AN ECONOMIC ANALYSlS OF THE SWINE ENDUSTRY EN TAIWAN Research Report for the Degree of M. S.‘ MiCHlGAN STATE UNIVERSITY CHINE-YUNG UU 1970' .4. n AGRL V. 9 O V‘HCS /« ‘01 i .3? é amines 3., :1 HDAS & 80H? ». BUNK'quggizg; ” MICH. STATE UNiV PLACE IN RETURN BOX to remove this checkout from your record. TO AVOID FINES return on or before date due. DATE DUE WSW DATE DUE DATE DUE E‘UNTVT—’ we chlRC/DataDmpGS—p.“ AN ECONOMIC ANALYSIS OF THE SWINE INDUSTRY IN TAIWAN BY Ching-Yung Liu A RESEARCH REPORT Submitted to Michigan State University in partial fulfillment of the requirements for the degree of MASTER OF SCIENCE Department of Agricultural Economics 1970 ACKNOWLEDGMENT S The writer wishes to express his gratitude to all those who helped with the completion of this study. Special thanks are expressed by the writer to his major professor, Dr. Glynn McBride, for his encouragement, liberality of time, valuable guidance, constant supervision, and recommendation in preparation of this report. His help- ful comments and patient editing of the text of this report are also very gratefully acknowledged. Sincere thanks are expressed to Dr. Lester V. Manderscheid, Dr. Karl T. Wright, and Dr. Mason E. Miller, for their advice, help, and providing information needed in constructing the framework of this study, and for their discussions of, and suggestions for, the first draft of this paper. Thanks are due to Miss Laura Robison and others in the Michigan State University Computer Center for their help in data calculation. Appreciation is also expressed to the Asia Foundation, San Francisco, California, for its financial support which enabled the writer to complete his program at Michigan State University. ii Chapter I. II. III. IV. V. TABLE OF CONTENTS INTRODUCTION . . . . . . . . . . Economic Importance of the Swine Industry in Taiwan . . . . . . . Need for Study . . . . . . . . Objectives of the Study . . . . . Methods and Procedures . . . . . . A REVIEW OF THE HOG SUPPLY . . . . . Trend of Hog Supply . . . . . . . Factors Associated with Changes in the Hog Supply . . . . . . . . Demand . . . . . . . . . . Technology . . . . . . . . . Higher Farm Prices of Hogs . . . . Prices of Inputs . . . . . . A REVIEW OF HOG DEMAND . . . . . . Trend of Pork Demand . . . . . Factors Affecting Changes in Demand Population Growth . . . . . . . Growth of Income . . . . . . . Changes in Pork Prices . . . . . Prices and Quantities of Substitute Meats . . . . . . . . . . . TIME SERIES ANALYSIS OF HOG PRICES . . Secular Trend . . . . . . . . . Cycles in Hog Prices and Production . Seasonal Variation . . . . . . . AN ECONOMIC AND STATISTICAL MODEL OF THE HOG ECONOMY OF TAIWAN . . . . . Major Relationships in the Hog Economy The Economic Model of the Hog Economy . iii Page mob-5H 12 12 l3 16 20 23 23 26 28 30 34 35 39 39 47 55 59 6O 65 VI. BIBLIOGRAPHY APPENDIX The Simplified Economic Model A Statistical Model of the Hog Economy Regression Analysis for the Supply and Demand of Hog SUMMARY, CONCLUSIONS, AND IMPLICATIONS Model I Model II Model I Model II iv Page 68 7O 73 74 75 75 88 94 99 103 LIST OF TABLES The Supply of Hogs in Terms of the Number at the End of Each Year, Number of Slaughtered and Slaughter Weights, Taiwan, 1951-1968 . . . . . . . . The Number and Percentage of Hog Breeds in Taiwan, 1951—1968 . . . . . . . The Number of Hogs Dying from Contagious Diseases, Taiwan, 1951-1968 . . . . The Cost of Feedstuff to Produce a Hundred Kilograms of Hogs in Taiwan, 1965 O O O O O O O I O C 0 Total Consumption and Per Capita Con- sumption of Pork in Taiwan, 1951-1968 . Population Projection in Taiwan for the Coming Twenty-Five Years . . . . . Per Capita Income in Taiwan, 1951—1968 . Farm Price of Hogs in Taiwan, 1951-1968 . Cyclical Fluctuation of Hog Prices at the Farm, Taiwan, 1959-1968 . . . . . . The Cyclical Fluctuations of Hog Pro- duction, Taiwan, 1951-1968 . . . . . Hog Price by Month, Seasonal Index, and Average for the Period, Taiwan, 1951- 1967 . . . . . . . . . . . Data Used in Fitting Supply Function of Hogs, Taiwan, 1951-1968 . . . . . . Data Used in Fitting Demand Function of Hogs, Taiwan, 1951-1968 . . . . . . Page 15 17 20 25 29 32 42 48 51 56 76 77 Page Supply Equation of Hogs in Taiwan, 1951-1968 . . . . . . . . . . . . 90 The Demand Equations of Hog in Taiwan, 1951-1968 . . . . . . . . . 91 The Total Number of Hogs Produced, the Number of Producers Using Common Pro- duction Practices, and the Number and Percentage Using an Integrated Swine Production Program, Taiwan, 1952-1968 . . 103 Costs and Returns of Hog Raising by Regions in Taiwan, 1966 and 1967 . . . . 104 Production Costs for a Hundred Kilogram of Hogs, Taiwan, 1963 and 1967 . . . . . 105 Marketing Margin for a Hundred Kilogram of Hog in Taipei, Taiwan, 1969 . . . . . 107 vi Figure 2-1. LIST OF FIGURES Index of Hog Numbers Available for Slaughter, Numbers at the End of Each Year, and Slaughter Weights, Taiwan, 1951-1968 . . . . . . . Index of Adjusted and Current Hog Prices and Number of Hogs Supplied for Slaughter in Taiwan, 1951-1968 . Index of Total Consumption and Per Capita Consumption for Pork in Taiwan, 1951-1968 . . . . . . . The Determination of Hog Prices in Taiwan 0 O O O O O O O O 0 Hog Prices at the Farm in Taiwan, 1951-1968 . . . . . . . . . Cyclical Fluctuation of Hog Prices at the Farm in Taiwan, 1951-1968 . . Hog Prices at the Farm and Hog Pro— duction in Taiwan, 1951-1968 . . . Hog Prices at the Farm and Hog Pro- duction in Taiwan, 1951-1968 . . . Seasonal Index of Hog Prices at the Farm, Taiwan, 1951-1968 . . . . . The Supply, Demand, and Price Structure for Hog in Taiwan . . . . . . . Marketing Channel of Hogs in Taiwan, 1965 O O O O O O O O O O 0 vii Page 10 19 27 41 43 49 53 54 57 62 106 CHAPTER I INTRODUCTION Economic Importance of the Swine Industry in Taiwan Hogs are an important agricultural product in Taiwan. The industry yields an annual gross product worth NT$5,578,941 thousand dollars ($139,473 thousand). Hogs accounted for 16.6 per cent of the total value of agricul- tural production in 1967, ranking second to rice (36.7%). Hog raising is spread widely over the island, with 651,362, or 79.6 per cent of the total farm households in 1968 engaged in this enterprise. Over 107.7 per cent of the total farm households raised hogs in 1957, while the lowest 1’2 Cash percentage since 1950, 74.2, was recorded in 1968. receipts from the sale of hogs averaged 33.7 per cent of total cash farm income, being the largest single source of 1The number of households which raised hogs was 817,376 in 1957. It was larger than the total number of farm households (759,234) because many non-farm households raised hogs in that year. 2Taiwan Rural Economy (Taiwan: Provincial Food Bureau, 1951-1968). .r'f-r—gru r—-—*-<—-— ..__—— .m—v ' , I- ..A A cash income. Rice which accounted for 28.0 per cent of cash receipts, ranked second.3 Due to increased agricultural population pressure in Taiwan on small-scale farms, cash receipts from the sale of hogs will probably play an even more important role in the future. This is despite the fact that the industry in Taiwan is a sideline business, rather than a large-scale .; specialized business. Farmers raise hogs in order to fl‘;¥ utilize their surplus labor, and some farm by-products fed "4:“ to hogs. In addition, farmers raise hogs in order to in- crease the fertility of the soil by using the manure. The government launched an "Integrated Swine Pro- duction Program" in 1963 which included improvement in hog breeding and artificial insemination. Hog farmers are pro- vided concentrated feeds, veterinary and marketing services, etc. The objectives include: (a) the improvement and modernization of the swine industry, and (b) changing it from a sideline operation to a commercial production. Al- though the objectives are far from being realized, greater use of concentrated feed has shortened the time required for young pigs to reach slaughter weights, has improved breeding programs (such as three-way cross pigs) and there is some indication that hog raising might shift to commer- cial production. 3Taiwan Agricultural Census Report (Taiwan: Provin— cial Department of Agriculture and Forestry, 1960). _.,__ k—3 ,.——-o——- .W ; 2x3» Buy-M .W' Information in regard to consumption of pork also provides evidence of its importance in Taiwan. Among all meats, pork is most commonly and widely consumed by all economic levels of the people in Taiwan. Expenditures for pork represented 16.2 per cent of total family living ex- pense in 1960, ranking second only to rice (24.9%).4 During the last eighteen years the GNP per capita grew at the rate of 6.7 per cent per annum.5 During that same time the per capita consumption of pork increased from 8.78 to 19.61 kg. or an average increase of 6.8 per cent per year. Despite the fact that a slower rate of population growth than that for the past eighteen years is anticiapted6 an increase in per capita income of 4.5 per cent per annum is anticipated by the government in its ten-year Economic Development Plan (covers 1965-1974).7 Pork consumption is, therefore, ex— pched Lo increase further. The report of Urban Area household living consumption expenditure survey, Provincial Taiwan Bank, 1960. 5World Bank Atlas, 1969 (International Bank for Re- construction and Development, 1969). 6Y. T. Chang, Population Growth and Food Production and Consumption in Taiwan (Taiwan: National Taiwan Uni- versity, 1967), pp. 109-10. 7Wen-Fu Hsu, Demand Production of Agricultural Products Relative to Economic Development in Taiwan (Taiwan: National Taiwan University, 1967), p. 8. Need for Study From the foregoing description of recent and pros- pective developments in Taiwan, it is evident that hog raising is a very importnat item in farm income. It is im- portant to the prosperity of the rural economy, to the national income, and is also importnat from the standpoint of nutrition and general welfare. Changing economic and technical conditions in hog production in Taiwan focus at- tention on the value of an economic study of this industry. It is therefore important that a careful analysis of the factors influencing production, price, and consumption, be made in order that such information might be available to the relevant public and private decision makers. Objectives of the Study The purpose of this study is to present an economic analysis of the production, consumption, and price of the swine industry in Taiwan. Some of the important factors relating to that industry will be examined in an attempt to delineate problems and make recommendation for possible solutions. More specifically, the major objectives of this study are: 1. To measure the time trend of changes in pro- duction, price, and consumption of pork resulting from changing economic and technical conditions. 2. To analyze the factors affecting production, price, and consumption of pork, resulting from changing economic, technical, and institutional conditions. 3. To determine the structure of supply, demand, and price of swine, and to establish an economic model using regression analysis. 4. To analyze the prospects and implications of hog production, price, and consumption in Taiwan. Methods and Procedures The major methods applied in this study are analytical and interpretative. Statistical methods will be used to analyze and interpret the economic background and develop- ment of the swine industry, from the available data and material which have been provided by the Provincial Depart— ment of Agriculture and Forestry (PDAF), Council for Inter- national Economic Corporation and Development (CIECD), the Joint Commission on Rural Reconstruction (JCRR), Provincial Food Bureau (PFB), and other government and private agencies. Diagrammatic presentation and regression analysis will be used in an attempt to examine and explain certain economic relationships among the factors relating to production, price, and consumption of swine. The study will be divided into six parts. The first part, or introduction, has portrayed the economic importance of the swine industry in Taiwan, the need for the study, the objectives and methods which will be used. Chapters II, III, and IV will present analyses of the historical data and trends in production, consumption and price. Chapter V will be based on the analysis in the three preceding chapters and will be designed to develop a sta- tistical model of the Taiwan swine industry. Finally, a brief summary and implication of the findings of this study will be presented. CHAPTER II A REVIEW OF THE HOG SUPPLY This chapter will be mainly concerned with time series data, or historical variables of hog production and con- sumption in Taiwan. It will show how production and con- sumption of hogs in Taiwan have developed and are likely to develOp in the future. Long-term trends in the demand for hogs are mostly determined by changes in population growth, national income, patterns of income distribution, and changes in consumption habits of the population. General development of agricultural productivity, changes in tech- niques of production and the like, are major determinants of supply. Generally, the buying decisions of consumers de— termine the demand for pork. Producers' decisions, on the other hand, determine how many hogs they will breed and feed which in turn determines the quantity of pork available to consumers. Decisions of both producers and consumers play an important part in setting pork prices and indirectly in determining hog production. Trend of Hog Supply The record of hog supplies in Taiwan is one of pro- longed expansion except for 1959 and 1960, when the Great Flood of August, 1959, caused enormous damage to crops and livestock. During the past eighteen years the number of hogs available for slaughter, and the number of hogs slaughtered have steadily increased. As shown in Table 2-1, the number of hogs slaughtered was 1,173,926 head in 1951. The number increased to 3,528,859 head in 1968, or an in- crease of over 200 per cent during the period. However, in terms of slaughter weight, the increase has been greater, having increased 289 per cent during the same period (Figure 2-1). On the other hand, the number of hogs at the end of each year had increased only 33 per cent. This suggests gains in productivity which are at- tributable to the whole complex of advancements in hog pro- duction usually referred to under the caption of "new tech- nology." These advancements embrace genetic improvements in breeding, protection from diseases, and better feeds and rations that shorten the time required for young pigs to reach slaughter weight. Effects of these advancements are seen in the increase in the slaughter rate from 60 per cent to 98 per cent during the 1951-1968 period. A more detailed discussion of these factors is in order. If we assume that the hog supply trend is linear in nature and use the method of least squares to fit a trend -—"'. r—‘rn—v—-—~'—- .