University of Kassel, Department of Development Economics and Agricultural Policy, Germany
After decades economic liberalization, China has become the world's second largest producer of animal feed and China is the world's largest raw protein sources importing country. However, Chinese booming feed industry faced a rather different market scenario while raw protein source prices rose sharply, especially importing soybean meal and fish meal. This severely curtailed profit margins for feed industry. Lack of protein materials is placing continues pressure on feed producers. Policy evaluations require reliable estimates of alternative cheap protein import demand responsiveness. The research is aimed to analyzing rendered animal protein (MBM) as an alternative cheap protein source and determine import elasticity of meat and bone meal (MBM) with respect to main importing protein sources (fishmeal and soybean meal).
Two stage budgeting AIDS and source differentiated model are specified to estimate Chinese rendered animal protein (MBM) import demand.
The results from both two stage budgeting AIDS and source differentiated model indicate that as raw protein imports increase, China imports more soybean meal and fish meal than rendered animal protein (MBM). Between soybean and fish meal, soybean meal has larger expenditure elasticity than fish meal. As expenditures on soybean meal increase, China imports more from Argentina and Brazil than that from U.S, while expenditures on fishmeal increase, fish meal from Peru is in the favourite source. Own-price elasticity for individual raw protein from different origins are all negative (with an exception for fish meal from Chile). For rendered animal protein (MBM), own-price elasticities are inelastic. This reflects quantity restrictions on rendered animal protein (MBM). With large import demand for soybean and soybean meal, Chinese imports from Brazil and U.S are price sensitive. Cross-price elasticities between rendered animal protein (MBM) and soybean meal is inelastic and negative, indicating weak complementary relation, while rendered animal protein (MBM) and fishmeal cross-price elasticity is price elastic and positive, describing substituting relationship. The study concludes that rendered animal protein (MBM) has limited to be used as cheap alternative protein source to substitute main importing protein source (soybean meal and fishmeal).
Keywords: AIDS, China, import demand, separability, substitutability, source differentiation