DAIRY IMPORTS INTO THE DEVELOPING WORLD - A CROSS-COUNTRY CO-INTEGRATION ANALYSIS

Most developing countries import significant quantities of milk and dairy products to fill the gap between their domestic production and consumption. The total quantity of milk available for consumption and other uses in the developing world was 228 million Metric Tonnes (MT) in 1998. Total domestic production was 208 million MT while net imports accounted for the remaining 20 million MT (FAO, 1998). For the developing world as a whole, net imports accounted for 9% to 12% of the total quantity of milk available for consumption and other uses. This proportion varies significantly, as for example, from 8% for Brazil to over 90% for the Philippines (Table 1). As net importers, changes in imports of dairy products into developing countries will be sensitive to developments in world markets for dairy products, including such factors as product prices, currency exchange rates, consumer purchasing power as well as developments within the domestic dairy sub-sectors. Changes in dairy imports are therefore a reasonable indicator of changes in domestic dairy production and consumption because imports will increase as the consumption-production gap widens. This paper provides a quantitative analysis of factors that determine dairy imports into the developing world. Previous studies (e.g. von Massow, 1984; 1985) often fail to explore the statistical properties of the individual variables used and do not examine the validity of their econometric model. Not only is the power of the statistical tests reduced, but also the confidence one can place in the empirical results of these studies. In this study I employ a cross-country co-integration analytical method to evaluate the effects of factors that determine dairy imports into ten countries within five regions of the developing world. The countries are: East Asia - China; South and Southeast Asia - Malaysia, Philippines and Thailand; Latin America - Brazil and Mexico; sub-Saharan Africa - Nigeria; West Asia and North Africa - Algeria, Egypt and Saudi Arabia. These ten countries accounted for 44% and 60% of the total net imports of dairy products into the developing world in 1985 and 1998 respectively. Involving several countries across different regions of the world in the analysis not only will improve understanding of the reasons why dairy imports are high for certain countries, but also have important implications for developments in the respective domestic dairy industries.