- .llfiflirk1 I‘l .. e .t..?‘ Hum. .Amemauamma .suomouom cam OHDDHDOHHmé mo pamfiuummmo HMHOCH>OHm "CMBHMBV xoom Hmmw amusuasoflumfl GMBHMB ”condom mm.mmm vom.mmm om.oom mmm.mmm.m oa.mma vmm.oao.m mmmH Hm.mhm nmo.wam Ho.mmm www.mmv.m mh.mma Oho.moo.m bmma am.mmm OHH.NNN Hm.wmm hhm.mao.m om.bma omo.oaa.m momH hm.amm Nav.avm om.mmm mmm.vmo.m mh.mma mom.mmm.m mmma mm.osm mnm.vmm wh.oam mmm.vvm.m ma.oma mmm.hab.m «mma on.mmm Nmm.HH~ Nv.mam «5H.vmm.m Hm.mHH Hmo.whm.m moma om.NmN Hov.ham no.mmm hao.boo.m ma.mNH mHN.HNm.N NmmH ma.hvm wmm.vom mm.wom mom.m~v.m mm.hma mnw.moa.m Hood m¢.mHN va.HmH mN.NmH mmm.mma.m Hm.mma Hum.¢wa.m omma om.Hmm MNH.NmH NH.mmH Hav.mmm.m mm.vva mmo.mwm.m mmma mm.mm~ vmh.mma om.mo~ mow.mnm.m mm.hma www.mhm.m mmmH mm.wom oao.HhH om.hha mmv.mmo.m vm.mma mvm.HHm.m hmma hm.th Oho.mva hv.vwa th.omm.a mv.vma mom.ovo.m mmmd mo.me mma.mma mm.omH 5mm.onn.d wh.mma mom.mmh.m mmma mm.hmH Nam.oma mm.mwa m¢H.mah.H vm.mma mwa.ahm.m vmma mm.mma hav.mNH mo.mma www.mmo.a om.vma www.mam.m mmmH hm.maa mom.mm bH.hOH hwa.mmN.H mv.mHH mmm.oao.m Nmma oo.ooa Hmm.mm oo.ooa wmm.mna.a oo.ooH mom.HwN.N Hmma meCH COB UHHHOZ mecH Gmmm xOUQH Umwm How» Basso: HounmsmHm communmsmHm Hwnfisz Hum» zoom no can one um HmnEdz Aooa u Hmmav .momaramma .cmzfima .munmwwz Hmucmsmam cam communmsmHm Hones: .Hmmm come no use ecu um gonad: onu mo mfiuwu cw moon mo mammsm 059:1.Hrm mqmse Percent 400‘ 380. 3601 340« 320« 300- 2801 260‘ 240- 220: 200i 180‘ 160' 1404 120‘ 100‘ L 1951 ._._.u__Number of hogs at the end of year ------- Number of hogs available for slaughter 1953 V 1955 1957 ' 10 1959 Years V 1961 Total slaughter weight of hogs 1963 v 1965 1967 1968 FIGURE 2-1.--Index of hog numbers available for slaughter, numbers at the end of each year, and slaughter weights, Taiwan, 1951-68. ‘ ‘1' 11 line from the available time-series data of the number of hogs on hand at the end of each year (Nre), the number slaughtered (Ns), and the slaughter weights of hogs (Qs), we obtain three linear trend equations: -_—vv-r'. " M. - —--""" W Nre = 2,815,955.19 + 15,838.43 t (origin 1950) (l) i 1 where t i A Nre is the number at the end of each year % ; t is time in year Arm“ Ns = 1,153,262.12 + 119,297.66 t (origin 1950) (2) where N5 is the number of hogs slaughtered during the year t is time in year 05 = 75,732.14 + 12,337.67 t (origin 1950) (3) where 03 represents the total slaughter weight of hogs during the year in metric tons t is time in year The coefficients of the variables for the above three equations are all positive. They represent the increasing supply of hogs in terms of the number at the end of each year, the number slaughtered, and the total weight of slaughter. As the change ratios are measured different rates of increase are noted. Equations 1, 2, and 3 equal 1.8 per cent, 11 per cent, and 16 per cent, respectively. Total slaughter weights showed the highest rate of increase 12 while the number at the end of each year showed only a slight increase. This suggests that the increased hog sup- ply is attributable not only to the larger number of hogs available for slaughter, but also to the increase in slaughter weights per head. The average slaughter weight increased from seventy-one kilograms to ninety-one kilo- 1 grams during 1951-1968. It is important that explanations for the increase in number of hogs available for slaughter and for the increased slaughter weights be sought. ‘”4 Factors Associated with Changes in the Hog Supply The upward trends in total slaughter weight and the number of hogs available for slaughter probably resulted from several influencing factors. These include: an in- crease in demand, technological progress, favorable hog prices for farmers, prices of inputs, other influences such as government policies, the weather which affects the far- fowing of pigs and sweet potato production. In the follow- ing paragraphs some of these factors will be examined. Demand It is axiomatic that the long-run growth record for any commodity is determined not only by secular trends in its demand but also by the capacity of production to fulfill lTaiwan Agricultural Yearbook (Taiwan: Taiwan Pro- vincial Department of Agriculture and Forestry, 1951- 1968). 13 whatever challenge demand sets for it. Emerging strength or weakness of demand is both a controlling force over pro- duction, and a standard by which its adequacy is measured.2 There are many aspects about the changes in demand for pork. The most influential considerations are: population, na- tional income, consumer's tastes and preferences, and the supply of competing meats. Price induced expansion and contraction of production is the result of the Operation of demand and supply forces. Demand can be stimulated or discouraged over time by the efficiency with which the product is provided to satisfy it. With population in— creasing at the rate of about 3 per cent per year and in- comes at about 4 per cent, these could be important sources of a stronger demand for pork. They will be discussed in greater detail in the later analysis. Technology The supply functions can change as a result of tech- nological progress. Improved technology will shift the supply curve to the right and has probably played a major role in the larger supply of hogs in Taiwan. Increase in crossbred hogs produced.-—One evidence of technological progress in hog raising is the increase of 2Harold F. Breimyer, Demand and Prices for Meat-- Factors Influencing Their Historical Development, Technical Bulletin No. 1253 (Washington, D.C.: United States Depart- ment of Agriculture, 1961), pp. 29-30. ....—_-—..._-——'..,_.—-—.. -w—hr _ ‘. . . 14 crossbred hogs. Three breeds are grown in Taiwan. These are native hogs, western hogs, and crossbred hogs. The native hogs have the advantage of high adaptability to the use of roughages, but about fourteen or sixteen months time is required for young pigs to reach slaughter weight. The ~qa‘w—n -vF—vm— Fr.— . western hogs which are imported for breeding include: Berkshire and Yorkshire from England, and Hampshire, Duroc ' ,{ Jersey, and American Landrace from the United States. All 1 1} of those hogs have the characteristic of rapid growth rates and high feed efficiency, but the pigs have a high mortality in Taiwan. The improved hog is a crossbreed from the native and western hogs. Crossbred pigs have greater efficiency in use of feeds, high protection from disease, and can use ra- tions which shorten by four to six months the time required for young pigs to reach slaughter weights. The percentage of native hogs decreased from 14 per cent to 2.87 per cent in the 1951-1968 period, and crossbred hogs increased from 85 per cent to 96.3 per cent in the same period (Table 2—2). This increase has played a major role in the increased number of hogs available for slaughter. Disease control.--Disease control is another im- portant factor in the increased hog supply. Taiwan is located in subtropical area and there are many disease problems. 15 mo ucefiuummoo HMHOCH>0Hm . ...!W .nmmerHmmH .muumonom one musuasofiumd "CMBHMBV xoom meow Hmnsuasoflums sesame Eonm omaameoo "monsom .Hmmm umma NO one ecu um Hmnfisc one made anon Hogans can 0» Hedge ma new» ecu CH oomflmu mmon m0 Hones: Hmuoea m~.oa mam.amm.a aa.o oaa.am aa.~ aam.aaa maa.moe.o aaaa oo.oa Ham.om~.e am.o aoa.am Ha.m Haa.mm~ aaa.a~m.m seas Na.ma aaa.ama.m aa.o oao.a~ oa.m aaa.omm oaa.aam.e mead aa.ma mma.oaa.m mm.o aaa.aa ma.m aaH.NHN ama.ooa.m maaa oa.aa oaa.maa.m am.o aao.~a em.m oaa.aaa aa~.o~m.m seas em.ma amo.amo.m Hm.o aa~.oa mm.a aae.am~ amo.aa~.m mead am.aa mam.omo.m am.o ooa.aa ao.m oaa.aa~ moo.~am.m «was aa.ma ama.aa~.a mm.o moa.aa oa.m mmo.amm ama.aam.m Haaa oa.ma oma.aam.m 04.0 ama.mm oa.m Hma.mmm aaa.mmm.m oaaa aa.~a aaa.~aa.m av.o mam.a~ mm.a ama.oam Hao.aoa.a aaaa as.ma aaa.aam.m om.o mma.am oa.a aom.aaa aaa.amo.m amaa ao.ma aaa.aao.m am.o aaa.a~ am.a mam.aov adv.mam.m aaaa am.ma Nam.mam.a am.o maa.a~ «H.a maa.Ham Haa.oao.m mmaa om.~a maa.aam.v am.o m-.a~ HH.a aoa.~mm ama.mma.a mmaa mm.aa ama.aam.a ma.o aoa.am a~.HH ama.aam aaa.ama.q amaa Ha.ma aaa.mmo.v om.o ma~.m~ aH.~H maa.aam oam.amo.v mmaa am.ma amo.oma.m mm.o mma.aa om.aa mmm.aam aaa.avm.a mmaa ae.ma mam.aao.m mm.o ama.a ao.aa mam.aom ~ao.emm.m Haas ammo» on» name Mom Ummm ucmu mom Ummm name new ommm CH pomfimm new» mmom counmmouu mmom cumummz moon m>wumz mmom mo Hmnfisz Hmuos .mmmaramma .smzwma CA mommun mo: mo mmmusmoumm can Hmnfidc mzalt.mr~ mqmde 16 The figures in Table 2-3 indicate that hog cholera once was a deadly enemy to swine production in Taiwan. Before 1955 the number of hogs which died from cholera was in the thousands. Since 1955 a strain of lapinized hog cholera virus was introduced from the Philippines and has been widely used for hog vaccination. The number of hogs dying from cholera rapidly decreased until in 1968 there were only 661 head. Similarly, the number of hogs dying from Erysipelas was reduced from 8,785 head in 1951 to 737 head in 1968. Due largely to the effective control of hog cholera and erysipelas, hog mortality caused by contagious diseases has declined from 3.14 per cent to 0.14 per cent during the period 1952-1968. Another important factor which has contributed to hog disease control is livestock insurance by Farmer's Associa- tions. This service was designed to strengthen the control of livestock diseases (hogs are the most important live- stock) and also to protect the interest of livestock husbandmen. This reduced risk and uncertainty and tended to foster increase of numbers available for slaughter. Higher Farm Prices of Hogs Even though farmers are price takers and not in a position to influence prices in the short-run, they will respond to the level of prices they receive and adjust their production accordingly. If the prices are favorable more I III". I...‘ .Illlrllbrr? . Ir\.|.|.. .Ammmatamma .huummuom one musuasowumd mo ucmEunmmmo Hmflocfl>oum sesame ”sesamev xoom meow ensuasoflumfi cmBHma CH camp Eoum UmHHmEou "mousom pmumusmsmHm umnfisc Hepou o s I ooo H x mmmmmmflc msoflmmusoo Eonm mcawm Hmnfidc Hmuou esp I much muflamuuoze l7 ama eee.m Hee em~.e ae.H eeaa aee maa.m mme.H maa.e aa.H aeaa mma meo.e aae aae.e ee.H eeaH eao.a mme.e mam aoa.e aH.~ mead ema.a aoe.m aae em~.e ee.m eeaa eeH.~ ~em.e eom.a eaa.a ae.m mead omm.~ eae.m aam.H mom.a ae.m meaa eam.m eme.e maH.H Haa.a e~.m fleas mea.m mme.m eee mee.e Ha.m oeaa aom.m Hee.m Nae ooa.e aa.~ aeaH aea.m aaa.m oee.a eea.e ~a.~ emaa aam.m aea.~ eaa.e mem.oa ea.e amaa Nae.~ eee.m aee.a aae.ma eo.a emaH aoe.m emm.~ eHe.eH aee.a~ HH.~H eeaa aae.~ oa~.~ mae.mH eHm.aH ae.eH eeaa aaa.~ oam.m oea.ea ama.e~ am.mH meaa Ham.a aHH.a aeH.m~ ame.am ae.Hm mead eea.e Nee.m oae.ea ama.e~ ao.~m Haas lemmas leeway lemmas a mMMWMWMWHm mHmOHHm MHOHOSU mmmmeWn—mmwmmwmufiou «wumm Hmmw . rusmummm mom . mgaamuuoz Hmnfidz Hmuoe . Irrrrrr .mmmaramma .Gm3wme .mmmmmmflc msoflmmucoo Eoum mcHMU moo: we HmQEsc msfirr.mrm mumsa 18 would be subsequently raised for sale. In addition new producers would start raising hogs. If prices are low, farmers tend to reduce the number produced and some farmers will withdraw from this enterprise. Owing to the fluctu- ation of the prices of hogs and feedstuffs, the number of farm households which raised hogs varied considerably during the last eighteen years. The peak was 817,376 households recorded in 1957, and the trough was 651,362 which occurred in 1968.3 In order to see the responsiveness of farmers to change in hog prices in Taiwan, studies were carried out which indicated that farmers respond to favorable prices, provided proper opportunities are given. Lu calculated the elasticity of supply with respect to price at 0.47 for the number of hogs slaughtered and 0.53 for total slaughter weight.4 Mao calculated the correlation coefficient between hog numbers at tne end of each year and hog prices as being 0.98.5 The index of hog prices and the number of hogs sup- plied for slaughter are shown in Figure 2-2. A more in- tensive examination of hog prices is reserved for Chapter IV. 3Taiwan Provincial Food Bureau Year Report, 1952-1968. 