An econometric study of the New Zealand pig-meat market

Abstract

This thesis describes an econometric investigation of the New Zealand, pig-meat market over the period 1969 to 1979. The objective of the study is to provide policy-makers within the pig industry with a model of their industry that can be used to improve their ability to anticipate and respond to problems facing the industry. In particular, the study is concerned with providing policy-makers with a tool which can be used to improve their ability to reduce instability in the pig-meat market.

The transition from dairy by-product to grain ration feeding of pigs appears to have aggravated price and production instability in the industry and this problem is now major concern of policy-makers.

This study describes the impact of the transition from dairy by-products to grain ration feeding of pigs as well as the causes and consequences of the associated increase in production and price instability. A 20 equation model of the market is specified that describes production, consumption, price formation, imports, exports and stock changes at various levels of disaggregation. This model is estimated using quarterly data for the period 1968 (fourth quarter) to 1979 (second quarter) and the two stage principal components estimating procedure. The estimated model is evaluated using simulation analysis.

In most respects the performance of the model described in this study is satisfactory. It is able to reproduce cyclic behaviour when all of the exogenous variables are held at a fixed level. These cycles are convergent with a mean length of approximately 3.5 years. Although the model does have some problems associated with it, it is useful to policymakers in its present form. Model forecasts should be accurate enough to improve policy-makers' ability to predict many of the important market variables. The model should also prove useful in evaluating the implications of alternative future scenarios as well as the impact of alternative policy decisions on the market.

The staff of the Pork Marketing Board have already begun to use the model as an aid to policy making in the industry. Over the last nine months the model has primarily been used to provide quarterly forecasts and to evaluate the impact of alternative scenarios (e.g. increases in feed-grain prices) in the slightly longer term. Interest is also being shown in using the model to evaluate alternative policies under consideration by policy-makers. Research currently underway should help to overcome some of the problems associated with the model and, therefore, extend its usefulness as a policy tool.