UNIVERSITI PUTRA MALAYSIA AN ECONOMETRIC ANALYSIS OF THE JAPANESE DEMAND FOR INDONESIAN TUNA YUARY FARRADIA FEP 1995 1
AN ECONOMETRIC ANALYSIS OF THE JAPANESE DEMAND FOR INDONESIAN TUNA By YUARY F ARRADIA Thesis submitted in Partial Fulfillment of the Requirements for the Degree of Master of Science in The Faculty of Economics and Management Universiti Pertanian Malaysia June 1995
ACKNOWLEDGEMENTS Thanks to the almighty God "Allah S.W.T" without whose blessing this study would not have been possible. I would like to express my sincerest gratitude and appreciation to the people and institutions behind the completion of this piece of work. Thanks are due Dr. K. Kuperan, my chairman for his guidance and intellectual support throughout the course of the study. Thanks are also due to the other members of my supervisory committee, Prof. Dr. Ishak Hj. Omar and Assoc. Prof. Dr. Nik Mustapha Raja Abdullah for their valuable comments and suggestions in improving th.e quality of the manuscript. My appreciation and sincere gratitude go to all of my lecturers at the faculty of Economics and Management, Universiti Pertanian Malaysia for providing me much knowledge and guidance throughout my study in pursuing the Master's degree in Fisheries Economics. I would like to express my gratitude to Ir. Mas Tri Djoko Sunarno M.Sc. for his help in collecting the data in Indonesia, Malaysia and Thailand as well as providing the references. My sincere thanks are also given to Dr. Soempeno, Ir. Bachtiar Gafa, and Ms. Fatima Ferdouse for their useful information and advice. In addition, the staff of INFOFISH, Malaysia were very helpful. ii
My regards are due to Mr. Abdul Aziz Bahsir and Ms. Fadzlon Yusof, of Graduate School, UPM for editing the thesis fonnat. My sincere thanks are also due to my classmates, my friends and relatives in Indonesia as well as Malaysia. Finally, my sincere appreciation goes to my parents, Papa Ir. H. Rtislan Effendi and Mama Hj. E. Kusuma Pertiwi, my brothers: Ricko and Rinno; my lovely grand rna, and my close friend Joy for their continous prayers, encouragement and patience. Without them, it would have been impossible to complete the study. iii
TABLE OF CONTENTS ACKNOWLEDGEMENTS... ii LIST OF TABLES... vii LIST OF FIGURES... ix LIST OF ABBREVIATIONS... xi ABSTRACT....xii ABS1RAK.... xiv CHAPTER I INTRODUCTION...... 1 Statement of the Problem... 3 Significance of the Problem.................... 7 Objectives of the Study... 9 II TIJNA TRADE IN INDONESIA... 10 Fisheries in Indonesia......... 10 Tuna as an Export Commodity......... 13 Tuna Characteristics..................... 17 Tuna Production...... 19 Potential Resources of Tuna in Indonesia... 20 Global Supply Trend... 21 Global Demand Trend... 23 Tuna Export Performance...... 24 Tuna Marketing System... 26 iv
Development of Tuna Trade in Indonesia... 29 Tuna Enterprises under the Smallholder Fishery (PIR) System... 30 III ECONOMICS OF TUNA TRADE... 32 International Trade Theory... 32 Demand Theory..... 35 Export Theory...... 38 Market and Marketing System... 41 Marketing Channels... 42 Sashimi Tuna... 46 IV TUNA MARKET CHARACTERISTICS... 54 Indonesian Market...... 54 Market Structure...... 54 Bariers to Entry... 57 Market Conduct.... 58 Japanese Market... 59 Characteristics of Japanese Consumption...... 59 Characteristics of Species Preferences... 61 Consumer Segmentation......... 61 Marketing ChanneL.................. 62 Market Structure...,....... 65 Market Conduct......... 68 V THEORETICAL FRAMEWORK... 70 International Trade......... 70 Empirical Model... 76 Model Identification... 78 Data Analysis...... 79 Data Collection... 82 v
VI STATISTICAL RESULTS AND DISCUSSION... 84 Estimated Fresh Yellowfin Export Demand.... 90 Estimated Fresh Bigeye Export Demand... 95 Estimated Frozen Bigeye Export Demand......... 100 VII SUMMARY, CONCLUSION.. AND POLICY IMPLICATION. 104 Summary of the Main Findings......... 104 Conclusion.................. 108 Policy Implication....................... 109 Limitations and Suggestion for Future Study.................. 111 BIBLIOGRAPHy... 113 APPENDICES... 121 BIOGRAPHICAL SKETCH... 142 vi