4Ming-Hue Lu,'VXStudy of Supply, Demand and Price of Hog in Taiwani'Journal of Agricultural Economics, No. 7 (1969), 64. 5Y. K. Mao, A Studyyof Hog Production in Taiwan (China Food Economics Association, 1968), p. 16. ~ ..- .._ —‘ W .——7——..—-..,___- r-' __ _, Index 19 I 360i Number of hogs supplied for slaughter . 340< -- -Adjusted hog prices at the farm* ' 320) -.--- Current hog prices at the farm I! .‘. - } L l 300. 280. 2601 240‘ 2201 200‘ 180' 160' 1404 1204 ‘ A A ‘ W 1957 1959 1961 1963 1965 1967 1968 Year f 1951 1953 1955 *The current price adjusted with the index numbers of wholesale price in Taipei. Source: For index of number of hog supplied for slaughter, see Table 2-1 for data. For index of hog prices, see Table 4-1 for data. FIGURE 2-2.--Index of adjusted and current hog prices and number of hogs supplied for slaughter in Taiwan, 1951-1968. 20 Prices of Inputs Production costs are an important item which affect profits from producing a product. Prices of feedstuff and feeder pigs are the most important items of production cost. According to Hsu's survey,6 the total cost of feed to -.—.'Ir-.—-‘ . grow a young pig to a hundred kilograms for sale was Air-i NT$1,397. The feedstuff items and the percentage of each item in the ration are shown in Table 2-4. : :5" TABLE 2—4.--The cost of feedstuff to produce a hundred kilo- grams of hogs in Taiwan, 1965. Feedstuff Cost Elements Expense Percent of Total Cost (NT$)* of Feedstuffs Sweet potato 311 22 Sweet potato chop 145 10 Sweet potato vine 216 15 Cassava chop 78 6 Soybean meal 171 12 Rice bran 164 12 Wheat bran 54 4 Fodders of composition of ration 134 10 Surplus meal 40 3 Others 84 6 Total NT$1,397 100 *A U. S. dollar is equal to forty NT dollars. Source: Wen-Fu Hsu, "The Cost Survey of Hogs Raised in Taiwanf'Journal of Taiwan Bank, XIX (1967), 253-54. 6Wen-Fu Hsu, "A Cost Survey of Hogs Raised in Taiwan," Journal of Taiwan Bank, XIX (1967), 253-54. 21 Hog production in Taiwan is largely dependent upon a single feed crop--sweet potatoes, much the same as with corn in the United States. Although some mill feeds are used, sweet potatoes are the main hog feed. Sweet potato prices therefore, provide a measuring stick to determine the ———~WA"WH“‘ F—a '. _ )— .a-u— _ farmer's costs to feed his hogs. The area planted to sweet ‘1? 1 potatoes in Taiwan has decreased slightly year by year since :i’ i 1955, due to the government policy of promoting rice pro— duction. At the same time, the per hectare yield of sweet potatoes for the last fifteen years has increased only 4 per cent.7 Because the production of sweet potato has lagged behind the demand growth, the price of sweet potatoes has tended upward. The equation used to compute price tends of sweet potato chops is: (P5) = 67.77 + 11.80 t (origin 1950) (4) where P8 is the deflated price of sweet potato chop (NT$/100 kg) t is time in year Another important item of production cost is the feeder pig. Only a small portion of Taiwanese farmers have their own brood sows, so most purchase pigs from outside. The average cost was NT$437 per pig in 1965, about one-fifth 7Yen-Tien Chang, Population Growth and Food Production and Consumption in Taiwan (Taiwan: National Taiwan Uni- versity, 1967), pp. 49-50. 22 the total production cost.8 The pig prices trend equation follows: P9 = 976.18 + 122.42 t (origin 1950) (5) where Pg represents the deflated pigs price (NTS/lOO kg) ., f' t is time in year Both equations 4 and 5 indicate that the price of the most important input, sweet potato chops, and of pigs prices, are trending upward. In addition there are non-price factors which seem to be important in hog raising according to Hsu's study. These include: the farm size, farm labor, capacity of pig sty, etc. Hsu's cost survey study gave evidence that even though hog raising is not profitable, almost all farmers (98%) would still like to raise hogs.9 8Hsu, A Cost Survey of Hogs Raised in Taiwan, p. 248. 91bid., p. 258. CHAPTER III fw. A REVIEW OF HOG DEMAND "WV'WFW .—V'__,-..l——r . The area of consumption in the present economy is §_yi¥ very important. In Taiwan meat is of vital account in the h» daily necessities, and pork is the meat which is most com- monly and widely consumed. In this chapter time series data on pork consumption will be used to analyze the changes in demand over time, and an effort will be made to identify the factors affecting the demand for pork. Trend of Pork Demand As stated before, pork is by far the most important food of animal origin in Taiwan. It provides the most im- portant animal fat and protein in Taiwan. This is due mainly to the relatively low price of pork in comparison with other meat products. This low price turn is ascribed to the strong and stable supply of pork from almost every farm family. Taiwan is almost self-sufficient in hog pro- duction, although before 1957 a relatively small amount was imported from neighboring countries. Small amounts have 23 24 been exported to neighboring countries since 1960.1 Since data regarding pork imports and exports being not available, therefore it is assumed that all hogs produced in Taiwan were consumed in the domestic market. Total pork consumption in Taiwan can be obtained by multiplying the live weight by 83 per cent of all hogs to be slaughtered. From the data in Table 3-1 it is noted that total pork consumption was 68,791 metric tons in 1951 and increasing 267,761 metric tons in 1968 for an increase of 289.24 per cent in the eighteen year period. Total con- sumption steadily increased except for the years 1959 and 1960 when, after the Great Flood of August 1959, the govern- ment promulgated a decree prohibiting the slaughter of hogs on Tuesday and Friday during 1959-1960. A simple trend equation from the available time series data is as follows: Qp = 62,875.66 + 10,240.28 t (origin 1950) (6) where Qp = total pork consumption in metric tons t = time in year The positive sign indicates that total pork con- sumption increased during the period. The increase aver- aged 10,240 metric tons or about 16 per cent per annum. lPe-Kung Yen, "Pork Consumption and International Trade," Journal of Taiwan Bank, XVII (1966), 166-67. 2Total consumption increased 16 per cent. Per capita consumption increased almost 7 per cent. For remainder, 9 per cent should represent population increase. Population, however, increased 4 per cent. The reason for the dis- crepancy is not readily apparent. 25 TABLE 3—l.--Total consumption and per capita consumption of pork in Taiwan, 1951-1968. (1951 = 100) Total Consumption* Per Capita Consumption Year Quantity Index Quantity Index (Metric Tons) (Kilograms) 1951 68,791 100.00 8.78 100.00* 1952 77,991 113.74 9.57 108.99 1953 104,926 152.53 12.38 141.00 1954 108,408 157.59 12.39 141.11 1955 114,652 166.67 12.48 142.14 1956 123,396 179.38 12.91 147.04 1957 141,938 206.33 14.46 164.69 1958 165,002 239.86 15.92 181.32 1959 159,462 231.80 14.70 167.42 1960 150,299 218.48 13.92 158.54 1961 170,039 247.18 15.25 173.69 1962 180,442 262.30 15.67 178.47 1963 172,903 251.34 14.80 168.56 1964 186,146 270.59 15.19 173.00 1965 200,372 291.37 15.87 180.75 1966 225,851 328.31 17.38 197.95 1967 261,140 379.61 19.64 223.69 1968 267,761 389.24 19.61 223.35 Source: Taiwan Agricultural Yearbook (Taiwan: Provincial slaughter weight by 83 per cent. Department of Agriculture and Forestry, 1951-1968). *Total consumption was obtained by multiplying total _—,...._'._7 -w» . —-—— "~— -.— 1 . 26 The increase was associated with: (1) population growth, (2) national income growth, (3) changes in prices of substitute meats, and (4) change of consumers preferences and taste. Among all of these factors, population growth is the most important. Data in Table 3-1 and Figure 3-1 show the change in per capita consumption and eliminate the influence of population changes. Per capita consumption increased less rapidly than total consumption during the 1951-1968 period. The simple linear equation was: (9&2) = 9.79 + 0.49 t (origin 1950) (7) where (%E) = per capita consumption in kilograms t = time in year Per capita consumption of pork increased 0.49 kilo- grams per year at an average increase of about 6.8 per cent during the 1951-1968 period. Factors Affectinnghanges in Demand Economic literature is replete with discussions of factors which may affect the demand for agricultural products such as pork. Among these may be: population, national income, price of pork and price of competing (other meats and fish) products,and consumers' tastes and prefer- ence. The upward trend of demand for pork in Taiwan was 27 400. 350~ 3001 250- 2001 150 100‘ Total Consumption ---- Per Capita Consumption so) ‘1' if - - . - 1 1951 1953 1955 1957 ‘ 1959I51961"1963 1955 1967 Years W Source: Taiwan Agricultural Yearbook (Taiwan: Provincial De- partment of AgfiCulture and Forestry, 1951-1968). FIGURE 3-1.--Index of total consumption and per capita consumption for pork in Taiwan, 1951-1968. (1951 = 100) 28 affected by most of these factors but especially population growth and increases in income. Population Growth Population growth has had a much greater affect than growth in per capita income on the demand for agricultural commodities in rapid population growing countries such as Taiwan.3 This is so because a 10 per cent increase in M‘lj population would result in a 10 per cent increase in demand. Taiwan is one of the rapid population growth countries in the world. The population was 7.87 million persons in 1951 and 13.65 million persons in 1968, an average annual rate of increase of 3.2 per cent. It was stated before that total consumption in- creased 16 per cent per annum and per capita consumption increased only 6.8 per cent. This indicates about 60 per cent of the increased demand for pork was associated with the population growth. Projections made by the Taiwan Population Studies Center in 1965 for the coming twenty-five years at two dif- ferent rates of fertility--a high rate of fertility (without family planning) and a low rate of fertility (with family planning)--are shown in Table 3-2. 3Hsu, Demand Projections of Agricultural Products Relative to Economic Development in Taiwan, p. 6. 4Compiled from data obtained from Taiwan Statistical Data Book (Execute Yuan. Republic of China: Council for InternaEional Economic Cooperation and Development, 1966-68). 29 .II'ICI’ .al lam“. .41 I‘ll“! a Inlrlll.‘7Ll|l-r|.lr D. '. .Heuceo meupsum c0uueasmom cmBHeB "eousom mn.m mmm.mmm.vm hm.a mma.mmv.om ommu nm.m mmm.nem.am Hm.a omm.mna.ma mmma mo.m emm.muo.mu mo.m mmm.vmm.ha omma em.m mmo.mam.eu mm.m Hem.amm.ma mhma mm.m mom.mov.va ve.m emn.aam.vu onma It mmm.mve.mu It mmm.mvo.mu mema euem cuBOHU Hmsccc coHumasmom cuBOHU Hmsccc coHueasmom pee» acuccmaa seesaw usoeuuz aaucceam auusmm anus .mumem e>umrmuce3u ocque ecu How ce3ume cu c0uuoenoum couumasmomrr.mrm mamas 30 According to these projections, the low rate of fer- tility has a high probability because the natural increase in population has dropped already from 3.8 per cent in 1953 to 2.7 per cent in 1968. It is believed, therefore, that the growth rate with family planning is most likely. Des- pite the declining rate of growth, the total absolute pop- ulation continues to increase. Thus, increased demand for pork is expected, but at a slower rate than for the past eighteen years. In addition to population growth there are certain population characteristics which influence meat consumption. These are: occupation, family composition, religion,5 and distribution of population in urban or rural areas.6 Even though no data are available in regard to these factors for Taiwan, it is the writer's belief that they are relevant. Growth of Income Data in regard to the First Four-Year Economic De- velopment Plan (1953-1956) indicate that GNP at 1964 con— stant prices increased from NT$40,698 million to NT$54,189 million between 1952 and 1956, or an average annual growth rate of 7.4 per cent. In the Second Four-Year Plan Period 5"Meat Consumption Trends and Patterns," Agricultural Handbook 187 (Washington, D.C.: United States Department of Agriculture, 1960), pp. 20-22. 6Breimyer, Demand and Prices for Meat--Factors Influ- encing their Historical Develgpment, pp. 19-25. 