dairy imports to import control measures, we can look at the policy objectives and see how far they have been achieved or we can look at the import of dairy products and determine how the policy instruments have affected them. The former is difficult because the policy objectives do not have quantitative targets. Even in the latter ease, quantitative effects cannot be determined for every policy instrument.
41. Using real values for prices, duty, the level of external reserves as a proxy for foreign exchange allocation, per capita income as a proxy for consumer purchasing power, and domestic production of fresh milk as a proxy for local substitutes of imported dairy products, Nwoko (1985b) has summarized the overall effects of the policy instruments on dairy imports as shown in Table S. Table 5 provides estimates of the magnitude of the response of the demand for each imported dairy product (an aggregate milk equivalent of all quantities and a weighted price are treated separately)
(a) to changes in its own border price,
(b) to changes in the border price of other products (i.e. cross-price elasticity)
(c) to changes in the respective levels of duty, external reserves, per capita income and domestic milk production.
Border prices are expected to be affected one way or the other by the utilization of the import policy instruments discussed earlier - e.g. import prohibition or imposition of import duties on a particular product are expected to increase domestic prices because of shortage or the added costs of importers subject to pay the duties.
42. As regards own price elasticities ((a) above), with the exception of cream and sour milk, the demand for every other dairy product is highly elastic to its own border price (the percentage change in the quantity demanded is higher than the percentage change in its border price). For example, a 10% increase (decrease) in the border price of condensed and evaporated milk will induce approximately a 28% decrease (increase) in the quantity of condensed and evaporated milk demanded. On the other hand, a 10% increase (decrease) in the border price of cream and sour milk will induce only a 0.7% decrease (increase) in the quantity of cream and sour milk demanded.
43. As regards point (b) above, some dairy products are substitutes to each other while others are complementary. For example, a 10% rise (fall) in the border price of dry milk will induce a 36% increase (decrease) in the quantity of butter demanded - i.e. butter is a substitute for dry milk. On the other hand, a 10% increase (decrease) in the border price of condensed and evaporated milk will induce approximately a 25% decrease (increase) in the quantity of butter demanded - i.e. condensed/evaporated milk and butter are complementary. There are question of symmetry and asymmetry which are rather complex and which we need not go into for our purposes.
Table 5. Elasticity of Policy Variables in Dairy Imports
|
Commodity |
Butter |
Cheese and Curd |
Dry Milk |
Cream and Sour Milk |
Condensed and Evaporated Milk |
Weighted Price |
Duty |
External Reserve |
Per Capita Income |
Domestic Milk Production |
|
Butter |
-1.897 |
-1.72 |
3.607 |
0.896 |
-2.469 |
- |
-0.22 |
-0.552 |
0.567 |
-4.239 |
|
Cheese Curd |
0.994 |
-1.692 |
1.972 |
1.365 |
- |
- |
0.604 |
-0.489 |
5.668 |
-2.385 |
|
Dry Milk |
-1.864 |
2.014 |
-1.693 |
-0.603 |
-0.365 |
- |
-0.109 |
0.549 |
-0.314 |
-1.374 |
|
Cream and Sour Milk |
- |
-2.695 |
- |
-0.071 |
- |
- |
0.123 |
0.542 |
- |
-0.912 |
|
Condensed & Evaporated Milk |
0.864 |
-0.958 |
- |
0.545 |
-2.825 |
- |
0.135 |
0.116 |
0.462 |
0.198 |
|
Milk Equivalent |
- |
- |
- |
- |
- |
-1.084 |
- |
0.153 |
0.403 |
-0.270 |
Source: (Nwoko, 1985b)
44. In respect of the other policy variables (point (c) above), import duty has negative effects only on the demand for butter and dry milk - i.e. a 10% increase in import duties on butter and milk is estimated to reduce their demand by 2% and 1% respectively. Cheese and curd, cream and sour milk as well as condensed and evaporated milk jump the duties imposed on them - for example, a 10% increase in duties on cheese and curd will induce not a decrease but a 6% increase in the quantity demanded. Despite the sign of the elasticity coefficients, generally all dairy imports are highly inelastic with respect to duty only - i.e. the percentage change in the quantities demanded is considerably less than the percentage change in the level of duties imposed. The import of cheese and curd is highly elastic with respect to per capita income while other dairy imports are highly inelastic. Any increase in the domestic production of fresh milk has a depressing effect on the import of every dairy product except condensed and evaporated milk with imports of butter, cheese and curd, and dry milk having high elasticities.
45. What all these relationships point to is that there does not appear to exist sufficient policy instruments for controlling dairy imports. Import duty is ineffective for cheese and curd, cream and sour milk as well as condensed and evaporated milk, which is the largest single item in the total value of Nigeria's dairy imports. The level of external reserves has positive effects on dry milk, cream and sour milk, and also on condensed and evaporated milk. The only policy instrument which can be used effectively for dairy import control in the long-run is an increase in domestic milk production, but again condensed and evaporated milk is insensitive to this instrument.
