MARKET DEVELOPMENT
An Analysis of Agriculture Competitiveness in ASEAN
An Analysis of Agriculture Competitiveness in ASEAN
15/04/2014 (BusinessWorld Online Edition) - WITH the ASEAN Economic Community (AEC) 2015 coming, questions are being asked: How competitive are the ASEAN agri-food products in the world market? How competitive is the Philippines?
This article analyzes an ongoing concern using a well-known competitiveness measure -- revealed comparative advantage (RCA) of export products. It will compare 2012 levels with 2001 levels drawn from the UN Trademap. A caveat: The data is based on product groups, not individual products.
The concept of revealed comparative advantage was pioneered by British economist H.H. Liesner in 1958 and refined by Hungarian economist Bela Balassa in the 1960s. Balassa argued that one should compare the share of a product’s exports to a country’s total exports with the share of a product’s exports in a group of countries’ total exports. He found that export products with an RCA of 1 or more are competitive in the global market. (More analytics are found in UA&P Food and Agri Business Monitor.)
In 2012, Indonesia had nine products with comparative advantage; Malaysia, six, the Philippines, nine; Singapore, three; Thailand, 12; and Vietnam, eight. The list in 2006 was Indonesia, nine; Malaysia, three; the Philippines, eight; Singapore, one; Thailand, 11; and Vietnam, 13.
The numbers in 2001 were: Indonesia, seven; Malaysia, three; the Philippines, five; Singapore, two; Thailand, 12; and Vietnam, 16. In other words, between 2001 and 2012, Indonesia, Malaysia, the Philippines and Singapore posted increases in competitive products while Thailand’s remained at 12. Vietnam lost eight products.
What is not revealed by RCA is the size of exports. In 2012, Indonesia had nine products in the world’s top 20 country exporters, Malaysia had five, the Philippines had two, Singapore had four, Thailand had 11 and Vietnam had seven.
The Philippines has only carrageenan and coconut oil. It ranked only No. 25 in aggregate fruit exports, although it was number three in bananas and number two in pineapples.
In 2012, Indonesia had RCAs in nine products. These products included fish (ranked No. 11 in the world), coffee (5), vegetable oils (1), seafood preparations (15), cocoa preparations (12), cereal preparations (25), miscellaneous edible preparations (26), tobacco products (13) and rubber products (6).
In 2001, the products with RCAs were fish, coffee, vegetable extracts, vegetable planting materials, vegetable oils, cocoa preparations, tobacco products and rubber products. No global rankings are available.
The products which gained in RCAs in 2012 included coffee, vegetable oils (palm and coconut oils), seafood preparations, tobacco products, and rubber products. By contrast, low RCAs were recorded in fish, vegetable extracts, vegetable planting materials, and cocoa preparations.
It must be noted that Indonesia’s agri-food exports are worth over $40 billion in 2012, dominated by vegetable oil, coffee, rubber products, cocoa and seafoods.
In 2012, Malaysia had RCAs in six products: vegetable oil (ranked No. 2 in the world), cocoa preparation (9), cereal preparation (16), miscellaneous edible preparation (16), tobacco products (23), and rubber products (8).
By contrast, in 2001, the RCAs were in vegetable oils, cocoa preparations, and rubber products. In other words, Malaysia added two competitive products in 2012.
Malaysia’s agri-food exports exceeded $30B in 2012 due to the sheer size of palm oil and rubber products exports.
In 2012, the Philippines had RCAs in nine products: fish, fresh fruits, vegetable extracts (carrageenan), vegetable oils (coconut oil), seafood preparations, sugar and confectioneries, cereal preparations, fruit preparations and tobacco products.
In 2001, the RCA list included fish, fresh fruits, vegetable extracts, seafood preparation, and fruit preparation (mainly pineapple). The Philippines gained two products in the list in 2012.
Philippine agri-food exports did not reach $5B in 2012. The main reason is size. Malaysia exports over $20B of vegetable oil while the Philippines exports just over $1B of coconut oil. Malaysia had about 5 million hectares planted to oil palm, and the Philippines, 3.5 million hectares of low-yield, subsistence coconut farms.
The main factor is massive yield differentials between oil palm and coconut. Except for banana, pineapple and mango, the country has low farm productivity of export crops such as rubber.
In 2012, Singapore had three products with RCAs: cereal preparations, beverages and tobacco products. It had only two products with RCAs in 2001: vegetable planting materials and tobacco products. With little farmland in Singapore, this is understandable. Despite that, it is a thriving agri-food processing center with low power cost and low logistics cost. It exported over $10B in 2012.