31 (1957-1960) real GNP rose to NT$77,177 million, and an average growth rate of 7.1 per cent per annum was recorded. During the Third Four-Year Plan Period (1961-1964) real GNP increased further to NT$102,492 million with an average annual growth rate of 9.6 per cent. The growth rate during the Fourth Four-Year Plan Period (1965-1968) averaged 10.5 7 Based on the per cent per year between 1965 and 1967. above data it is clear that Taiwan has been experiencing IL rapid economic growth since the early 19503. The government in its ten-year development plan covering 1965-1974 has anticipated a growth rate of 7 per cent per annum with the aggregate national income at 1964 prices estimated at NT$186,010 million and NT$260,888 million in 1975 and 1980, respectively.8 To eliminate the effect of population growth, national income based on per capita income was analyized and the de- tails are shown in Table 3—3. The growth rate of per capita income is less than the growth rate of national income. The average growth in per capita income in the 1951—1968 period was 4.6 per cent and the national income average growth rate was 7.9 per cent per year. The difference was caused by the population growth. 7Te—Tsui Chang,long-Term Projections of Supply, De- mand, and Trade for Selected Agricultural Products in Taiwan (Taiwan: National Taiwan University, 1969), pp. 22-23. (Mimeographed) 8 Ibid., p. 9. TABLE 3-3.--Per capita income in Taiwan, 32 1951-1968. National Income Per Capita Income Year Amount Growth Amount Growth (NT$ million) Rate (NT$) Rate 1951 29,336 -- 3,728 -- 1952 34,307 9.3 4,017 7.8 1953 36,572 6.6 4,146 3.2 1954 38,312 4.8 4,194 1.4 1955 41,801 9.1 4,409 5.1 1956 43,709 4.6 4,450 0.9 1957 46,814 7.1 4,620 3.8 1958 49,185 5.1 4,702 1.8 1959 52,963 7.7 4,901 4.2 1960 56,148 6.0 5,033 2.7 1961 60,779 8.2 5,281 4.9 1962 64,324 5.8 5,419 2.6 1963 72,356 12.5 5,913 9.1 1964 84,686 17.0 6,716 13.6 1965 89,613 5.8 6,903 2.8 1966 96,661 7.9 7,241 4.9 1967 105,528 9.2 7,712 6.5 1968 115,837 9.8 8,271 7.3 Source: Taiwan Statistical Data Book (Execute Yuan, Repub- lic of China: Council for International Economic Cooperation and Development, 1966-1968), pp. 12-13. he“ - — arr ‘:- ’~ 1 - 33 At 1964 prices, adjusted for gain or loss due to change terms of trade, we get a linear trend equation: I = 3219.69 + 261.81 t (origin 1950) (8) where I is per capita real income adjusted with the gain or loss due to the change in terms of trade at 1964 constant price (NT$) t is time in year Changes in per capita income influence the consumption patterns. This relationship is measured by the concept of income elasticity. Many researchers have conducted studies to measure the income elasticity of pork in Taiwan. Hsu9 derived an income elasticity from the semi-log arithmatic function of 0.403. Mao calculated the income elasticity 10 from time series data of pork of 0.53, and Hsia gave a figure of 0.33.11 Even though different income elasticities were all derived, all had positive signs. This indicates that per capita consumption of pork is positively responsive to changes in income. 9Hsu, Demand Production of Agricultural Products Relative to Economic Development in Taiwan, p. 47. loMao, A Study of Hog Production, p. 23. llHun-Jung Hsia, "A Demand Analysis of Hog in Taiwan," .Journal of Agricultural Economics, No. 2 (Taiwan: Taiwan Provincial Chung Hsing University, 1963), p. 146. 34 Changes in Pork Prices When prices go up, the demand for pork declines. The reverse could happen if the price decreases. Changes in quantity demanded due to changes in price can be measured by price elasticity. Hsia calculated the price elasticity for pork in the 1950—1959 period at 1.45.12 The high elasticity shows that demand for pork can be expanded very much if the price is reduced. If the pork price is reduced by one per cent the demand would increase by 1.45 per cent. The data in Table 5—2 shows that pork prices fluctu- ated but trended slightly upward during the 1951-1968 period. It was NT$ 15.8 per kg. in 1951 and increased to NT$ 22.3 kg. in 1968, an increase of 41 per cent in the last eighteen years, or an average annual increase of about 2.2 per cent. There was an increase of pork consumption that took place at a time when pork prices were increasing. This may be contrary to what might be expected. Apparently, the quantity of meat people consume today is still far below the saturation point, and pork provides the most important kind of meat to all levels of people in Taiwan. In the meantime the increase in pork prices are less than those for beef. The average increase rate in beef prices being about 7.4 per cent per year. 12Ibid., p. 128. 35 The linear trend equation of pork prices is as follows: 15.47 + 0.27 t "U II where the deflated pork price (NT$) "U '0 II t is time Prices and Quantities of Substitute Meats In addition to population growth, increase in per capita income and the slight change in pork prices. Con- sumer's preferences and the price of substitute goods are also factors affecting the demand for a commodity. When the price of one food product becomes relatively cheaper most people tend to substitute it for other foods, to some ex- tent. Commodities which may be substituted for pork are: beef, lamb, chicken, and fish (see Table 5-2). The per capita consumption of beef in Taiwan was only 0.65 kg. in 1968. This extremely low production and con- sumption of beef is probably due to lack of pasture land and to certain religious taboos in Taiwan. The quantity of mutton consumed is still smaller, with only 1,018 metric tons or 0.07 kilograms per capita,13 being consumed in 1968. Since it is a food stuff for very few people, and since it is consumed only in winter, it can l3Compiled from Taiwan Agricultural Year Book, p. 251. — H ._.__.—.>_._—~*-—— ~ .. A .. 36 be considered unimportant with respect to the total pro- duction and consumption of meat in Taiwan. Other meats which compete with pork are chicken and fish, even though neither is as readily substitutable as is beef and lamb. Chicken in Taiwan is considered a relatively high-valued or high-priced product compared with most other animal products. The per capita consumption of chicken was 2.05 kilograms per year in 1951 and 3.03 kilograms by 1968. Even though the per capita consumption is still small, the trend is upward. It is generally believed that this is due to the improvement of breeds and better feeding techniques, thus reducing the time required for raising a chicken to marketing weight. Along with production increase and lower relative prices, chickens have become relatively inexpensive as compared with other meats. The price of chicken was NT$ 19.2 per kilogram in 1951 and NT$ 22.4 per kilogram in 1968. Thus, the price of chicken was only slightly higher in the trend than the price of pork and beef. So it is con- sidered that chicken will become more important as a com— petitor to pork consumption in Taiwan. The trend linear equation of per capita consumption of chicken is: (29 = 1.92 + 0.04 t (origin 1950) (9) N where 92 = per capita consumption for chicken in kilo- N grams t = time in year ,.,..,.—. 0""? .1 .-—o 37 PC = 20.73 + 0.23 t (origin 1950) (10) the deflated price of chicken (NT$/Kg) "U 0 II t = time in year Both trend equations showed that production increased about 2 per cent and the deflated price of chicken went up about one per cent per year. Another competing commodity for pork is fish. It is a popular food and an important source of protein in the diet. Hsia computed the rate of substitution of fish for pork at 0.42.14 Therefore, the price of fish and the fish supplied will affect the demand of pork. Per capita con- sumption of fish has showed an increasing trend from 13.34 kilograms to 34.91 kolograms in the period 1951-1968. The average growth rate of per capita consumption was 5.5 per cent per annum. The linear trend equation is: 3;. = 12.91 + 1.17 t (origin 1950) (11) N where 2: = per capita consumption (Kg) N t = time in year The available data show that the deflated price of fish has fluctuated from year to year, but has trended 4Hsia, A Demand Analysis of Hog in Taiwan, p. 152. “Q ,n. .... ~— 38 downward. This may be because of the abundant supply of fish in Taiwan. The linear equation of price of fish is as follows: I Pf = 8.23 - 0.01 t (origin 1950) (12) I {I where ,II Pf = the deflated price of fish per kilogram in NT$ ‘ t = time in year it. In the previous sections it was suggested that the upward trend in aggregated consumption of pork was associ- ated with the growth of population, national income, changes in pork prices, and other relevant factors such as consumer preference and the prices and quantities of substitute com— modities. Among all of those factors, population growth is most important. The increase in national income is next and the changes in hog prices and the price of competing meats is the least important. CHAPTER IV TIME SERIES ANALYSIS OF HOG PRICES r M In this chapter, an attempt will be made to describe jfl;fl and analyze the long-time movement and variations in prices 54 received by producers on an inter-year and intra-year basis and attempt to determine the relationship, if any, between cycles of prices and production. Secular Trend Many statistical series show rising or falling trends over a period of time. If this period is for a decade or so, the change over time is called a secular trend. Such a trend is frequently found in population, production, and prices. Economics literature has pointed out that a very important method of classifying price-making forces has been called "Supply and Demand," price representing an in- teraction of the supply and demand factors in the market. So we can conclude that price movements are associated with changes in supply and in demand. When demand for the product moves to the right more rapidly than the supply, the price will show a trend upward. If the supply curve moves to the right more rapidly than the demand curve, the price 39 40 will tend to move downward. In addition, to the extent of the changes in the supply and demand, inflation or defla- tion of currency is another factor affecting long-time price movements. Before analyzing the trend in hog prices, further examination of some of the factors affecting hog prices should be helpful. ____—____.. ._-__._._. 1M1...” The long-time movement of hog prices in Taiwan, like any other price movement, is related to changes in supply and demand. Some of these were discussed previously in Chapters II and III. They are also breifly shown in Figure 4-1. The information in Table 4—1 and Figure 4-2 shows that hog prices at the farm have moved upward in the period of 1951-1968 except for 1958, 1962, 1966, and 1967. Hog prices, in terms of current dollars, were NT$ 606.57 per 100 kilograms in 1951, increasing to NT$2,181.64 in 1968, an increase of 2.5 times in the last eighteen years, or an average annual increase of about 14 per cent. From 1961 to 1968 they increased about 50 per cent, or an average of 15 per cent a year. Based on the linear trend, the equation of long-run hog prices at the farm is: (Ph) = 526.18 + 97.13 t (origin 1950) 41 moceuuso mo couu Imamep no GOHuMHMCH eeuum mom .cezume CH meeuum moc mo coHumcHEueueU ecBrI.Hrv mmDon .eeceSHmcH mo GOuuoeHHU 30cm m3ouH¢ ”euoz pcefieo xuom mo eeuum muuomxm AmueeE mauuemeoev mumeE Hecuo mo muuucesv no eeuum eeceuemeum .mueESmcoo eEoocH Headmcoe eucemommuo coaueadmom mammsm A.oue .uocmH .enum Shem ..m.ev muouomm oqucoeercoc uecuo muuomEH eswucceeu mcupeeum meeuum mum eeuum mmsumpeem meeuum mom ‘ 42 .Ammmuramma .seeusm poem HmuocH>oum cezume "ceBHMBV uuomem nee» me>usm eouum unusuasouumw ce3uee “eousom .Hemuee CH meouum eummeuocz mo muecesc xepcfl ecu cues peumsmpm eouum ucenuse ecer mm.©NH mm.mvm mm.mmm v®.HmH.N mmma om.©HH mw.Ohm MH.mNm hm.NNm~H homH Oh.ONH NV.Hom vv.wmm mm.mmmea mwma mv.mNH om.©mm mm.©mm vH.Hvo.N mmma Hm.mHH mm.mmm hm.mmm Nm.mHO.N vmmH mm.HHH mm.mmm mm.®om wv.mmmefl mood om.mOH om.omh vo.th mh.®mwafl NmmH mm.mHH mH.mmm VH.mmN mH.mHm.H meH vm.ONH mN.mom mo.mmN NN.mhbeH ommH NM.©HH Hh.m®m mm.ovm mm.mmv.H mmmH Hv.mm mm.NHh om.NmH Ho.mOH.H mmmH mw.HOH mm.mmh ooquH mo.m©H.H hmmH mh.HOH MN.O©B mm.mhd mm.mmo.H mmmH mo.hm NH.mNh mw.NmH MH.©Nm mmmH mH.hOH mN.oom vm.©vH mo.Hmm vmmd mm.vm Nv.mOh mH.hNH hm.Hhh mmmH Nv.©a no.0Nh h©.mHH 50.0Nh NmmH O0.00H mm.®vh O0.00H hm.mom HmmH .mxooH .meOH xech AszV eeunm ercH Amazv eeuum “new reounm peumsflpd eveum uceuusu loos u cease resonaoeux penccsc Hem mHeHHOU CMBHMB BeZ CHV .momalamma .cm3HeB CH mmoc m0 eeflhm Ehehll.Hlv mqm<9 43 4? 2,200- 2,000- ;«" .--'.' l 1' , i ’ I. x i’I 1,8009 ,.: f I.‘ D" ‘.\ " I ' \ .' I , ; f Current prices : " I 1,600- X 1,400- f , - Estimated value : -.--- Actual value 1,200. f I , 000. ' 800. . ' " . . x ,x ‘ 2 Adjusted prices 0.. f: , '\.. '. ‘\\‘.'.' 600( 1951 1953 1955 1957 1959 1961 1963 1965 1967 Year Source: Taiwan Agricultural Price Survey Year Report (Taiwan: Taiwan Provincial Food Bureau, 1951-1968). FIGURE 4-2.--Hog prices at the farm in Taiwan, 1951-1968. 44 where (Ph) = hog price at farm in terms of current NT$ t is time variable (year) The regression coefficient in this equation is a posi— tive value which indicates that hog prices at the farm have gone up NT$97.13 per hundred kilogram per annum, on the average for the eighteen years. I“; To eliminate the changes in the value of currency, he' the hog price at the farm was adjusted with the index of wholesale prices in Taipei. This price is called adjusted price or deflated price of hogs at the farm (see Table 4-1 and Figure 4-2). It shows the changes in hog prices at the farm in terms of real purchasing power. The adjusted hog price at the farm in the period of 1951-1968 increased by 26 per cent or about one and one—half per cent a year. Prices in current dollars increased far more than 26 per cent, indicating that hog prices were highly associated with the inflation of currency. The linear equation of adjusted hog prices at the farm is as follows: Ph = 700.02 + 12.67 t (origin 1950) where Ph is adjusted hog Price at farm in NT$ per 100 kg. t is time variable (year) .._. wraw’ -w‘ T- .