Impact of Meat Import Restrictions

reach of Meat Import RestrictionsAnalysis of the impact if Icelands political sympathies would decrease issue restrictions on new amount on Icelandic consumers and producers of tickerAbstractForeign trade is always change magnitude and only organisations around the human try to protect some of their issue domesticated industries by applying unhomogeneous of restrictions to restrain substance at a minimum. Importation of good tenderness to Iceland is prohibited but forces with in consumers social welf atomic number 18 organizations be pressuring for these restrictions to be reduced and opening the merchandise place up for byside(prenominal) competition. If the market would open up hence consumers would complicate light prices, producers would likely take hold to lower their prices and achievement. It is crucial for the producers to appeal to consumers loyalty on Icelandic vegetable marrow and prove their timberland.Margrt Gun VigfsdttirIntroductionIn I celand, like many separate countries, agriculture is a significant initiate of history, sustainability and intellectual nourishment security. In early 20th century agriculture started set about difficulties in which belonged to the government activity taking actions by subsidizing the industry. Import restrictions withal protect domestic industry to this day.Geographic outlines, climate and distance from valet de chambre markets ca persona juicy production cost, high transportation cost and light terms of trade. market conditions atomic number 18 often blamed for high regimen prices in Iceland especially because of small population and small market. This small market is therefore un sparingal in production, prudence and trade and the advantages of economies of scale be non doable like in another(prenominal) neighbouring countries of Europe for example (Snorrason, 2006).Icelands participation in world trade for example in the European frugal Area (EEA) and Word T rade Organization (WTO) has undefendable the possibility of increased entailment of agriculture goods but the foreign market has not yet threatened Icelandic kernel producers cod to minute restrictions (orgeirsson, Bjarnadttir, Sveinsson, 2004).The outcome restriction be in form of high obligations, import quotas and strict import permits, several certificates and documentation confirming that the product have been stored at a temperature of at least(prenominal) -18C for 30 long time and a certificate confirming the that the products are free of salmonella (EFTA direction Authoroty, 2014). The Icelandic rivalry Authorities, Consumer Protecting Agency and other organizations have complained that the restrictions prevent water-loving competition and leave consumers worse forth. Recently the EFTA Surveillance Authority reason a reasoned opinion that Icelands restriction on importing of tonal summation in breach of EEA law (EFTA Surveillance Authoroty, 2014). The Ice landic government argues that these restrictions are necessary for Icelandic healthcare due to possible infection to Icelandic do work animals. Iceland is an isolated island and farm animals stocks like lamb have stayed the same for decades. This pixilateds that Icelandic farm animals are often much vulnerable to diseases with worse immune system than the farm animals on the main lands of Europe.Along with these import restrictions on selected agriculture products the Icelandic government also subsidizes the agriculture industry by guaranteeing minimum price to farmers. more or less have criticise that Icelandic farmers are overindulgent by the government compared to other nations and because of this farmers/producers can set up higher(prenominal) prices than they would in more competitive market.The MarketAn oligopoly is a market with few large firms holding the majority of the market. They offer similar products but try to divers(prenominal)iate to be more coveted than t he next. Firms in oligopoly market are said to be interdependent which mean that they leave behinding consider their own actions influenced with how the rivals might move (Mankiw Taylor, 2014). The Icelandic meat producers market is an oligopoly. The four largest producers of meat had 56% market plow in 2010 (Icelandic Competition Authority, 2012). The market is small due to small population, which leads to uneconomic production, management and trade compared to larger countries. Price on meat was 38% lower in the EU states on average in 2009 (Kristfersson Bjarnadttir, 2011). Economies of scale are hard to obtain due to high capital cost, seasonal wavering and only the few large producers