LIST OF TABLES Table 1 Fisheries Production, 1987-1992 (thousands of tons)... 1 2 Fisheries Output at Current and 1983 Constant Market Prices (billion rupiahs)...,... 2 3 Fisheries Production (thousand of tons) by Sub sectors of Fishery, 1989-1993...... 12 4 Export Volume and Value of Main Fisheries Products, 1989-1993... 13 5 Potential of Tuna and Skipjack Resources and Their Distribution in Indonesia... 14 6 Tuna and Tuna Like Species Exports in Different Product Fonns (1987-1991)...... 16 7 Habitat and Geographical Distribution of Some Tunas... 17 8 Tuna/Skipjack Fishing Season in Indonesian Waters... 18 9 Fishing Seasons of Some Big Tuna in Indonesian Waters... 19 10 Indonesian Tuna Production (ton), 1985-1991... 19 11 World Tuna Catch (thousands of metric tons) by Main Producing Countries.... 22 12 Export Volume of Tuna/Skipjack (ton) by Country of Destination... 25 13 The Number of Private Tuna Enterprises...... 56 14 Enterprises Share in Tuna Export............... 56 15 Some Barriers to Entry Into the Tuna Industry......... 58 16 Species Wise Utilisation by Type of Restaurant (%).... 59 17 Seasonal Consumption Pattern...... 60 vii
18 Percentage oftorro and Akami by Species... 61 19 Central Market Characteristic...... 66 20 Percentage Share Among Trading Company... 68 21 Endogenous Variables......... 78 22 PredetenninedlExogenous Variables......... 79 23 Estimated Linear Equations For Tuna Export Demand... 86 24 The Values of Price and Income Elasticities for Tuna... 89 25 The Values of Cross Price Elasticities for Tuna...... 89 26 Different Values of Tuna Elasticities... 91 27 The Values of Price and Income Elasticity for Tuna... 111 28 Low Price Data... 123 29 High Price Data............... 126 30 Demand for Fresh Bigeye using World Price... 136 31 Demand for Fresh Bigeye using other Country's Price... 136 32 The Main Differences between Bigeye and Yellowfm... 138 viii
LIST OF FIGURES Figure 1 Export and Import Volume of Fisheries Production 1987-1991... 4 2 Export and Import Value of Fisheries Production, 1987-1991... 5 3 Price Fluctuation of Fresh Yellowfin (YF) and Bigeye (BE)... 6 4 Tuna and Skipjack Distribution in Indonesia..................... 15 5 Distribution of Tuna and Skipjack Caught by Fishermen and Medium Scale Fishing Finns... 26 6 Local Distribution System of Tuna and Skipjack Caught by Large Fishing Firms...... '"...... 27 7 Distribution System of Fishermen's Tuna and Skipjack for Export Market... 28 8 Distribution System of Tuna and Skipjack Caught by Medium and Large Scale Fishing Firms for Export Market............... 28 9 The Marketing Channels for Indonesian Tuna.............. 29 10 International Supply and Demand... 38 11 Marketing Barriers............. 40 12 Marketing System for a Final Customer Group Located Some Distance from Producer............... 41 13 Marketing Channels of Seafood in Taiwan... 43 14 Fresh Fish Distribution from Bangkok Wholesale MarkeL...... 44 15 Schematic Diagram of Fish Marketing Channels in Indonesia... 44 16 Flow Chart for Tuna Grading... 47 17 Japan's Import Volume of Tuna... 49 ix
18 Import Volume of Fresh Tunas... 50 19 Import Volume of Frozen Tunas............... 51 20 Distribution Channels for Fisheries Products..., 52 21 Distribution Routes for Chilled Tuna.................. 63 22 Distribution Routes for Frozen Shasimi.................. 64 23 Effect of Trading on the Production, Consumption and Price Shown by the Demand and Supply Curve............... 71 24 Indifference Curve.................. 73 x
LIST OF ABBREVIATIONS ADB : Asian Development Bank CIC : Capricorn Indonesia Consultant Inc EEZ : Economic E:\.1ended Zone FAD : Fish Aggregating Device FAO : Food and Agriculture Organization JETRO : Japan External Trade Organization MSY : Maximum Sustainable Yield PIR : Perikanan Inti Rakyat REPELITA : Rencana Pembangunan Lima Tahun TPI : Tempat Pelelangan Ikan xi