__--,.-—.— 1" .u' 22:... _ -I“q-~'g-- 45 The secular trend of hog prices at the farm in terms of current value or adjusted price have shown an upward trend. The only difference between the current value and adjusted price was the former increased faster than the latter. In addition to the currency inflation, demand in— creased faster than supply. Economic theory indicates that when demand for a commodity moves to the right more rapidly than the supply, the price will rise. Some of the factors associated with long-run changes in supply and demand have been explained in Chapters II and III. The rapid growth in the population and income per capita in this island have tended to increase the demand for hogs. The production of hogs in Taiwan for the past eighteen years, due to the technological programs in hog production, has also tended to increase. But the growth rate of supply lagged behind demand. Supply was limited by a shortage of cheap feedstuff and lower profits than from other farm enterprises. When hog numbers available for slaughter each year are taken as the indicator of production and total pork con- sumption each year as an indicator of consumption, and a linear equation for production and consumption is computed, the following results are obtained: Ns 1,153,262.12 + 119,297.66 t (origin 1950) Qp 62,875.66 + 10,240.28 t (origin 1950) . F-W -........—.-___...___. ..._...‘. ____... '- 1.34 3’1». Haw—w. .. , :_.i._.q..__‘ ,..'. _ . .. '-—-, ._ #4 .., l. 46 where 2 U) l - hog number available for slaughter each year 0 II p total pork consumption in metric tons (II,- II time variable (year) The growth rate of production is about 10 per cent and the growth rate of consumption is about 15 per cent. It should be noted that while hog prices are the most important factor affecting the decision in regard to the quantity of hogs raised, hog producers are as much inter- ested in the relative profit they can make as in the actual price they get from the product. From the foregoing analy- sis the fluctuations and upward movements of hog prices at farm during 1951-1968 period have been noted. Hog prices were increasing, but at the same time the prices of several other farm products were also showing an upward trend. This was especially true of some new crop operations such as mushrooms and some livestock products, such as eggs which, were more profitable than hog raising.1 Therefore, many farmers planted mushrooms and engaged in the production of chicken eggs as a sideline business instead of hog raising. This is evidenced by the decreasing number of hog producers since 1957 (see Appendix Table Aél). 1According to the Hsu' study (hog raising cost survey), the net profit per hog when labor is not counted was NT$134. If labor is counted as an expense, the net loss was NT$147 per hog. . — - .. — ... 'flf;_= """‘_."::.AP‘ :=:‘ .. 11:21;- . 5 _-—. . V - . ‘ , --.-- W‘ ”9" -—-——...——...—. flak—ck ._. 47 Cycles in Hog Prices and Production From Table 4-2 and Figure 4-3 it is noted that hog prices, in addition to having trended upward, have also ex- hibited cyclical fluctuations which are the rhythmic move- ment upward and downward, especially in the adjusted prices. g. The results show that the current price has only one- and one-half cycles, while the adjusted hog price has three- and one-half cycles in eighteen years. The difference in (fin the numbers of years in the cycle between the current and adjusted hog prices is related to the inflation of currency. The adjusted data show that the length of the first cycle is four years (1951-1954). The second cycle length is six years (1955-1960), and the third cycle is five years (1961-1965). According to T. C. Wu, the June 1951 to July 1953 period was the first cycle which was about twenty- five months in length. The second cycle was twenty-six months in length (July 1953 to September 1955). The third cycle was forty months in length (September 1955 to January 1959). The fourth cycle was forty-six months (January 1959 to November 1962) in length. The fifth cycle was fifty- eight months in length (November 1962 to September 1967). Wu concluded that hog prices move in characteristic cycles averaging between three and four years.2 The results 2T. C. Wu, Agricultural Price Study in Taiwan (Taiwan: Provincial Department of Agriculture and Forestry, 1968), pp. 44-46. (Mimeographed) lb 1‘ A. 1 . ..- .1- ..l 'JIIII!‘ lvl‘h1‘1‘r’t 1' .v I .1.. .2... . 1| .11 J. ...1|l......l.. Ilul..:ifl‘.. ....|:I 23.1 unit .11H111 . ““11 .Emfiniilair [IA-IL .an manna Eoum pmusmeou "onSOm .ooa 1 sea x m n ofiumu coflumsuosHm HMUHHowu d H .cofiumsvm pawn» ummcfla opp Eoum Umcflmuno mm3 msam> pmumaflumm« 48 mn.a mm.nmm mm.mvm ma.¢ 1 va.mn~.m «m.ama.m mama mm.¢ 1 mH.mHm mv.onm mv.m 1 mm.mna.~ nm.~hm.a pom: Ho.o 1 mm.~om m¢.Hom w~.v 1 on.amo.m mm.mmm.a mom: mm.m om.mmm om.oma mm.~ m¢.vmm.a va.avo.m mead m~.o Hm.hnm mm.mmm om.m am.hmm.a mo.mao.~ «wad am.¢ 1 mm.amm mm.mmm wo.q mo.omn.a m¢.~mm.a mom: ma.h 1 mm.amm om.omn ma.m 1 mm.~mw.a mn.omm.a mama ~v.m ¢~.mmm mH.mam mn.ma mm.mmm.a ma.mam.fl Hem: -.m mm.o~m m~.mom mm.mH mm.mmv.a -.mnn.a coma mh.o mm.mam an.mom mm.m aa.aoq.a mm.mm¢.a mmma no.HH1 hm.aom mm.~an mo.ma1 ma.mom.a Ho.moa.a mmma oh.m 1 Ho.mma ma.mmn mm.m 1 mn.mom.a mo.moa.a 5mm: mo.~ 1 om.m>n mm.oo> Hm.~ 1 Hm.moa.a mm.mmo.a omma m¢.v 1 om.mon ma.mmh Hm.m 1 mm.~ao.a ma.o~m mmma Ho.o mw.omh mm.oom mm.m 1 no.mam mo.amm «mm: ma.« 1 mm.mmh mv.aon nm.o 1 mm.ham sm.-n mmma mo.o 1 mm.mms so.o~h moo.o 1 mm.o~n so.o~> Nmma mn.¢ mm.man om.mvh os.~ 1 He.m~m nm.ooo Hmma Hoaumm .mxooa\maz .mxooa\maz Howumm .mxooa\maz .mxooa\maz coaumsuosam Amy msam> Afiv msHm> cowumsuosHm Amy wsam> Adv msam> Hum» Hmowflomo «wmumswumm om>ummno Hmoaaoao «cmumewumm wm>ummno mmoflum Uwumsncd movaum ucwuuno .mmmalmmma .cm3wma .Eumw may um mmoflum mo: mo coflumsuosam Hmoaao>01|.m1v mqmda Cycle Fluctuation Index F l 49 20- Current prices --..--Adjusted prices 10- 0 .i_ -104 -2o'L , 1951 1953 1955 1957 1959 1961 1963 1965 1967 Year Source: Computed from Table 4-1. FIGURE 4-3.--Cyclical fluctuation of hog prices at the farm in Taiwan, 1951-1968. 50 obtained from using annual data were consistent with the results obtained in using monthly data. These cycles in hog prices are related to opposite cycles in hog production. There is a considerable time lag in the response of production to change in price. The Cobweb Theorem is the theoretical tool that has been used as an explanation for cycles resulting from lags in pro- duction response to price. According to the theorem, a small supply of hogs for market will raise the price of hogs. The rise in the price of hogs induces farmers to raise more hogs and this large supply of hogs will depress hog prices. The low price leads farmers to raise fewer hogs and so on. So a large supply and low price in one period will be followed by a small supply and an accompanying higher price in the next period, which, in turn, will be followed by a large supply and low price and so on. This theorem also indicates that the fluctuation will either increase or decrease in amplitude, or continue at the same level indefinitely, depending upon the slopes of the demand and supply curves.3 3When the elasticity of supply is greater than the elasticity of demand there is a divergent function. When the elasticity of supply is less than the elasticity of de- mand there is a convergent function. When the elasticity of supply is equal to the elasticity of demand there is a continuous function. 51 .AmomHIHmmH .muummuom pcm musuHSOHHmd mo ucofiuummoo Hmflocfl>oum "cmsflmev xoonnmww amusuasoflumm cm3HMB "mousom mm.m oam.nmm voo.mmm mm.m omm.oom.m mmm.mmm.m mmma Hm.oa www.mmm nmm.vam ma.w mmm.ama.m vow.mmv.m nmma mm.o I mma.mnm oaa.mhm am.a I vmo.moo.m www.mao.m coma «v.5 I hm>.omm mav.ahm mv.m I nmn.mvm.m mmm.vmo.m mmma mn.m I mmv.mvm mnm.v- nm.m I mmv.mmm.m omm.vvm.m «mad mm.oaI mma.mmm Nmm.HHm mH.m I Hma.von.m «5H.vmm.m mama mm.m I www.mmm Hov.nam om.o vmm.vmm.m nao.nom.m Nona HH.m I mvv.aam mom.vo~ me.a I omm.mmv.~ mom.mmv.m Homa mo.m I moa.mma vmo.ama Hm.m I mmm.mvm.m mmo.mma.m coma hm.m Huh.mma mma.mma m~.H va.mmm.m Hav.mmm.m mmma mm.ma mmv.vna mmh.mma mo.~a mvm.noa.m mo>.mnm.m mmma om.m woo.mma oao.aha mo.a mvm.mmm.a mmv.mmo.m nmma mn.o I mmn.mva cho.mva om.m mvo.mwm.a Nm>.omm.a wmma mm.o omv.nma mma.mma H~.H omh.mvn.a nmm.onm.a mmma mv.v mmo.mma Nam.oma no.m va.omm.a mva.man.a vmma NH.NH mv>.maa nav.oma mo.m mma.aam.a mmv.mmm.a mmma mv.m I nov.ooa mom.mm Hm.m I 5mm.amm.a noa.mmm.a Nmma mm.m I moo.mm Hmm.~m mh.h I oom.mnm.a mmm.mna.a Hmma Owumm oflumm coflum msHm> 03Hm> coaum msam> mdam> Isuosam pmumEHumm ©m>ummno Isuosam omumeflumm pm>ummno Hum» Hmowfloso Hmoflaomo unmama umunmsmHm Hmuoe Hmuamsmam How mmom mo HmnEsz .mmma1amma .cmsnme .nOwuusuonm mos mo mconumsuusaw Hmowaomo mae11.m1v mamas 52 The application of the theorem depends upon the ful— fillment of three conditions: (1) producers plan for out- put in the next period on the basis of present prices, (2) once production plans are made, they are unalterable until the following time period, and (3) price is determined by the available supply.4 Production of hogs in Taiwan approximates these con- ditions. Price is of major importance in affecting future hog production. Hog production requires ten to twelve months for young pigs to reach slaughter weights. There is some variation in marketing weight in response to price and other factors, but supply is relatively fixed in any given year. When the time-series data on the number of hogs for slaughter and the adjusted hog price at the farm as shown in Figure 4-4 were plotted, the negative relationship be- tween hog prices and production was clearly evident. When measured with the cyclical fluctuation ratio as shown in Figure 4-5, the more regular rhythmic movement of expansion and contraction and the opposite movement in hog prices and the number of hogs for slaughter is noted. 4Arthur A. Harlow, Factors Affecting the Price and Supply of Hogs, Technical Bulletin No. 1274 (Washingtin, D.C.: United States Department of Agriculture, 1962), p. 32. 53 Million 3.5. r940 >910 ’880 ’850 '820 790 -760 .730 Number of hogs avail- able for slaughter ------ Hog adjusted prices .700 at the farm J 4L ‘ A ‘_‘ A v V 1951 1953 1955 1957 1959 1961 1963 1965 1967 Year Source: Number of hogs available for slaughter--see Table 2-1. Adjusted hog price at the farm--see Table 4-1. FIGURE 4-4.--Hog prices at the farm and hog production in Taiwan, 1951-1968. a.—".::-—.. :2 - - .._:_,__ WA 2 .— -w-.—1~’——v——'————— Cycle Fluctuation Index 54 Adjusted hog prices at the farm 15- ---- Slaughter weight U1 _1_ O I U1 o _10. A; T 1953' 1555f 1657' 1559‘ 1561'1563' 1565 I1§67v Years A -15 . 1951 Source: Slaughter weight--see Table 4-3. Adjusted hog prices at the farm—-see Table 4-2. FIGURE 4-5.-—Hog prices at the farm and hog production in Taiwan, 1951-1968. (Measured by cyclical fluctuation Index) 55 Seasonal Variation The prices of most farm products exhibit a regular cyclic movement within the season--from a low price point during the weeks of heaviest market receipts to a high price peak later in the season when supplies are at their lowest.S i) The seasonal index of hog price in the period of 1951-1968 with the monthly data computed using a centered VF twelve-month average method, is shown in Table 4-4 and plotted in Figure 4-6. Although hog raising is on a year- round basis in Taiwan, there is still a seasonal variation in hog prices. These variations stem from interrelated supply and demand factors which change seasonally. In general, from April to August is the hot season in Taiwan. Less meat is consumed during this period and hog price trough seasonally in July. After August hog prices rise and attain a peak in December. It is affected by the weather which is cooler from October to January and also there are many religious and social festivals called Pai-Pai. The Pai-Pai is the great local feast and celebration. Much meat is consumed and pork plays the most important role. The peak prices are in December due to the New Year and lunar New Year which comes in January. 5Geoffrey S. Shepherd, Agricultural Price Analysis (5th ed.; Ames, Iowa: Iowa State University Press, 1964), p. 43. 56 .Ahoma 1amma .smmusm ooom amaoca>oum cmzama "cmsamav mo>usm moan: amusvasoammm cmsama "mousom m.moa m.moa m.ooa m.mm n.mm m.om m.om m.om m.mm a.aoa «.moa n.moa xooca am:0m Imom mmo.m omo.m aao.m amm.a omm.a mmm.a mam.a mmm.a mvm.a nmm.a mnm.a mmo.m homa moo.m mmo.m oao.m mmm.a mmm.a mom.a mvm.a mvm.a mmm.a mmo.m mno.m mmo.m ooma mmo.m ovo.m emo.m mmo.m noo.m moo.m wao.m mao.m mmm.a ovo.m mmo.m moa.m moma moa.m maa.m maa.m omo.m amm.a amm.a omm.a omm.a moo.m aeo.m vmo.m omo.m voma meo.m mmo.~ ovm.a nam.a mmm.a mum.a ovm.a omm.a oom.a mem.a aam.a vam.a moma mno.a amo.a mmo.a mmo.a moo.a mmm.a ooo.a ooo.a mmo.a mmo.a mom.a vmb.a moma amm.a vom.a omn.a mm>.a mum.a ho>.a omm.a m¢>.a emu.a vmm.a mom.a mmo.