have sufficient economies of scale compared to the surface of the market (Jhannesson Agnarsson, 2004). These facts make it harder to enter the market for new comers (entry barrier).It is important for all producers to k in a flash how consumers respond to changes in price. The price pushov er of demand measures how a good deal(prenominal) the quantity demanded responds to a change in price (Mankiw Taylor, 2014). Price elasticity of goods can vary, necessities are often rather inelastic, that is, the destiny change in demand is small when prices change (PE1). Most agriculture products like meat are inelastic goods (although specific types of meat are elastic due to close substitutes, from pork to beef for example) as food is a necessity. Consumers apply the consumptions of them despite changes in price (Jhannesson Agnarsson, 2004).Welfare economics is the study of how the storage allocation of resources affects economic well-being. Consumer and producer superfluity is used to measure the benefits to consumers and producers of trading. When government introduces taxes, tariffs and quotas it creates a deadweight exit. Deadweight loss is the perch in sum total surplus that results from a market distortion such as tax (Mankiw Taylor, 2014).Import Restriction Im pact on Economic WelfareIcelandic importers can not import meat unless it has gone through various examinations and been frozen for at least 30 days. Frozen meat is of course not fresh and therefor are no imports on fresh meat allowed. at one time lets use the tools of economics to contrive how this affects consumers, producers and the economic welfare. The demand is rather inelastic as explained earlier. We assume that the supply is close to unit elastic due to various factors pulling in either direction. The world supply on the other hand is elastic since it is a very large competitive market. We allow keep these assumptions about elasticitys out this chapter. To simplify, impact of tax revenue is ignored.Figure 1 memorializes current status on Icelandic fresh meat market. No fresh meat is bought from foreign suppliers and consumer surplus (green) is the area A and producers surplus (red) is the area B+C.Figure 1 reliable Fresh Meat Market with out TradeNow lets correspond what happens if Icelandic government relieves the import restrictions on fresh meat. Figure 2 shows that consumer surplus take a craps a lot and equals the area A+B+D while producers surplus reduces (B-B=B) and equals the area C+B. The price go and since the domestic quantity supplied (DQS) is less than the domestic quantity demanded (DQD) the difference has to be imported.Figure 2 If Restrictions were Removed (with out Tariffs and Quotas)Figure 2 does not shows what would happen in current pip because of import tariffs and import quotas. The import tariff on meat from nations at bottom EU and EFTA is 18% and 30% from other nations. Nations with in EU are allowed to import to Iceland limited amount (tariff-quota) of pork, poultry and beef (no lamb) with out tariff . On the other hand, the Import quotas are sold to the highest bidder leading to little or no gain from the free trade to the importer (Icelandic Federation of Labour, 2007).To get the idea of how affaires might be i f the restrictions were relieved we look at the meat market in general, including frozen and processed meat. In 2010 the market share of imported meat was 3%, which is a very small percentage (Icelandic Competition Authority, 2012). The high tariffs and quotas keep the import level at a minimum. Figure 3 shows how the market is with tariff and quota, assuming for simplicity that they screw up the domestic demand at the same quantity. The area for consumer surplus has now increased, from what we saw in figure 1, by area B+G and producer surplus has decreased by area B. The government revenue (yellow), area E, is added since there is tariff added to the world supply and quotas sold. The deadweight loss (orange), or loss to society, from this tariff and quota is area D+F. The price falls slightly from P1 to P2, domestic quantity demanded increases and domestic quantity supplied decreases. Meat has to be imported to meet the demand from DQS to DQD (it is likely that the ratio of import is much smaller than demonstrated in figure 3 compared to current 3% import market share).Figure 3 If Restrictions were Relieved (Current Meat Market)We can see by comparing figure 3 to figure 1 that twain government and consumers gain surplus while producers are worse off resulting in total surplus change of area +G+E (table 1). This infers that removing restrictions will raise