Competition between Domestic and Imported Farmed Fish - A Demand System Analysis

Abstract

Monthly data from 1999 through 2007 are used to estimate demand interrelationships between domestic and imported farmed fish. Specifically, a demand model is estimated for four products: imported frozen tilapia fillets, imported frozen salmon fillets, imported frozen catfish fillets, and US-produced frozen catfish fillets. The demand model used in this analysis is the Linear Approximate Almost Ideal Demand System (LA/AIDS), which is extended to include dummy variables to indicate the effect of a labeling law and US anti-dumping duties. The system is estimated with and without symmetry and homogeneity imposed to assess the sensitivity of results to restrictions implied by demand theory. In addition, the model is estimated by Seemingly Unrelated Regression and by Three Stage Least Squares to assess the sensitivity of results to estimation procedure. Own-price elasticities estimated from the preferred models are significant and negative as expected. The demand for imported frozen catfish fillets is price elastic at -3.22 while the demand for domestic frozen catfish fillets is inelastic at -0.69. Opposite to tilapia imports, the demand for salmon imports is estimated to be price elastic at -1.51. The demand for imports of catfish, tilapia, and salmon are expenditure elastic at 2.90, 2.08, and 1.43 respectively while the demand for domestic frozen catfish fillets is expenditure inelastic at 0.38. Thus, the demand for imported farmed fish is more sensitive to changes in the US business cycle than demand for the domestic product. Allen elasticities are calculated to determine the degree of substitutability among the four products. The closest substitute for domestic frozen catfish fillets is imported frozen catfish fillets (Allen elasticity = 5.11), followed by imported tilapia (1.09). Imported salmon is found to be a weak substitute (0.45) for domestic catfish. Imported salmon competes more closely with imported catfish (12.33) than with imported tilapia (2.80). Imported tilapia and imported catfish show a strong complementary relationship (-18.95), which means a rise in the price of either product causes the demand for the other product to fall. The US antidumping tariff against catfish imports from Vietnam is shown to positively affect the market shares of salmon and tilapia imports and to negatively the market shares of imported and domestic catfish. However, the effects are small in absolute value with the largest for imported catfish (-0.08) and the smallest for domestic catfish (-0.03). The labeling law, passed by the US Congress in 2001 to differentiate Vietnamese frozen catfish fillets from domestic frozen catfish fillets, has no significant effect on the demand curves for the two products based on the 3SLS estimates.