Alternative pricing policies for the livestock sector in Cyprus

Abstract

The study is a first attempt towards the development of a
 stochastic simulation model of the Cyprus meat market utilizing
 behavioural relationships estimated within a consistent framework to
 analyze the effects of alternative pricing policies. The study provides
 quantitative measures of the impacts of alternative feedgrain and milk
 price policies and meat import policies on domestic production,
 consumption and prices of ruminant and non-ruminant meat, ruminant
 animal inventories and foreign trade. It also examines the effects of a
 reunification of the country's moslem and christian populations on the
 demand for domestic and imported (frozen) ruminant meat and domestic
 non-ruminant meat.
 A block-recursive ruminant model and a simultaneous non-ruminant
 model were specified and estimated using annual data from 1960 to 1983.
 Both models have shown good statistical properties and forecasting
 abilities and are in conformity with economic theory. The models
 exhibited stability when subjected to small changes in the parameters
 except in the case of the population variable where the ruminant model
 seems to be rather sensitive.
 Increasing the price of feedgrain paid by livestock farmers either
 through a reduction or removal of the existing feedgrain subsidy
 results in the contraction of the ruminant and non-ruminant meat
 sectors with the former being affected slightly and the latter
 substantially. Prices of meat are expected to rise with ruminant meat
 prices increasing marginally compared to prices of non-ruminant meat.
 An interesting result of the policy experiment is the observed
 responsiveness of the domestic ruminant meat market to changes in the
 price of milk. It appears that the milk price is a more effective
 policy instrument in setting the direction of ruminant meat production
 and prices than the feedgrain subsidy or import tariff on ruminant
 meat. The low substitution between domestic (fresh) and imported (frozen) ruminant meat causes the imposition of an import tariff on
 ruminant meat to have marginal effects on domestic ruminant meat
 production, consumption and prices. Imports, however, contract
 significantly in the long-run resulting to a substantial increase in
 government revenue and decrease in foreign exchange requirements.
 The reunification of the country's christian and moslem
 populations is expected to cause an overall increase in total meat
 consumption. The increase in the demand for ruminant meat, however, is
 proportionately larger than that for non-ruminant meat which is
 consistent with the consumption behaviour of the moslem community.