the economic wellbeing. defer 1 Changes in Economic Welfare if Restrictions RelievedWith restrictionsWithout restrictionsChangeConsumer surplusAA+G+B+B+GProducers surplusC+BC+B-B-B administration revenueNoneE+ETotal surplusA+C+BA+C+B+E+G+EImport restrictions are not the only thing that the Icelandic Consumer Organization and others want to be taken action on. As mentioned before high tariffs and quotas keep the imports of meat at a minimum. It is not cost efficient to import fresh meat and therefore the tariff income on fresh meat to the Icelandic government is not substantial. In a report the Icelandic S tatistical Bureau published in 2006 about reasons for high food prices in Iceland it was indicated that if tariffs would be reduced by half on main agriculture products the income loss for the government would be 145 million ISK, but on the other hand the outset in income due to increased turnover would be 900 million ISK (Snorrason, 2006). Now lets assume that import quotas will be removed and import tariffs take down as shown in figure 4.Figure 4 If Restrictions and Quotas were Relieved as well as Tariff Reduction.The price consumers pay will fall from P2 to P3. Domestic quantity supplied will decrease and domestic demand will increase leading in larger import. Table 2 shows the changes of cut back import tariffs and removing quota. The total change in total surplus will be the area +D+F+D+F.Table 2 Changes in Economic Welfare if Quotas were Removed and Tariffs Reduced out front lowering tariffsAfter lowering tariffsChangeConsumer surplusA+G+BA+G+B+B+D+E+F+B+D+E+FProducers surp lusC+B-BC+B-B-B-BGovernment revenueEE-E+D+F-E+D+FTotal surplusA+G+C+B+EA+G+C+B+D+D +F+F+D+F+D+FThe total surplus change from figure 1 to figure 4 is then the area G+E+D+F+D+F. This area is the measure off how much the market increases its welfare. in that location are always losers and winners in trade. In this case the producers would always be the looser since import tariffs and quotas are always to protect the domestic producers. Consumers and the government are winners in this case with lower price to consumers and increased revenue for the Government. The Government could then use that revenue to increase subsidizes to the domestic production to keep up their competitiveness to the world market.Impact of lifting import restrictionsWhat would Icelandic consumers gain if import restriction where relieved. The Consumer Protection Agency argues that because of the poor status of the Icelandic currency ISK and current tariffs the Icelandic producers have nothing to fear. When impor t restrictions on tomatoes, cucumbers and peppers from Europe where relieved in 2002 some predicted that domestic production would stop. The upshot was on the other hand that prices of these goods decreased, domestic production increased and producers gained more salary. This will be the case for fresh meat as well. preparation and variety of meat will increase and consumers will have break out alternatives (Icelandic Consumer Organisation, 2013).Tariff protection does not protect the agriculture producers but gives security for high price on competitive and substitution goods. The impact of reduction tariff protection would have a big impact on the agriculture producers and some might not be able to make out with the world market. Therefore it would be important to support the agriculture producers by increased subsidizes and other operations optimizing while lowering tariffs (Snorrason, 2006).The impact of relieving import restrictions on fresh meat and lowering tariffs on meat in general could lead to Iceland being dependent on foreign market concerning food security. Foreign markets might face shock to their production, such as animal disease or crop failure and would that lead to deficit and/or significant price change for Icelanders at least in the short run (Jhannesson T. , 2004).Will consumers be loyal to Icelandic productionIn economics there is a principle that says that people respond to incentives. The consumer knows what he wants when two or more alternatives are available, he is accordant in the way that if he choses product A rather than B and product B rather than C, that he will then use up A rather than C. He also chooses more quantity of quality rather than less quantity of quality, for example he chooses three apples preferably of two apples if the price is the same. Most people are though advised that they can consume less that they desire because their spending is constrained, or limited, by their income (Mankiw Taylor, 2014) .In reality this is not so simple as indicated above. The