Abstract of thesis submitted to the Senate of Universiti Pertanian Malaysia in partial fulfillment of the requirements for the degree of Master of Science. AN ECONOMETRIC ANALYSIS OF JAPANESE DEMAND FOR INDONESIAN TUNA By YUARY FARRADIA June 1995 Chairman: Dr. K. Kuperan Faculty: Economics and Management The objective of this study was to evaluate the Japanese demand far Indonesian tuna Tuna which consisted of two species (Yellowfin and Bigeye) were observed in terms of fresh and frozen form at two price levels. Secondary data were collected from the institution as related to tuna information as well as references. In addition, interview with experts in tuna was also conducted. The data were then analysed using 2SLS method to construct a demand model. Tuna market in Indonesia is mostly controlled by four state owned companies. The marketing channel starts with fisherman and ends with the broker or exporters. However, some companies exported tuna directly or indirectly. The price of tuna export follows the international price in Japan, which is determined by a grading system based on 'torro' content and freshness. Statistical analysis using 2SLS shows a relationship among tuna species in terms of fresh and frozen forms at low and high price, respectively. The Japanese xii
demand for fresh yellowfin in general, is determined by its previous demand, its own price and per capita income. However, at low price level, it is also determined by price of frozen yeuowfin and price of shrimp; whilst at high price level, fresh yellowfin is determined by price of fresh bigeye. The Japanese demand for fresh bigeye at low price level is determined by its previous demand, its own price, price of frozen bigeye, price of shrimp and per capita income which has negative sign. For high price level, fresh bigeye demand is determined by its previous demand, its own price, price of shrimp and per capita Income. The Japa..'1ese demand for frozen bigeye at low price is determined by its previous demand, its own price, price of frozen yellowfin and price of shrimp. However, for high price level, it is determined by its previous demand, price of shrimp and per capita income, which has negative sign. In terms of elasticity, price elasticity for the overall tuna species in this study is inelastic. Income elasticities are, however, elastic. xiii
Abstrak tesis yang dikemukakan kepada Senat Universiti Pertanian Malaysia sebagai memenuhi sebahagiaan daripada syarat untuk Ijazah Master Sains SUATU ANALISIS EKONOMETRIK PERMINTAAN JEPUN UNTUK TUNA INDONESIA Oleh YUARY FARRADIA June 1995 Pengerusi Fakulti : Dr. K. Kuperan : Ekonomi dan Pengurusan Tujuan kajian ini adalah untuk meninjau permintaan Jepun untuk ikan tuna Indonesia. Tuna yang dikaji mengandung dua jenis species ikan tuna ('yellowfin' dan 'bigeye') dalam bentuk segar dan beku yang mempunyai dua tingkat harga. Data sekunder dikumpulkan dari institusi-institusi yang berhubungan dengan maklumat mengenai ikan tuna dan rujukan lainnya. Temubual dengan pakar-pakar tuna juga telah dilakukan. Data dianalisis dengan menggunakan metode 2SLS untuk membentuk suatu model permintaan untuk ikan tuna Indonesia di negara Jepun. Pada amnya, pasaran tuna di Indonesia dikuasai oleh empat buah perusahaan kerajaan. Saluran pasar dimulai daripada nelayan, dilanjut- kan ke perantara atau pengeksport. Akan tetapi, perusahaan boleh dapat mengeksport tuna secara Jangsung ataupun tidak langsung. Harga ikan tuna eksport adalah mengikut harga antarbangsa di Jepun yang ditentukan oleh suatu sistem seleksi yang berpedoman kepada kandungan 'torr ' dan kesegaran ikan. xiv
Analisis statistik yang menggunakan 2SLS memperlihatkan perhubungan daripada beberapa jenis tuna segar dan beku pada masing-masing tingkatan harga rendah dan tinggi. Pada amnya permintaan Jepun untuk ikan 'yellowfin' segar mempunyai pengaruh daripada permintaan pada masa lalu, harga daripada ianya dan pendapatan per kapita. Pada harga rendah, ia juga dipengaruhi oleh harga 'yellowfin' beku dan harga udang. Sementara pada harga tinggi, ikan 'yellowfm' segar dipengaruhi oleh harga ikan bigeye segar. Permintaan Jepun untuk ikan 'bigeye' segar pada harga rendah mempunyai pengaruh ke atas permintaan ianya pada masa lalu, harga ianya sendiri, harga 'bigeye' beku dan udang dan pendapatan per kapita, yang mana ianya mempunyai tanda negatif. Pada harga tinggi, ikan 'bigeye' segar mempunyai pengaruh keatas permintaan ianya pada masa lalu, harga ianya sendiri, harga udang dan pendapatan per kapita. Permintaan Jepun untuk ikan 'bigeye' beku pada harga rendah mempunyai pengaruh ke atas permintaan ianya pada masa lalu, harga ianya sendiri, harga ikan 'yellowfm' beku dan udang. Akan tetapi, pada harga tinggi, ia mempunyai pengaruh ke atas permintaan ianya pada masa lalu, harga daripada udang dan pendapatan per kapita yang ianya mempunyai tanda negatif. Keanjalan harga untuk semua jenis tuna adalah tak anjal. Keanjalan pendapatan adalah anjal. xv