~ aoma avo.m omm.a mom.a omm.a mvo.a ono.a mmo.a emo.a mmo.a oom.a amh.a Non.a ooma aam.a ooo.a mmo.a mo>.a mam.a omm.a vao.a oom.a mvm.a mam.a mam.a oom.a mmma mom.a aam.a ova.a moo.a mvo.a mvo.a omo.a mao.a ono.a mma.a mma.a vua.a mmma ona.a moa.a mma.a ova.a hma.a nma.a mma.a oma.a «ma.a aom.a mma.a mma.a mmma mma.a ama.a moa.a mmo.a ono.a ano.a mmo.a cho.a Noo.a ooo.a moo.a mmo.a omma meo.a mao.a omm mmm mmm mmm mmm mmm omm vam amm mmm mmma omm aam oom oom omm who mom new mom mmo aam vmm «mma mam mmm wmm com amm mmo mmo mmo mom «mm mmm ooh mmma mm» was mom eon mom oom mom mom mm» New awn vvm mmma men mmm amo aoo vvo mum mvm omm mam vvm mmo omm amma .oma .>oz .uoo .mmm .054 Mann mash mm: ..Hm< .Hmz .nom .cmh mmo» sumo: :.mxooa\wazv .smma1amma .cmzama .GOaHmm ocu “Om mmmumbm paw .xmpsa ancOmmmm .nucoe an ooaum momII.¢Iw mamda Seasonal Index 10 10 9 57 5. 5. A ‘ A - n A A A A 1 Jan March May July Sept Nov Dec Month w Source: See Table 4-4. FIGURE 4-6.--Seasonal index of hog prices at the farm, Taiwan, 1951-1968. 58 On the other hand, March and April are the harvest months for sweet potatoes which are the main feedstuff for hog raising in Taiwan. After the end of the sweet potato production season, many hogs are moved to the market. Hog prices go down from April to July as a result of the in- creasing supply and decreasing consumption. I n . .‘t‘é‘ CHAPTER V AN ECONOMIC AND STATISTICAL MODEL OF THE HOG ECONOMY OF TAIWAN In this chapter an effort will be made to relate variables which theoretically appear to be associated with the hog economy in order to gain some understanding of the nature of the interrelationship involved. In any modern econometric investigation a few major steps are involved. These are: (l) specifying the system of relationships that are believed to have produced the observed data, (2) ascer- taining whether these relationships can be identified for purpose of statistical analysis, (3) making the statistical analysis, and (4) interpreting the results.1 The first requires a knowledge of economic theory and of the particular relationships that hold for the commodity under consideration.2 A diagram of the supply, demand, and price structure of the hog economy is presented first in order to help understand the nature of the interrelationship 1Karl A. Fox, The Analysis of Demand for Farm Products, Technical Bulletin No. 1081 TWashington, D.C.: United States Department of Agriculture, 1953), p. 8. 2 Ibid. 59 60 involved. Then, based on the relationships which are pre- sented graphically on the supply, demand, and price structure, an effort will be made to ascertain whether a particular set of relationships can be identified, and, if so, formulate an economic and statistical model. Lastly, a F statistical analysis of the factors that affect supply, de- fj mand, and price of hog based on the data is made. 3? According to Foote3 the measurement of supply and de- mand is a complicated subject. Competent analysis requires three things. First, the analyst must have a thorough knowledge of the economic factors that affect the commodity and obtain adequate data on which to base the analysis. Second, he must understand economic theory in general. Third, he must be able to use modern techniques of analysis. The writer does not possess all the three requirements, but will try to do his best to learn something from this analysis. Major Relationships in the Hog Economy Diagrams that show the flow of commodities from pro- ducers to consumers in terms either of physical products or marketing demand and supply have been used for a long time. Albert M. Hermin used diagrams of the structure of price- making for wool to help in the price analysis of 3Richard J. Foote, "Analytical Tools for Studying De- mand and Price Structures," Agricultural Handbook No. 146 (Washington, D.C.: United States Department of Agriculture, 1958), p. l. 61 apparel wool.4 Sidney J. Armore has used diagrams of the economic factors affected by a change in the yield of cottonseed oil.5 K. A. Fox has studied the demand and supply structures for perishable crops.6 Such diagrams are useful in showing the relationships that affect the struc- i ture of demand, supply, and price of a commodity. These 5) diagrams may be used: (1) to help the analyst think through basic factors and relationships involved, (2) to aid in the preparation of a logical analysis and writings of the eco- nomic structure of the industry, and (3) to assist the reader in following fairly complex relationships and dis— cussion. A diagram of the hog economy in Taiwan for statistical measurement of the major economic relationships and vari- ables is presented in Figure 5-1. Items that represent physical quantities are shown in boxes, while factors repre- senting price and value appear in circles. The many forces 4Albert M. Hermin, Price of Apparel Wool, Technical Bulletin No. 1041 (Washington, D.C.: United States Depart- ment of Agriculture, 1959), p. 48. 5Sidney J. Armore, The Demand and Price Structure for Food Fats and Oils, Technical Bulletin No. 1069 (Washington, D.C.: United States Department of Agriculture, 1953), p. 69. 6Fox, The Analysis of Demand for Farm Products, p. 99. 7Foote, Analytical Tools for Studying Demand and Price Structures, p. l. 62 Other Capacity Farm Farm Price Pig Factors of Size Labor of Prices Pig Sty Feed- P8 0 C F L Stuff I L T I Pa 45 /° Households Producing Hogs and Number of Hogs Raised Production Practices \ Number of Hogs for Sale Nr /" Number of Hogs at the End of the Year I W Average Weight Sold Nre Total Weight of Sale ws The Hog Number at the End of J Previous Year Slaughtered r ........... Weight Price of 1 98 I : We 1 Pb Pc Pf 1'1 __ _____ Pork ‘ Exportla A Production ‘ Qpe QP Supply of l Other Meats* Consumer Pork Qb QC Qf Preference Consumption ¢ L__9 op Population N Disposable Consumer Income I *Other meats include beef, chicken, and fish. Note: Arrows show direction of influence. Prices of Hog Ph F , fl 1Market1ng. FIGURE S-l.--The supply, demand, and price structure for hog in Taiwan. System I t Retail Price of Pork Pp General Price Level 63 that enter into or effect the marketing system are included within a single dash (-). The solid lines connecting the various items indicate the more important factors. Broken lines indicate factors that are relatively minor or operate only occasionally. Arrows indicate the principal directions of influence for each factor. Double pointed arrows indi- cate factors that are believed to be simultaneously related. The symbols in some of the boxes and circles refer to the variables listed and to the equation on the economic and statistical models. But not all the factors that appear in the diagram are included in the equation (statistical model), because of data limitations and the requirement that the model be statistically manageable. In the diagram a simultaneous relationship is indi- cated between the supply, demand, and price. In a market economy, prices are determined by the interaction of demand and supply so the factors which influence the supply and demand for hogs in Taiwan should be examined. The supply in Taiwan is determined in part by the number of households raising hogs and the number of hogs raised by each household. It is assumed that farmers ad- just their hog enterprise directly according to the follow- ing variables: (a) farm prices of marketable hogs, (b) feeder pig prices, (c) prices of feedstuffs, like sweet potato chOp and soybean cake, etc., (d) the quantity of available by-products at the farm, (e) the supply of farm labor, (f) farm size, (9) capacity of the pig sty, (h) fi'o' f:’....:|’-'-—. M- 64 estimated relative profitability of competing enterprises, and (i) other affecting factors. The first three of these factors are called price factors while the others are called non-price factors. Usually, when the farmers have a large size farm, surplus farm labor, enough space in the pig sty, and suffi- cient available by-product at farm, a reduction in the 5, price of feedstuff or feeder pigs, or a favorable hog price gi at the farm, these will be an incentive to increase the H number of households raising hogs and the number of hogs raised per farm. This will be examined later. After de- ciding how many hogs to raise, the number of hogs to be sold, the average weight at sale time will be decided. Finally, through the process of slaughter, the total supply of pork at market will be determined. The demand for pork is a function of many variables as discussed previously. The retail price of pork is a function of the total demand and total supply put on the market, assuming free competition. The retail price of pork from which the marketing costs are deducted will influence the number of hogs for sale and the average weight for sale in short-run. For the long-run, this price will influence the number of house- holds raising hogs and the number of hogs raised. The current farm price of hogs will affect the number of producers and the number of hogs raised in the next peri- od, and results in what is called a "causal chain" cycle. 65 The Economic Model of the Hog Economy The set of structures that are compatible with the investigator's advance assumptions about the statistical universe from which the data are drawn is called a model.8 The term economic model is applied to the set of structures consistent with the assumptions developed by the investi— gator from economic theory and knowledge of existing factors that relate to a particular commodity area. Thus an eco— nomic model is a set of equations that is consistent with the relationship and identities implied by the diagram.9 According to the simple description of the relation- ships from the diagram of the supply, demand, and price structure for hogs, a model of supply and demand for hogs is provided as supply and demand functions. In order to ex- press the nature of the interrelationship involved in each function conveniently, symbolic forms of the variables in- volved are used. In general, the mnemonic device of denot- ing each variable by its first letter is followed although there are some exceptions to prevent duplication. For a lagged variable t-l indicates a yearly lag for instance, Ph(t-l) refers to the hog prices at the farm in the previous year. Variables in the model are defined as follows: 8Foote, Analytical Tools for Studying Demand and Price Structures, p. 7. 91bid. 66 Nr = number of hogs produced (head) Nre = number of hogs at the end of each year (head) Ns = number of hogs available for slaughter (head) W = average weight for sale per hog (kg) Ne = number of hogs for export (head) WS total weight of hogs for sale (metric ton) Wse = total weight of hog for export (metric ton) 05 = total slaughter weight (metric ton) Qp = total quantity of pork produced (metric ton) Qpe = total quantity of pork for export (metric ton) Pp = deflated retail price of pork (NT$/Kg) Ph = deflated hog price at the farm (NT$/100Kg) Ps = deflated price of sweet potato chOps (NT$/100Kg) Pg = deflated price of feeder pigs (NT$/100Kg) Pc = deflated price of chicken (NT$/Kg) Pb = deflated price of beef (NT$/Kg) Pf = deflated price of fish (NT$/Kg) Qc = total quantity of chicken for market (metric ton) (supply for consumption) Qb = total quantity of beef for market (metric ton) Qf = total quantity of fish for market (metric ton) pr = quantity of available by—product at farm L = supply of labor at the farm C = capacity of pig sty F = farm size (hectare) N = population (person) Phe = price of hogs for export (NT$/lOOKg) 67 Ppe = price of pork for export (NT$/kg) I = per capita income (NT$) M = marketing cost (NT$) O = other factors In the language that has been developed to consider . .. -.. ——vw— statistical analysis of economic relationships, the variable 1‘..;:.1l.'.'..'._"-3 7 ' whose values are explained by the structure are called endogenous variables, whereas those whose values are deter- mined outside the structure are called exogenous.lo In general, complete models are required if we wish to derive estimates to be used for analytical purposes and for prediction, If we are interested only in ascertaining the probably magnitude of certain coefficients then, at times, a complete model is not required.11 Foote also pointed out that balancing of the total number of endoge- nous variable with the total number of relationships frequently helps in the basic formulation of the model. After the complete model has been written down in symbolic forms, a decision may be reached at a later stage to fit statistically only part of the equations.12 Based on the complete model principle that one equation is needed for each endogenous variable, and according to the factors believed to be influential in the hog economy in Taiwan, there are twelve equations for an 10 11 12 Ibid., p. 8. Ibid., p. 9. Ibid., EL 10. 