check of Finland and Sweden joining the European union (free trade) showed that consumers are willing to pay higher prices for domestic produced goods compared to similar imported goods. In the case of Icelandic vegetables, Icelanders are willing to pay 10% more than for imported vegetables (Kristfersson Bjarnadttir, 2011). Research has shown that 62% of Icelandic consumers think Icelandic meat is of more quality that foreign meat, 26% would pay 6%-10% higher price for Icelandic meat and 21% would pay 11-15% higher price. When consumers where asked if they would rather buy foreign cheaper meat, 35% said yes, 45% no and 20% where undecided (rhallsdttir, 2012). These numbers indicate that if import restrictions where relieved or reduced then Icelandic producers of meat have to step up and show their advantages to consumers to keep their loyalty. For example show their proximity to the market, production methods, quality and n utrition level (rhallsdttir, 2012).ConclusionThe world is always getting smaller and smaller with globalization and increased trade. The twinge on Icelandic government to reduce restrictions on importing fresh meat will only increase by time. If the Icelandic government cannot prove that import of raw meat harms the health of humans and animals they will have to reduce import restriction from countries with in EU. Icelandic farmers and producers of meat need to prepare for the market opening up by promoting them egotism among consumers and differentiate. All restriction reduction on import including quotas and tariffs benefit the consumers, its just a matter of how much. Increased competition could also lead to production improvement with in the meat farmers/producers and increase their turnover and profit like the vegetable industry experienced.Since the coverage on changes in economic welfare in this paper were only theoretical it would be kindle to see a research report on the real influences in numbers, similar to the report of the Statistical Bureau in 2006 about food prices.ReferencesEFTA Surveillance Authoroty. (2014, October 8). EFTA Surveillance Authoroty. Retrieved December 5, 2014 from Questions and answers Fresh meat case http//www.eftasurv.int/media/press-releases/ESA_Questions_and_Answers_(EN)_-_The_Icelandic_Fresh_meat_case.pdfEFTA Surveillance Authoroty. (2014, October 8). EFTA Surveillance Authoroty. Retrieved December 11, 2014 from Internal Market Icelands restrictions on the importation of fresh meat in breach of EEA law http//www.eftasurv.int/presspublications/press-releases/internal-market/nr/2345Icelandic Competition Authority. (2012). Verrun og samkeppni dagvrumarkai Price developments competition on convenience market. Reykjavk Icelandic Competition Authority.Icelandic Consumer Organisation. (2013, March 14). Icelandic Consumer Organisation. Retrieved December 5, 2014 from Um innfllutning hru kjti About imports on raw meat http/ /www.ns.is/is/content/um-innflutning-hrau-kjotiIcelandic Federation of Labour. (2007, March 23). Icelandic Federation of Labour. Retrieved December 10, 2014 from Breytingar tollum 1. mars 2007 Changes on tariffs 1. March 2007 http//www.asi.is/media/6401/230307tollarbreytingar.pdfJhannesson, S., Agnarsson, S. (2004). Bnid er bstlpi, b er landstlpi Farmer is the man of the house, a farm is a pillar of the commuity. University of Iceland, Institute of Economics. Reykjavk Oddi hf.Jhannesson, T. (2004). Framleislukerfi bfjrrkt Production system for livestock raising. Education conference of the agriculture industry (pp. 55-60). Reykjavk Iclandic Farmers Association.Kristfersson, D. M., Bjarnadttir, E. (2011). Staa slenks landbnaar gagnvart aild a Evrpusambandinu Icelands agruculture status towards membership of the European Union.Mankiw, N. G., Taylor, M. P. (2014). Economics. Andover Cengage Learning .Snorrason, H. (2006). Skrsla formanns nefndar sem forstisrherra skipai 16. janar 2006 til ess a fjalla um helstu orsakatti hs matarvers slandi og gera tillgur sem mia a v a fra matvlaver nr v sem gegnur og gerist ngrannarkjunum Report from the presitend of a committe that was nominated 16th of January 2006 by the prime minister to adress the main triggers to high food price in Iceland and make a suggestion to induce food price down to same level as in neighbouring countries. Reykjavk Icelandic Statistical Bureau.orgeirsson, S., Bjarnadttir, E., Sveinsson, . E. (2004). Atvinnuvegur krossgtum Staa bgreina breyttum tmum Industry on crossroads Farming position in different times. Education conference of the agriculture industry (pp. 61-73). 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