In 2012, Thailand had 12 products with RCAs: fish, vegetables, fruits, cereals, milling products, meat and seafood preparations, sugar, cereal preparation, vegetable and fruit preparation, miscellaneous preparation, residues and animal fodder, tobacco products and rubber products. The country is in the world exporters’ league for rice, sugar, canned fish, processed fruits, and rubber.
In 2001, the list comprised 12 products with some exceptions. It included meat products (chicken) but shifted to processed chicken in 2012 due to avian flu. Vegetable was not on the list in 2001.
Thailand exports over $40-B worth of agri-food products annually, with rice, sugar, rubber, fruits, meat and seafood preparations and tapioca starch as main products.
Vietnam is an interesting story. The change between 2001 and 2012 was quite dramatic. In 2012, there were eight products with RCAs: fish, vegetables, fruit and nuts (cashew nuts), coffee, cereals (rice), milling products (tapioca), seafood preparation (mainly shrimps), and rubber products.
The list was longer in 2001, numbering 16. On top of the above, they included dairy and eggs, products of animal origin, oil seed, vegetable extracts, cereal preparation, vegetable and fruit preparation, and miscellaneous edible preparations.
While Vietnam lost RCAs in several products in 2012, it increased exports of fish, fruit and nuts, rice, seafood preparation, and rubber. Aggregate exports reached about $18B in 2012.
MOVING FORWARD
RCA is a good measure of a country’s exports relative to the world market. Comparative advantage is not static as shown by the ASEAN experience. Low RCA can be reversed with good strategy and execution while high RCA can be lost with a bad one.
However, first movers -- such as Malaysia and Indonesia for palm oil, or Malaysia, Indonesia and Thailand for rubber, Indonesia and Vietnam for coffee -- have an advantage. Big industry size is important in market share defense and scale economies.
The Philippines has a good list of competitive exports. The basic problem is size. The country has difficulty in scaling up its exports due to low farm productivity and limited diversification. It also needs quick response mechanism to comply with market access schemes such as the EU Generalized System of Preference Plus. This is imperative as trading partners’ sets of rules can be difficult to comply with.
Size is exacerbated by difficult access for farm expansion, unorganized and fragmented small farms, poor extension services by municipal governments, weak research and development infrastructure, lack of financing for long gestating crops, and inadequate rural infrastructure.
(The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or MAP. The author is the Chair of the MAP Agribusiness and Countryside Development Committee, and the Executive Director of the Center for Food and AgriBusiness of the University of Asia & the Pacific. Send feedback to mapsecretariat@gmail.com and rdyster@gmail.com. For previous articles, visit map.org.ph.)
This article analyzes an ongoing concern using a well-known competitiveness measure -- revealed comparative advantage (RCA) of export products. It will compare 2012 levels with 2001 levels drawn from the UN Trademap. A caveat: The data is based on product groups, not individual products.
The concept of revealed comparative advantage was pioneered by British economist H.H. Liesner in 1958 and refined by Hungarian economist Bela Balassa in the 1960s. Balassa argued that one should compare the share of a product’s exports to a country’s total exports with the share of a product’s exports in a group of countries’ total exports. He found that export products with an RCA of 1 or more are competitive in the global market. (More analytics are found in UA&P Food and Agri Business Monitor.)
In 2012, Indonesia had nine products with comparative advantage; Malaysia, six, the Philippines, nine; Singapore, three; Thailand, 12; and Vietnam, eight. The list in 2006 was Indonesia, nine; Malaysia, three; the Philippines, eight; Singapore, one; Thailand, 11; and Vietnam, 13.
The numbers in 2001 were: Indonesia, seven; Malaysia, three; the Philippines, five; Singapore, two; Thailand, 12; and Vietnam, 16. In other words, between 2001 and 2012, Indonesia, Malaysia, the Philippines and Singapore posted increases in competitive products while Thailand’s remained at 12. Vietnam lost eight products.
What is not revealed by RCA is the size of exports. In 2012, Indonesia had nine products in the world’s top 20 country exporters, Malaysia had five, the Philippines had two, Singapore had four, Thailand had 11 and Vietnam had seven.
The Philippines has only carrageenan and coconut oil. It ranked only No. 25 in aggregate fruit exports, although it was number three in bananas and number two in pineapples.
In 2012, Indonesia had RCAs in nine products. These products included fish (ranked No. 11 in the world), coffee (5), vegetable oils (1), seafood preparations (15), cocoa preparations (12), cereal preparations (25), miscellaneous edible preparations (26), tobacco products (13) and rubber products (6).
In 2001, the products with RCAs were fish, coffee, vegetable extracts, vegetable planting materials, vegetable oils, cocoa preparations, tobacco products and rubber products. No global rankings are available.
