Price Transmission Analysis of the Effects of TPP Tariff Elimination and Feed Price Increases on the Wagyu Beef Market in Japan
The Trans-Pacific Partnership (TPP) negotiations have become a major topic of debate in Japan. This paper focuses on wagyu beef market and analyzes how tariff elimination affects the market. This issue is particularly important in the light of feed price increases in 2007–08 because it is not clear about how much feed price increases will negatively affect livestock farmers during the process of tariff elimination. This paper estimates the demand function for wagyu beef and derives the upper and lower limits of the cross-price elasticity of demand with respect to imported beef price. The effects of tariff elimination on the market are then examined using a static price transmission model. The model assumes that the current tariff will be reduced in phases until it is completely eliminated after 11 years. During this process, this paper considers the case where feed prices remain the same against another case where feed prices increase every year. The results show that, in the first case with the upper limit, wagyu demand will decline by 4% in 11 years, and the gross profits of wagyu fattening farmers will decline by 7% at worst. However, using the lower limit, wagyu demand will increase by 2% as the price decline stimulates consumption, leaving their gross profits unchanged. Meanwhile, wagyu calf prices including subsidies will fall by 5%. Total sales of calf breeders, including subsidies, will decline by 3%–9% in 11 years. Overall, the negative effect of tariff elimination on wagyu calf production will be limited. However, the Japanese government will have to offer more subsidies to maintain wagyu calf production. As for the second case, increasing feed prices amidst reduction in tariffs will have more negative impact on cattle fattening farmers. In this case, the tariff reduction process should be slowed down to mitigate this negative impact.
Key wordsTrans-Pacific Partnership (TPP) Tariff Elimination Agricultural Tariffs Price Transmission Wagyu Beef Feed Price
JEL ClassificationF13 F14 Q11 Q17 Q18
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I am grateful to Professor Satoshi Ohira (Keio University), Professor Junichi Goto (Keio University), two anonymous reviewers, and participants of The 11th International Conference (October 20–21, 2012, at Nagoya Gakuin University in Nagoya, Japan) of the Japan Economic Policy Association for their helpful comments.
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