CHAPTER I INTRODUCTION Indonesia is the largest archipelagic nation in the world, consisting of more than 17,000 islands and 82,600 km 2 of coastline. The seas surrolu1ding Indonesia cover two major continental shelves, i.e the SlU1da and the Sahul - shelves with an area of about 775,000 km 2 (ADB, 1993). In addition, there are also large areas of inland open waters. One of the natural resources which can be exploited from the seas and inland waters is fish. Fishery products are all kinds of fish gathered from the seas and inland waters, including products processed with simple methods (dried and salted fish). The data on quantity and value of production can be seen in Tables 1 and 2. Table 1 Fisheries Production, 1987-1992 (thousands of tons) Source 1987 1988 1989 1990 1991 1992 Sea Inland Salted fish 2017.4 653.1 626.9 2169.6 711.6 590.7 2272.2 765.0 660.4 2370.l 792.4 725.8 2505.0 807.0 797.6 2647.0 82 1.2 876.5 (Source: Central Bureau Statistic of Indonesia, 1993) 1
2 Table 2 Fishery Output at Current and 1983 Constant Market Prices (billion rupiahs) Source 1987 1988 1989 1990 1991 1992 --------------- ------------------------------------------------------------------------------------------ At current market prices : Sea 1242.7 1483.1 1737.9 1912.2 2178.9 2436.5 Inland 875.3 998.8 1186.6 1302.6 1448.9 1579.7 Salted fish 61S.9 639.7 841.9 971.2 1126.1 1327.8 Total 2733.9 3121.6 3766.4 4186.0 4753.9 5344.0 At 1983 constant market prices: Sea 825.7 888.0 930.0 970.0 1025.2 1083.6 Inland 568.4 619.4 665.8 690.2 702.4 714.8 Salted fish 454.3 428.1 478.7 526.0 578.1 635.3 Total 1848.4 1935.S 2074.5 2186.2 230S.7 2433.7 (Source: Central Bureau of Statistics, 1993) The latest data from Central Bureau of Statistics (1993) on the Indonesian economy showed an increase in gross domestic product of 6.29% (at 1983 constant market prices). This rate of growth was a little lower than the proceeding year's rate of 6.90%. Export perfonnance in 1992 was as follows. Oil and gas exports in US dollar decreased by 2.1 %, while non-oil and gas exports increased by 27.7%. The fishery sub-sector as a part of non-oil and gas sub-sector increased by 5.08%. Indonesian fishery development policy emphasizes increasing exports and decreasing imports of fishery products. Consequently, during 1987-1991 export of fishery products increased by 30.76% per annum, (140,378 mt in 1987 as compared to
3 409,043 mt in 1991). In terms of value, the increase was 28.10% per annum, from USS 475,523 million to US$ 1,255,663 million during the same period (see Figure 1 arxl Figure 2). Shrimp and tuna /skipjack are important contributors to the total export Other fishery commodities are fresh/chilled, frozen and canned fish, frog legs, jelly fish, sea weed, coral and other shells, fat and oil fish, ornamental fish, snail, shrimp, crackers and pearls. Statement of the Problem Tuna is an important source of income for Indonesia after shrimp. It is exported mainly to Japan, The United States of America, Europe and other Asian countries (Thailand and Taiwan). Indonesian tuna has the capability to compete in the international market due to its resource availability as well as its quality. However, its contribution to international world market remains small at only about 4.67% in 1989. Furthermore tuna share in the world import is still relatively low (3.4% of total world imports) (Martono, 1991). Japan is a potential market for Indonesian tuna. About 9.8% of Japan's import of tuna is from Indonesia, which is equivalent to 90% of Indonesia's export of big tunas (fresh and frozen). Consequently, this high volume of tuna export to Japan have made I.ndonesia too dependent on Japan. On the other hand, although Indonesian tuna has a lower price fluctuations are found in the tuna export market (Figure 3). For instance, the price of exported tuna to Japan between August and October 1993 decreased by up
0- S,.. - 500 c 400 0 -.5 Q) E 300 ::s '0 > 1: &. 200.5 " c IS 100 1: W o llib11111ii11j1111bm1111.11111\1111.1111)11111iiiiialll!iiii!iii!iiii,iiii!iiiiuiiulillv 1987 1988 1989 1990 1991 _ Export: _ Import Year Figure 1 Export and Import Volume of Fisheries Production 1987-1991 -J::>.