68 economic model which take the endogenous variables as de- pendent variables. N re Ph They are written: f (Ph (t-l),Pg, PS, F, L, c, pr, 0) (5—1) f (ph, Pg, Ps' F, L, c, pr, 0) (5—2) N + Nre (t-l) - Nre (5-3) f (ph, p8, F, L, c, pr, 0) (5-4) W x Ns (5'5) wS - wse (5-6) f (ph, Phe! M, 0) (5-7) f (Ph, Ppe, M, 0) (5-8) 08 - Qpe (5—9) f (32' 32’ 32’ 3E? I) (5—10) N N N N f (Pp. Pb, Pc' Pf, I) (5—11) f (Pp, M) (5—12) The Simplified Economic Model Among the twelve equations the endogenous variables are taken as dependent variables. equations (5-3, 5-5, 5-6, 5-9) which could be eliminated by There are four constant putting these variables in other equations. Of the eight 69 remaining equations, two are related to the export of hogs and pork. It has been mentioned before that the amount of exports was negligible. Another equation is associated with the price of pork and the price of hogs. The differ- ence is the marketing cost and can be treated as one. Therefore, the twelve equations have been reduced to five. fl Among these five equations, three are supply functions % in terms of three dependent variables including the number of hogs produced, the total sale weight of hogs, and the number of hogs at the end of the year. The other two equations are demand functions, in terms of hog prices at the farm and per capita consumption, as dependent variables. The simplified economic model of hog economy of Taiwan is: Supply functions Ns = f (Ph (t-l), Pg, PS, F, L, G, (5-13) prI 0) QS = f (Ph (t-l), Pg, PS, F, L, c, (5—14) prI 0) Nre = f (Ph (t-l), Pg, Ps' F, L, C, (5_15) Demand functions Pp = f (9&1 Q_br 321 3.15.1 I) (5-16) N N N N 22 = f (Pp, Pb’ PC’ Pf, I) (5‘17) N 70 Included in the supply function are the independent vari- ables of farm size, quantity available by-products at the farm, supply of labor, capacity of pig sties, and other factors. These are considered very stable in the short run. These exogenous variables are assumed as being constant. The supply functions are rewritten as: NS = f (Ph (Ii-1): Pgl PS / F! L! C: prl 0) (5‘18) 08 = f (Pb “3.1)! Pg: PS / Fl LI CI prl 0) (5'19) Nre = f (Ph (t-l) , Pg, PS / F, L, C, pr, O) (5'20) A Statistical Model of the Hog Economy After formulating the economic model, the difficult task of locating or developing the necessary data and de- ciding upon the exact nature of the variables and relations 13 The structural relations must to be used must be faced. be provided and it is necessary to make additional assumptions. For example, the algebraic form of the rela- tions and the specific way in which the relations are af- fected by unobserved influence must be specified. In for- mulating a statistical model the nature of the economic system to be analyzed should determine the type of equation to be used and the method used in fitting them.14 13Karl A. Fox, Econometric Analysis for Public Policy (Ames,Iowa: Iowa State University Press, 1960), p. 35. l4Harlow, Factors Affecting the Price and Supply of Hogs, p. 66. 71 A statistical analysis of the supply and demand for hogs, based on the economic system equations which have been discussed earlier, is presented. A random disturbance 2 term for each equation is added because the structural re- lations may include an unexplained residual. The assumptions made in this connection are: 4.. 5"" l. The means of the disturbance terms in each equation are zero. 1 2. The variances are constant and independent of the independent variables. 3. The various values of the disturbance terms are independent. The general equations of statistical form for the supply and demand functions of the simplified economic models are: Supplyffunctions: Ns = f (Ph (t-l), pg, PS) + U1 (5—21) 05 = f (Ph (t-l)r Pg: PS) + U2 (5‘22) Nre = f (Ph (t-l), Pg, PS) + U3 (5—23) Demand functions: pp = f (92: 922 92: 9f: I) + 114 (5—24) N N N 22 = f (pp, Pb, pc, pf, I) + U5 (5—25) N 72 where U1, U2, U3, U4, and U5 are residual or error terms. There are many different forms of equations which may be used to represent different relationships of involved factors in the equation. In this study, the Cobb—Douglas function model is applied. The general form is: fihmm Jun- y = Bo XiBi + U N = 1.2... n 1.71.4 where . —... -1... .u. y is the dependent variable B0 is intercept Xi is the independent variable Bi is the regression coefficient for each independent variable. U is residual or error terms The Cobb-Douglas function has the advantage that the regression coefficients of price, quantity, and income are immediately price and income elasticities of supply or de- mand respectively. In the meantime, the elasticities de— rived from this type of equation are constant in value no matter how the quantity of supply and demand may change. In this study, the equations of supply and demand are ex- pressed in logarithmic terms. For the statistical analysis an attempt is made to identify the effects of time for the supply and demand for hogs in Taiwan. Each equation will be analyzed by two models, one using time as a variable and another which does not. Based on the general linear statistical model, 7 3 the regression equations of the supply and demand for hogs in logarithmic form by two different models are: Model I Supply functions: log Ns = BC + Bl log B3 log Ps + log Qs = BO + Bl log B3 log PS + log Nre = BO + B1 log B3 log PS + Demand functions: log Pp = BO + B1 log B3 log 83 N B5 log I + U4 log Ep_= BC + Bl log P N B3 log PC + B4 log Pf + B5 log I + U1 Ph U2 IT P (t"l) + B2 log P (t-l) + B2 log P (t-l) + B2 log P + 82 log 82 + N + B4 log BE + N + B2 log Pb + g g g + + + (5-26) (5-27) (5-28) (5-29) (5-30) ‘H-r*m _1- ~ Model where II Supply funct 74 log NS = BO I DJ 109 05 log Nre = B Demand functions: log Pp = B0 B3 BS log 3p = BO N B3 B6 U's are the ions: + Bl log Ph (t-l) + 32 109 P9 + (5-31) log Ps + B4 log t + U6 H .. 2i + Bl log Ph (t l) + B2 109 P9 + (5-32) 1 log PS + B4 109 t + U7 v l + B1 109 Ph (t'l) + 32 109 P9 + (5-33) log PS + B4 109 t + U8 Q Q + Bl log _2_ + 32 109 .9 + N N log 83 + B4 109 E: + (5-34) N N log I + B6 log t + U9 + Bl log Pp + B2 109 Pb + log Pc + B4 log Pf + B5 log I + (5-35) log t + U10 random disturbance term for each equation. The simplest set of assumptions would be to state that: (l) the means of the disturbance terms in each equation are zero, (2) the variances are constant and independent of the independent variable, and (3) the various values of the disturbance terms are inde— pendent. 75 Regression Analysis for the Supply and Demand of Hog Based on the conditions depicted in the theoretical, economic, and statistical models, ten regression equations for the supply and demand functions of hog with the two models were derived and fitted to data (Tables 5-1 and 5-2) of 1951-1968 period with the least square method used to 15 estimate regression coefficients. The empirical results, are as follow: Model I Supply function: 1. Using the number of hogs available for slaughter as the dependent variable, the following supply equation was obtained. log NS = 1.29 + 2.14a log Ph (t-l) - (0.59) (5-36) 0.188 log pg - 0.30e log p5 —-- (0.24) (0.34) R2 = 0.58 s = 0.089 About 58 per cent of the change of hog supplies in terms of the number of hogs available for slaughter is 15Here and in subsequent equations, (a) = significant at l per cent level; (b) = significant at 5 per cent level; (c) = significant at 10 per cent level; (d) = significant at 20 per cent level; and (e) = significant at 40 per cent level. 76 .Amomalooma .ucmEQOaw>mo mam GOaumummoou anocoom amc0aumcumucH MOM aaocsou ”mCacu mo Uaansmmm .cmsw ousowxmv xoom mumo amoaumaumum cm3am9 may Eoum mum xuau amdame m0 xmpCa moaum mammmaon3 on» MOM mump one .poauwm mmmn on» mm Nmma usaxmu .muau amdame wo xmpca woaud mammmaoc3 on» mcams mooaud pmumawmp mumz mmoaum may aa¢ .Asmousm poom amaUCa>oum "cm3amev MDHOQWm awummw No>u9m moaum amnsuasoaumm cm3ama mnu Eoum mum mono QumuOQ umozm oo moaud pcm .mmam mo moanm .mmo: mo mOaHm may MOM mumo .Amuummuom mam musuasoaumm mo ucosuumdmo "cmzamev momauamma .xoonumm» amusuaDUaum< cm3ame onu Eouw mum mmo: mo unmam3 monounmsmam amuou pom umucmsmam new mmo: mo Hones: “ummm mo ocm mnu um mo: mo umnEdz ”mousom .manmaam>m uoc mum mumo: ov.ooa mm.amo.a mm.mvm voo.mmm mmm.mmm.m vom.oao.m ma moma mo.ooa m~.omo.a mv.o>m mmo.vam «on.mmv.m ono.moo.m ma noma me.~oa oo.mm~.a ~v.aom oaa.~n~ nnm.mao.m ooo.oaa.m oa ooma oa.oaa mo.a~o.a om.omm mav.avm mmm.vmo.m mom.mmm.m ma moma nm.~m vn.mmv.a mm.mmm mum.em~ omo.vvm.m ~mm.>am.~ va voma nm.m~a em.oao.a mm.mmm ~mm.aam vea.qom.~ amo.omo.m ma moma ~m.maa ov.mmo.a om.omn aov.nam mao.>oo.m ma~.a~m.N ma moma mm.maa mm.vm~.a ma.mmm oom.vo~ mom.mmv.~ omv.moa.m aa aoma na.m~a na.onm.a m~.mom vmo.ama mmo.mma.~ anm.¢oa.m oa ooma mm.h> ma.m>m.a aw.mom mma.~ma aav.mm~.~ mmo.mo~.m m mmma om.nm mv.mmm mm.mam mmh.mma mon.mmm.m ~mm.mmm.m m mmma mo.moa oa.v~o.a mm.mmm oao.ana mm¢.mmo.~ mvm.aam.m m emma vm.moa mv.mva.a mm.oon ono.mva ~mm.omm.a moo.ovo.m o omma m~.>m am.om~.a ma.m~m mma.mma nmm.onn.a mom.mmm.~ m mmma aa.an mo.~m~.a m~.oom mao.oma mva.man.a moa.a>m.m v coma m~.aoa ao.oom «v.mo~ nav.o~a mmv.~mo.a vom.mam.~ m mmma ma.mm « no.o~n oom.mm noa.mmm.a mmm.oao.~ m mmma ma.ao « om.ovn amm.mm omm.mna.a oom.ao~.~ a amma mxooa\mez Acoe oauumzc mane mxooaxwez mxooaxmez mmom swimmmmc uhmmmmw oumuom mmam mmom mo unmamz aw: mmwm c o» w m mEaB umww uomzm mo ovaum mo moaum monounmsmam mo wmnEdm mommmmonwmmadz mo moaum amuoe .momauamma .cmzamB .mmoc mo scauocsM madman mcauuam Ca poms mumoII.aIm mamm mvlm om.o amo.o om.o mmv.o mom.OI 9mm.OI Oom.o mo.o mmo: m0 HOQESZ ouz mmo» on» Ama.ov Ama.ov ANm.ov mo flaw ms» um mMIm oa.o mmo.o hm.o mo.0I mo.OI va.o on.o moon m0 Hmflfidz m0 unmamz Aa~.ov Ame.ov mmumuamsmam H am1m mo.m mmo.o mm.o 0mm.o1 ma.o1 8mm.m a~.a amnoe mz Hounmsmam Avm.ov Amm.ov Mom manmaam>m oMIm va.m mmo.o mm.o mom.OI Oma.OI mva.m mN.a mmo: mo Hmnfisz magnum ma mono mm iamwwma om umnesz mo u oumuom oabmaum> soaumsvm muaoau m mm mEaB umozm moaum m90a>oum soaudmo esopcmmmo ammo: IMMHW MO UUHHQ GHQ CH IHQUCH . moaum mom .momalamma .smzame ca mmo: m0 ceaumsvm hammsmII.MIm mamfla 91. :aa.ob amm.ov ivm.ov akm.oo im~.oc amm.oa xuoa mo 541m em.a mmo.o am.o va.o amo.o mam.o 6mm.o mom.o mqm.a1 e~.~1 ceaua85mcou mbammo uom a amo.ov amm.ov Avm.ov amv.ov aa~.ov av~.ov a ov1m no.~ -o.o mm.o mmo.o 6mm.o omv.o -.o mo.o 0mm.o1 aw.o1 mmoaaa aa xuoa a imo.oo amm.oc am..o. amm.ol aoo.ov ak~.oa a mv1m mv.~ amo.o mm.o mo.o 0mm.o a~.o onv.o oma.o1 av. 1 m~.o mmoaua m xuoa im~.oc ia~.ov imm.ov aa~.oo .aa.ov “you no . . . mm.o mm.o oo.a mm.o aN.aI vo.m1 :Oau Edmcoo av1m am a mmo o mm o m 0 o m m muaamo awn . . . . a avm ob ama.oc Ana oaamao ob 1mm ob a ov1m he.~ -o.o am.o mav.o mma.o m~.o moo.o om.o1 am.o1 mmoaua a xuom . a iom.oc im~.o. aa~.ol amo.oe im~.ov a ma1m om.~ omo.o mm.o mo~.o mam.” 1mv.o mma.o1 mov.o1 ma.o mmoaua W xuom H u U D Q IHI 1“ .MI 12 sonsnz suaoaummam mtouca a a a a mm 0c n mm ammo mmanmaam> . m m asap - -1 : 1. 2 ammo: COaumswm vcmfioa N mbaomu swam sexuano Moon xxc 1m.n rmxoanu umom xuom IumucH acmpcodwo Hod mo moaum pmumaumo Mom Gnaudfidmcou muammu mom .mm1amma .umaamu ca mo: no macaumsmo census 0:911.v1m mamas 92 technological or institutional changes. These estimates are consistent with what was found in Chapter 2. In addition to having a larger coefficient of deter- mination for the supply function, it was found that the supply elasticity of hogs becomes smaller, except in the case of the equation of the number of hogs at the end of the year. The elasticity of supply reduced from 2.14 to 0.30 in the equations 5-36 and 5-42, and from 2.68 to 0.42 in the equations 5-37 and 5-43. This implies that when the time variable is used the hog supply is indicated as become more inelastic. The coefficient of independent time variable for the three supply equations in terms of the numbers of hogs available for slaughter (NS), total slaughter weight (Qs), and the number of hogs at the end of the year (Nre) have the expected sign. They are also larger than their standard error and are significantly different from zero at the l per cent level, except for equation 5-44. An increase of l per cent in time was associated with 0.43 and 0.53 per cent in- crease in the number of hogs available for slaughter and total slaughter weight, respectively. Similarly, a 10 per cent change in time was associated with 0.4 per cent change in the same direction in the number of hogs at the end of the year, other things held constant. For the demand equations, the independent time vari- able was less important than in the supply equation. The 93 determination coefficients of these demand equations are increased from 0.81 to 0.83 in equations 5-40 and 5-46, from 0.85 to 0.87 in equations 5-41 and 5-47, and equations 5-39 and 5-45 are unchanged. This implies that about 2 per cent of the variation in pork prices and per capita consumption of pork can be explained by the variation of time. How- ever, the other demand equation which used the per capita consumption of meats as an independent variable, and the price of pork as a dependent variable, showed no influence by the passage of time. All coefficients of the time variable for the three demand equations are larger than their standard errors and have the expected signs, and are significantly different from zero at the 40 per cent level except for equation 5-45. However, the effects of the time variable upon the dependent variable are not as large as for the supply equations. An increase of 1 per cent in time is associated with 0.03 per cent increase in the pork price (use quantity as variables). Similarly, a 1 per cent change in time was associated with 0.09 and 0.14 per cent changes in pork prices (using price as an independent variable) and per capita consumption of pork, in the same direction, with other things remaining equal. CHAPTER VI SUMMARY, CONCLUSIONS, AND IMPLICATIONS In this study an attempt has been made to analyze and interpret the economic background and development of the swine industry in Taiwan. Data for the 1951-1968 period were used. The findings of this study have certain impli- cations for policy. A summary of the findings, along with the implications for policy, are discussed below: 1. Hogs are an important product for Taiwan farmers. The total production value of hogs is second to rice in Taiwan; Consumption of pork also occupies an important position. In total family living expenses, expenditure for pork ranks second to rice. This means that government policy for the swine industry is not only important for producers and the prosperity of the rural economy and na- tional income, from the standpoint of nutrition and social welfare. It is therefore important that a careful analysis of the factors affecting production, consumption, and price be made. 2. An analysis of the demand and supply of hogs, using the number of hogs available for slaughter each year as an indication of production, and total pork consumption 94 95 each year as an indicator of consumption was made. The growth rate of production has lagged behind demand growth. The former is about 10 per cent per year and demand growth is 16 per cent annually. Therefore it seems appropriate that the government might encourage farmers to increase hog production in order to meet the growth in demand. 