The products which gained in RCAs in 2012 included coffee, vegetable oils (palm and coconut oils), seafood preparations, tobacco products, and rubber products. By contrast, low RCAs were recorded in fish, vegetable extracts, vegetable planting materials, and cocoa preparations.
It must be noted that Indonesia’s agri-food exports are worth over $40 billion in 2012, dominated by vegetable oil, coffee, rubber products, cocoa and seafoods.
In 2012, Malaysia had RCAs in six products: vegetable oil (ranked No. 2 in the world), cocoa preparation (9), cereal preparation (16), miscellaneous edible preparation (16), tobacco products (23), and rubber products (8).
By contrast, in 2001, the RCAs were in vegetable oils, cocoa preparations, and rubber products. In other words, Malaysia added two competitive products in 2012.
Malaysia’s agri-food exports exceeded $30B in 2012 due to the sheer size of palm oil and rubber products exports.
In 2012, the Philippines had RCAs in nine products: fish, fresh fruits, vegetable extracts (carrageenan), vegetable oils (coconut oil), seafood preparations, sugar and confectioneries, cereal preparations, fruit preparations and tobacco products.
In 2001, the RCA list included fish, fresh fruits, vegetable extracts, seafood preparation, and fruit preparation (mainly pineapple). The Philippines gained two products in the list in 2012.
Philippine agri-food exports did not reach $5B in 2012. The main reason is size. Malaysia exports over $20B of vegetable oil while the Philippines exports just over $1B of coconut oil. Malaysia had about 5 million hectares planted to oil palm, and the Philippines, 3.5 million hectares of low-yield, subsistence coconut farms.
The main factor is massive yield differentials between oil palm and coconut. Except for banana, pineapple and mango, the country has low farm productivity of export crops such as rubber.
In 2012, Singapore had three products with RCAs: cereal preparations, beverages and tobacco products. It had only two products with RCAs in 2001: vegetable planting materials and tobacco products. With little farmland in Singapore, this is understandable. Despite that, it is a thriving agri-food processing center with low power cost and low logistics cost. It exported over $10B in 2012.
In 2012, Thailand had 12 products with RCAs: fish, vegetables, fruits, cereals, milling products, meat and seafood preparations, sugar, cereal preparation, vegetable and fruit preparation, miscellaneous preparation, residues and animal fodder, tobacco products and rubber products. The country is in the world exporters’ league for rice, sugar, canned fish, processed fruits, and rubber.
In 2001, the list comprised 12 products with some exceptions. It included meat products (chicken) but shifted to processed chicken in 2012 due to avian flu. Vegetable was not on the list in 2001.
Thailand exports over $40-B worth of agri-food products annually, with rice, sugar, rubber, fruits, meat and seafood preparations and tapioca starch as main products.
Vietnam is an interesting story. The change between 2001 and 2012 was quite dramatic. In 2012, there were eight products with RCAs: fish, vegetables, fruit and nuts (cashew nuts), coffee, cereals (rice), milling products (tapioca), seafood preparation (mainly shrimps), and rubber products.
The list was longer in 2001, numbering 16. On top of the above, they included dairy and eggs, products of animal origin, oil seed, vegetable extracts, cereal preparation, vegetable and fruit preparation, and miscellaneous edible preparations.
While Vietnam lost RCAs in several products in 2012, it increased exports of fish, fruit and nuts, rice, seafood preparation, and rubber. Aggregate exports reached about $18B in 2012.
MOVING FORWARD
RCA is a good measure of a country’s exports relative to the world market. Comparative advantage is not static as shown by the ASEAN experience. Low RCA can be reversed with good strategy and execution while high RCA can be lost with a bad one.
However, first movers -- such as Malaysia and Indonesia for palm oil, or Malaysia, Indonesia and Thailand for rubber, Indonesia and Vietnam for coffee -- have an advantage. Big industry size is important in market share defense and scale economies.
The Philippines has a good list of competitive exports. The basic problem is size. The country has difficulty in scaling up its exports due to low farm productivity and limited diversification. It also needs quick response mechanism to comply with market access schemes such as the EU Generalized System of Preference Plus. This is imperative as trading partners’ sets of rules can be difficult to comply with.
Size is exacerbated by difficult access for farm expansion, unorganized and fragmented small farms, poor extension services by municipal governments, weak research and development infrastructure, lack of financing for long gestating crops, and inadequate rural infrastructure.
(The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or MAP. The author is the Chair of the MAP Agribusiness and Countryside Development Committee, and the Executive Director of the Center for Food and AgriBusiness of the University of Asia & the Pacific. Send feedback to mapsecretariat@gmail.com and rdyster@gmail.com. For previous articles, visit map.org.ph.)