Vietnamese agriculture and global integration

David Vanzetti and Pham Lan Huong Australian National University and independent consultant

National CGE WorkshopMelbourne, 7th October 2013

Integration and structural adjustment

• Vietnam is signing up to bilateral, regional and multilateral trade agreements

• Structural adjustment– the movement of factors of production

(capital, labour and land) between sectors.• Declining sectors?• Unemployment of factors, particularly

labour?2

Objectives

• Economic integration (four FTAs)• Assess macro and sectoral impacts• Identify need for structural

adjustment

3

Global general equilibrium model

• GTAP• Version 8, base 2007• Bilateral trade and tariffs (2010)• Includes preferential tariffs (needed for FTAs)• Whole economy• Includes resource (land, labour, capital, natural

resources) constraints• Limitation - each country: one region, one

household

4

Scenarios

• Four FTAs• AFTA• China • Korea• Japan

• All simultaneously• Each FTA without exemptions

5

Methodology

• Based on negotiated FTA schedules• Specify bilateral tariff cuts for 5113 products• Aggregate (trade weighted) to 24 sectors by

19 regions using TASTE• Specify baseline growth assumptions• Specify labour and capital market

assumptions• Simulate• Report

6

Exemptions

• Scheduled tariff cuts have exemptions for sensitive products

• Few in number but cover large volume of trade

• These differ by partner• Specify HS 6 level tariff cuts (5113

products) from bilateral applied tariff schedules as negotiated

7

Sectoral coverage

Primary ProcessedRice SugarVegetables fruit and nuts BeefCereal grains nec Pork and poultryCane sugar Dairy productsOther crops Other processed agricultureOilseeds TextilesCattle Motor vehicles and other transOther aninmal products ManufacturesRaw milk ElectronicsForestry Transport & communicationsFishing Business servicesPetroleum and coal products Services and activities NES

8

Reported results

• Welfare (national income) • Imports• Exports• Employment and wage rates• Tariff revenue• Sectoral effects (production and trade)

9

Baseline

10

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 20170

10000

20000

30000

40000

50000

60000

70000

80000

90000

ProjectedSimulated

Historical Projection

Deviation

Schematic representation. Not to scale.

Baseline in steps

112007 2012 2017

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

ProjectedSimulated

Historical Projection

Deviation

Change in FTA tariffs on Vietnam’s exports

12

Rice Veg

Cereals

Crops

Oilsee

dsCatt

le

Animal

produ

ctsSug

arBee

f

Pork&Pou

ltDair

y

Proc. A

g0

5

10

15

20

25

30

35

40

BaseFinal

%

Source. GTAP 2010.

Change in tariffs on Vietnam’s imports

13

Rice Veg

Cereals

Crops

Oilsee

dsCatt

le

Animal

produ

ctsSug

arBee

f

Pork&Pou

ltDair

y

Proc. A

g0

5

10

15

20

25

30

BaseFinal

%

Results

• Macro• Welfare• Exports• Imports• Tariff revenue• Real wages

• Agricultural sector• Output• Exports• Imports

14

Vietnam welfare gainsin 2017 relative to 2012

15

BA

SE

AFT

A

CH

N

JPN

KO

R

ALL

0

5000

10000

15000

20000

25000

30000

$m

Income growth important

Vietnam trade impactsin 2017 relative to base

16

AFT

A

CH

N

JPN

KO

R

ALL

02468

101214161820

ExportsImports

%

Growth in imports exceed imports

Vietnam trade balancein 2017 relative to base

17

AFT

A

CH

N

JPN

KO

R

ALL

-8000

-7000

-6000

-5000

-4000

-3000

-2000

-1000

0

$m

Welfare with and without exemptionsin 2017 relative to base

18

AFT

A

CH

N

JPN

KO

R

ALL

0

1000

2000

3000

4000

5000

6000

7000

ExemptNo exempt

$m

Japanese rice tariffs

Real wagesin 2017 relative to base

19

AFT

A

CH

N

JPN

KO

R

ALL

0

2

4

6

8

10

12

14

16

UnskilledSkilled

%

Fixed employment for skilled labour

Vietnam tariff revenuein 2017 relative to base

20

BA

SE

AFT

A

CH

N

JPN

KO

R

ALL

0

1000

2000

3000

4000

5000

6000

7000

8000

$m

Agricultural sector impacts

• Output• Exports• Imports• Use of land, labour and capital• Factor prices

21

Change in outputin 2017 relative to 2012

22

Ric

eVe

get..

.C

erea

...C

ane.

..O

ther

...O

ils...

Cat

tleO

ther

...R

aw ..

.Fo

re...

Fish

ing

Petr

o...

Suga

rB

eef

Pork

...

Dai

ry...

Oth

er...

Text

iles

Mot

or...

Man

u...

Elec

t...

Tran

...B

usin

...Se

rvi..

.

-20

0

20

40

60

80

100 Base ALL

%

TextilesCassava

Change in exportsin 2017 relative to 2012

23

Ric

e

Veg

Cer

eals

Cro

ps

Oils

eeds

Cat

tle

Ani

mal

pro

duct

s

Suga

r

Bee

f

Pork

&Po

ult

Proc

. Ag

-50

0

50

100

150

BaseALL

%

Cassava

Switch to cassava from other crops

Change in importsin 2017 relative to 2012

24

Veg

Cer

eals

Cro

ps

Oils

eeds

Cat

tle

Ani

mal

pro

duct

s

Suga

r

Bee

f

Pork

&Po

ult

Dai

ry

Proc

. Ag0

20

40

60

80

100

120

BaseALL

%

Processed agriculture.Feed.

Use of factors in agricultureChange in 2017 relative to 2012

25

Rice

Veg. fr

uit an

d nuts

Cereal

grains

nec

Cane s

ugar

Other c

rops

Oilsee

dsCatt

le

Pigs &

poult

ry

Raw m

ilk

Forestr

y

Fishing

Petrole

um et

cSug

arBee

f

Pork an

d chic

ken

Dairy p

roduc

ts

Other p

roc. A

g.

-30

-20

-10

0

10

20

30

40

50

60

70

Land Labour Capital

%

Factor pricesin 2017 relative to 2012

26

Land Unskilled labour

Skilled labour

Capital Natural Res.

-40

-20

0

20

40

60

80

100

BASEALL FTA

%

Summary of macro results

• Income growth important. Changes implemented against background of expanding economy

• Positive welfare effects (national income) from FTAs• Real wage increases• Tariff revenue reduced somewhat• Trade balance negative

27

Policy implications

• Income growth depends on capital (macro policy)• Non-tariff barriers still exist, and may increase• Structural adjustment manageable• Need flexible land, labour and capital markets• WTO virtually completed. No further tariff cuts• Ignored here other FTAs, such as EU, Trans Pacific

Partnership, Regional Comprehensive Economic Partnership

28

The End

29