Khorchurklang, Sukij (2005) Factors Influencing Australia's Dairy Product Exports to Thailand: 1980-2002. Other Degree thesis, Victoria University.

Abstract

This thesis focuses on an analysis of factors influencing Australia's dairy product exports to Thailand. To the author's knowledge, such an analysis has not been conducted so far. The research consists of literature reviews of the theories and empirical studies of comparative advantage and export demand, the econometric estimation of Thailand's demand for Australia's exports of dairy products to analyse the determinants of Thailand's demand for Australian dairy products, and an investigation of experience of selected Australian exporting companies in exporting dairy products to Thailand based on the interviews of export managers. Australia exports dairy products such as, milk dry (skim milk powder or SMP and whole milk powder or WMP), butter, cheese and curd, and whey products to Thailand. SMP is the principle ingredient of Thailand's milk processing industry. Australia's main competitors in Thailand for exports of dairy products are New Zealand, the EU and to some extent the U.S.A. Thailand has heavily protected its local dairy industry by high tariffs and regulation. The Thai government promotes local dairy production and the use of local milk products. However, the dairy sector of Thailand is still incapable of meeting the demand from the domestic dairy processing industry and consumers. Hence, Thailand has to import a large volume of dairy products each year. The Australia-Thailand free trade agreement (FTA) started to operate in January 2005. Thailand's import tariffs on Australia's dairy products will decline to zero to 32 per cent, and be phased out by 2010 or 2020. The quotas on Australia's exports of milk powders and milk and cream to the Thai market will be increased by 2025. The analysis of revealed comparative advantage and revealed competitive advantage identify that among the dairy product exporting countries, Australia has comparative advantage and competitive advantage of all of the dairy products (milk evaporated, milk dry, whey preserved and concentrated butter and cheese and curd). Thailand has comparative advantage and competitive advantage only in milk condensed and evaporated. Thailand has comparative disadvantage and competitive disadvantage in the other dairy product categories. Australia's competitors in the Thai market (New Zealand, and the selected EU countries) have comparative and competitive advantages in most of the dairy products. These results suggest that Australian dairy exporting companies and policy makers could focus on increasing the volumes of all of the dairy products exported to Thailand, except milk condensed and evaporated. The results from the estimation of econometric models of Thailand's demand for Australia's exports of milk dry shows that in the short run, the quantity of Australia's milk dry exports demanded in Thailand declines when Australia's export price relative to that of competing countries increases, while it is not responsive to Thailand's real national income. In the long run, the quantity of Australia's milk dry exports demanded in Thailand declines when Australia's export price relative to that of competing countries' price increases. The estimated long run price elasticity of export demand is -2.76. In the long run, the quantity of Australia's milk dry exports demanded in Thailand does not change significantly in response to changes in Thailand's real national income. In the short run, the quantity of Australia's butter exports demanded in Thailand falls when Australia's export price relative to that of competing countries increases, but it is not responsive to Thailand's real national income. The quantity of Australia's butter exports demanded in Thailand declines when the Thai baht depreciates against the Australian dollar. In the long run, the quantity of Australia's butter exports demanded in Thailand decreases when Australia's export price relative to that of competing countries' price increases. The estimated long run relative price elasticity of demand is -1.13. In the long run, the quantity of Australia's butter exports demanded in Thailand does not change significantly in response to changes in Thailand's real national income. The quantity of Australia's butter exports demanded in Thailand declines when the Thai baht depreciates against the Australian dollar. The estimated long run exchange rate elasticity of demand is -6.34. In the short run, the quantity of Australia's cheese and curd exports demanded in Thailand is not responsive either to the relative price of exports or to Thailand's real national income. In the long run the quantity of Australia's cheese and curd exports demanded in Thailand changes significantly in response to changes in Thailand's real national income. The estimated long run income elasticity of demand is 1.84. During the interviews, the export managers of Australian dairy export companies agreed that Thailand is a significant importer of Australia's dairy products, particularly for SMP, WMP, whey powder, butter and cheese. Thailand's stable economic and political environment is one of the reasons that they are attracted to the Thai market. The principal factors that make Australia's products successful in the Thai market are competitive price and 'clean, green and natural' products. However, limited Australian dairy product varieties and distribution channels are major factors that contribute to Australia falling behind New Zealand and the EU in the Thai market. The Australian dairy Corporation (ADC) is not involved in promoting Australian dairy products in the Thai market at present, but has done so in the past. Thailand's tariff and import quota protection and support to local dairying industry is one of the barriers encountered by Australia's exports to Thailand. All the managers are hopeful of expanding opportunities for their dairy exports in the Thai market. These findings imply that Australian dairy export companies could expand the dairy product varieties they export and offer for sale in the Thai market. They could also take advantage of the established sales distribution network in addition to exploring the possibilities of setting up their own distribution channels. They could be looking into the possibilities of setting up of joint ventures with local dairy processing companies in Thailand so that their dairy exports could be expanded. The Australian dairy export companies as well as the ADC have to actively promote in various ways the Australian dairy product exports in the Thai market in order to take advantage of the window of opportunities open to them within the trade liberalisation framework of the Australia-Thailand free trade agreement (FTA).

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