1400 - g 1200 0 - - 1000 :;).s (I) 800 -e 600 0 0..E "0 400 c: cu -e 0 c. 200 0 1987 1988 1989 1990 export import Figure 2 1991 Year Export and Import Value of Fisheries Production 1987-1991 Vl
16 --; 14 "d I=l 12 ;j 0.cl 10 E-o '-" E-o 8 '" A rn 6 I=l... 4 (l) ;j... 2 a:l > 0 1989 1990 1991 1992 1993 - Prlo. of tr..h YF -t- Prlo. of fr h BE 1994 Year Figure 3 Price Fluctuation of Fresh Yellowfin (YF) and Bigeye (BE) 0\
7 to 50%. (Tempo, 1993). Since Indonesia is dependent on Japan's market, it is imperative to understand Japan's market behaviour. Hence there is a need to understand the Japanese demand for Indonesian tuna as a basis for better management of the tuna trade. In addition, due to the government policy and abundant resources of tuna, and comparative advantage in tenns of cost and production, Indonesia is interested in increasing tuna exports, in particular to Japan. Therefore a better understanding of the export demand for tuna by the Japanese will help the government to plan and formulate effective policies for tuna trade. Significance of the Problem Indonesia like most developing countries is trying to increase the exports of non-oil and gas commodities to countries such as Japan, USA, Europe and other Asian countries. Fisheries products are one of the important non oil and gas export commodity which can be used to increase foreign exchange and national income. Increasing the production and export of fishery commodities is often seen as an important activity for helping the rural poor and in achieving economic growth. This is based on the fact that the level of fisheries resource exploitation is generally low, about 30-55% of the natural resource potential (Naamin and Hardjamulia, 1990).
8 One of the exported fishery commodities which has good prospects for eaming foreign exchange is tuna. Based on both the resource availability and cost of production, there is good potential for further development in tuna trade. Tuna is abundant in the adjacent areas of Indonesian waters throughout the year. Cost of production of tuna, is relatively cheap compared to other tuna exporters in the region, especially in terms of labour cost. Labour costs in the tuna industry is cheap with a wage rate of about US $ 1.50 per day. Therefore, Indonesia has a comparative advantage over the other countries in the development of the tuna industry. Another important evidence of the potential for developing the tuna industry is the increase in the volume of Indonesian tuna exports in the international market. Indonesian tuna exports have been able to penetrate markets in Japan, USA, and Europe (particularly fresh tuna). Another important aspect of Indonesian's development strategy is to increase the marketing efficiency of fishery products. Market information, networks and intelligence are important ingredients for improving market performance (Supamo et ai, 1992 and Putro and Artaty, 1992). This study on the export demand for tuna hopes to generate useful information for the further understanding of the tuna trade.
9 Objectives of the Study The overall objective of the study is to analyse the Japanese demand for Indonesian tuna and its prospects for the Indonesian economy. The specific objectives are: 1. to exarrjne the Japanese demand for Indonesian tuna. 2. to describe the marketing channels and practices of tuna exports. 3. to estimate the export demand equation and obtain price elasticities for Indonesian tuna. 4. to provide some policy options for developing the tuna trade