3. The high growth rate of the demand for pork was associated with growth in population, per capita income, changes in price of pork and competing meats, and other factors, such as consumer preference. Among these factors, population growth was most important, explaining about 60 per cent. Per capita consumption of pork increasing less rapidly than total consumption of pork during 1951-1968 period is good evidence. The growth rate of per capita con- sumption of pork was only 6.8 per cent annum. In the meantime, the increase of per capita income also played a vital role in the increased demand. According to the findings of this study, the income elasticities are 0.83 and 0.69 for Model I and Model II, respectively. High population and national income growth are expected over the next ten years. If the anticipated growth rates of 2.25 and 4.5 per cent, respectively, materialize, increased de- mand for hogs can be expected. 4. The record of hog supplies in Taiwan is one of prolonged expansion. Coupled with an increase in the num— ber of hogs available for slaughter, total slaughter weights 96 have steadily increased during the past eighteen years. The growth rate was 11 per cent per annum in the number of hogs available for slaughter, and 16 per cent per year in total slaughter weight due to heavier average weight per head. The upward trends in total slaughter weight and the number of hogs available for slaughter resulted from several factors. These include: an increase in demand, technological progress, favorable hog prices for farmers, prices of inputs, etc. Among these factors, technological progress has played the most important role in the larger supply of hogs in Taiwan. Favorable hog prices for the farmer stands at the next position. The price of inputs is third. 5. During recent years, a majority of producers raised crossbred hogs to shorten the market time from young pigs. Disease and parasite control also have helped reduce the risk involved in pork production. Farmers have responded well to the new technology, especially to the improvement in hog breeding, artificial insemination, and hog vaccination. There is still a need, however, for more effective control of hog diseases, es- pecially pasteurellosis. Only a small part of the farmers have adopted the concentrated feed and cooperative marketing service, etc. (see Table A-l). So constant research in such problems and improvements in agricultural extension are needed. 97 6. Increased hog production in the future will re- quire much larger quantities of feedstuff. Unfortunately, the area planted to sweet potatoes, which is the main hog feed, has decreased slightly year by year since 1955 due to the government policy of encouraging rice production. Due to the lagging supply of feedstuff, particularly for sweet potatoes, the prices of sweet potatoes have tended upward. This has retarded the progress of the swine industry in Taiwan. In order to tackle this problem, the government should either encourage the production of more feedstuff or import cheaper feedstuffs to meet domestic needs. Other- wise, the higher feedstuff prices could result in less pro- duction or slower rates of increase in hog production. 7. Economic literature points out that, when demand has unit elasticity, total revenue is not affected by changes in price. If demand is elastic, total revenue varies inversely with price. If demand is inelastic, total revenue varies directly with price. Since the demand elas- ticity of hogs is larger than one, the government might encourage an increase in production. Maintaining a reason- able price for producers, however, is very important because of a very low profit margin for hog raising in Taiwan (see Table A-2). 8. Since it is uncommon for a farmer to slaughter and consume a whole hog by his own family, hog raising is almost completely commercialized. Due to the increasing 98 supply of and demand for hogs, the marketable quantity is increasing rapidly. A proper and effective marketing system and organization is needed. Based on the record of the cooperative marketing program of farmers' association, the costs of bringing hogs from the farmers in the southern part of the island to Taipei City, which is located in the northern part, amounted to NT$ 80.20 or about 3.3 per cent of the consumer price (see Table A-4). Farmers' associations are non-profit organizations, and their services are rendered at cost. Presumably, other hog shippers render the shipping services at a higher margin. At present, only 5.65 per cent1 of the hogs are handled through cooperative hog marketing programs. Methods of eXpanding and strengthening the cooperative marketing program which would be helpful in the development of the swine industry in Taiwan should be sought. . leu, A Study of Agricultural Marketing in Taiwan, (Tarwan: National Taiwan—UnIversity, 1968), p. 52: BIBLIOGRAPHY BIBLIOGRAPHY Armore, Sidney J. The Demand and Price Structure for Food Fats and Oils. Technical Bulletin No. 1069; Washing- ton, D.C.: United States Department of Agriculture, 1953. Beck, Robert Lee. 'VUIEconomic Analysis of Class I Milk Pricing in Lower Michigan)‘ Unpublished Ph.D. thesis, Michigan State University, 1963. Beer, CharlesI“ "Some Economic Factors to be Considered in Swine Productionfi' Unpublished Master's thesis, Michigan State University, 1955. Boger, LawrenceIA "An Economic Analysis of the Red Cherry Industry in Michigan with Special Emphasis Upon PricingJ' Unpublished Ph.D. thesis, Michigan State University, 1950. Breimyer, Harold F. Demand and Price for Meat--Factors Influencinngheir Historical Development. Technical Bulletin No. 1253; Washington, D.C.: United States Department of Agriculture, 1961. Chang, Te-Tsui. Long-Term Projection of Supply, Demand and Trade for Selected Agribultural Products in Taiwan. Taiwan: National Taiwan University, 1969. (Mimeo- graphed) Chang, Wen-Pao. 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Ladd. "A Dynamic Quarterly Model of the Beef and Pork Economy." Journal of Farm Economics, XXIII (1961). Harlow, Arthur A. Factors Affecting the Price and Supply of Hogs. Technical Bulletin No. 1274; Washington, D.C.: United States Department of Agriculture, 1962. Hassler, James B. Hogs--At What Weight Should They be Sold. Agricultural Experiment Station, S.B. 492, University of Nebraska, 1967. Hayenga, Marvin and Duane Hacklander. Short—Run Livestock Price Prediction Models. Agricultural Experiment Station Research Bulletin 25; East Lansing, Michigan: Michigan State University, 1970. Hermin, Albert M. Price of Apparel Wool. Technical Bulle- tin No. 1041; Washington, D.C.: United States De- partment of Agriculture, 1959. Hsia, Hun-Jung. "A Demand Analysis of Hog in Taiwan." Journal onggricultural Economics, No. 2 (Taiwan: Taiwan Provincial Chung Hsing University, 1963). Hsu, Wen-Fu. "The Cost Survey of Hogs Raised in Taiwan." 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Taiwan: Joint Com- mission of Rural Reconstruction, 1967. 102 Taiwan Agricultural Yearbook. Taiwan: Taiwan Provincial Department of Agriculture and Forestry, 1951-1968. Taiwan Fisheries Yearbook. Taiwan: Taiwan Fisheries Bureau, 1951-1968. Taiwan Price Statistical Monthly Bulletin. Taiwan: Taiwan Provincial Bureau of Accounting and Statistics, 1951- 1968. Taiwan Provincial Food Bureau Year Report, 1952-1968. Taiwan: Taiwan Provincial Food Bureau, 1952-1968. Taiwan Rural Economy. Taiwan: Taiwan Provincial Food Bureau, 1951—1968. Taiwan Statistical Data Book. Execute Yuan, Republic of China: Council for International Economic COOperation and Development, 1966-1968. The Report of Urban Area Household Living Consumption, Ex- penditure Survpy. Taiwan: Provincial Taiwan Bank, 1960. Wangh, Frederick V. "Cobweb Models." Journal of Farm Economics, No. 4, XXXXVI (1964). Well, Oris V. Farmers' Response to Price in Hog Production and Marketing. Technical Bulletin No. 359; Washing- ton, D.C.: United States Department of Agriculture, 1933. World Bank Atlas. International Bank for Reconstruction and Development, 1969. Wu, T. C. Agricultural Price Study in Taiwan. Taiwan: Provincial Department of Agriculture and Forestry, 1968. (Mimeographed) Yang, Robert A. An Economic Study of the Eastern Beet Sugar Industry. Agricultural Experiment Station Re- search Bulletin; East Lansing, Michigan, 1965. Yen, Pe-Kung. "Pork Consumption and International Trade in Taiwan." Journal of Taiwan Bank, No. 4, XVIII (Pro- vincial Taiwan Bank, 1966). APPENDIX TABLE A-1.—-The total number of hogs produced, of producers using common production practices, the number and the number and percentage using an integrated swine production program, Taiwan, 1952-1968. Number of Producers Number<1fProducers Participating in Integrated Swine Year Total Using Common Hog Production Program Practices Number of Per Households Cent 1952 695,082 695,082 -- -- 1953 736,074 736,874 -- -- 1954 711,385 711,385 -- -- 1955 695,020 695,020 -- -- 1956 756,998 756,998 -- -- 1957 816,421 816,421 -- -- 1958 803,670 803,670 -- -- 1959 748,804 748,804 -- -- 1960 734,991 734,991 -- -- 1961 722,885 722,885 -- -- 1962 701,050 701,050 -- -- 1963 665,915 661,795 3,119 0.48 1964 668,827 656,118 6,709 1.01 1965 670,402 661,693 8,709 1.30 1966 679,553 660,984 18,569 2.73 1967 663,820 640,251 23,569 3.55 1968 651,362 625,773 25,569 3.95 *Integrated Swine Production Program was launched in 1963. Source: Taiwan Rural Economy (Taiwan: Provincial Food Bureau, 1952-1968). 103 104 TABLE A-2.--Costs and returns of hog raising by regions in 1966 and 1967. Taiwan, (NT$ per 100 kg) 1966 1967 Regions Net Net Costs Returns Profits Costs Returns Profits North 1,956 2,158 202 2,144 2,185 41 Central 1,897 2,022 125 1,976 2,006 30 South 1,906 1,922 16 1,939 2,023 84 East 1,761 1,922 161 1,929 1,985 56 Average 1,899 2,032 133 1,975 2,048 73 Source: Unpublished data obtained from the Joint Commission of Rural Reconstruction, Taiwan. 105 TABLE A-3.-—Production costs for a hundred kilogram of hogs, Taiwan, 1963 and 1967. (NT$ per 100 kg) 1963 1967 Items Percent Percent Amount of Amount of Total Total Feeder Pigs 275 10.47 328 16.01 Feedstuff 1,242 65.37 1,374 67.09 Fuel 115 6.05 62 3.03 Labor 204 10.74 126 6.15 Depreciation 25 1.31 35 1.71 of Hog Spy Depreciation 14 0.74 17 0.83 of Facili- ties Insurance for 18 0.95 27 1.32 Disease Interest —- —- 77 3.76 Other 7 0.37 2 0.10 Expenses TOTAL 1,900 100.00 2,048 100.00 Source: Unpublished data obtained from the JCRR, Taiwan. 106 .moma .cmzame Ca moon mo amccmso mcapmxamEII.aId mmawam .mm .m .Amoma .muamam>aCD cm3ame amQOaumz "cmzamav cmsamB ma msaumxamz amasuasoaamd mo Npsum d .Smm :mIsoz "mousom me.o wmm.o buomxm mm.o smmasm Magnum amaoca>onm NW.Q www.mm www.mm . . . M an mm H mumaamumm w om mo \ woo ooa mumfidmsoo mam muwosmoam masseusm IIJ wva.vm . mammdanm mo ea A ppm mummsm handsou woo.ma mm.m muoammoaosz~ mmo.m «a an mcaumxumz m>aumammoou Hm.m woo.o macaomm mchmmoWHW\\ oo.o 107 TABLE A-4.--Marketing margin for a hundred kilogram of hog in Taipei, Taiwan, 1969. (NT$ per 100 kg) Percent Items Amount of Total Farm price 1830.00 69.7 Transportation 80.20 3.3 Damage and loss weight for market 61.40 2.3 Livestock market fee 16.40 0.6 Profit for shipper and country buyers 35.40 1.3 Taxation of slaughter 280.00 10.6 Slaughter house rent 36.00 1.4 Material and fixed expense for retail 55.00 2.1 Profit for butcher and retailer 206.71 7.8 Other expenses 24.60 0.9 Consumer price 2625.71 100.00 km Source: Unpublished data obtained from the Livestock Management Division (Taiwan: ment). Taipei City Govern—