Impacts of food safety regulations on vietnam seafood export

UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES HO CHI MINH CITY THE HAGUE VIETNAM THE NETHERLANDS VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS IMPACTS OF FOOD SAFETY REGULATIONS ON VIETNAM SEAFOOD EXPORT BY DANG THI LY LY MASTER OF ARTS IN DEVELOPMENT ECONOMICS HO CHI MINH CITY, February 2016 UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES HO CHI MINH CITY THE HAGUE VIETNAM THE NETHERLANDS VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS IMPACTS OF FOOD SAFETY REGULATIONS ON VIETNAM SEAFOOD EXPORT A thesis submitted in partial fulfilment of the requirements for the degree of MASTER OF ARTS IN DEVELOPMENT ECONOMICS By DANG THI LY LY Academic Supervisor: Dr NGUYEN HOANG BAO HO CHI MINH CITY, February 2016 ABSTRACT This paper employs gravity model to analyze the bilateral seafood trade between Vietnam and 17 countries from 1997 to 2012 The panel data is taken from Vietnam General Statistics Organization, International Monetary Fund, World Bank and Centre d'Etudes Prospectives et d'Informations Internationales The Hausman Test indicates that fixed effects model is suitable for estimating the regression The estimation results show that food safety regulations and exchange rate significantly affect seafood export On the other hands, importing GDP and distance is statistically insignificant Also the trade potential result reveals that Vietnam has many opportunities to develop trade with Europe partners Key words: Gravity Model, seafood export, Vietnam iii ACKNOWLEDGEMENT I have made great efforts to finish this thesis; nevertheless, it would have not been finished without support of many individual and organizations I highly appreciate their full support during this hard time Iwould like toespecially thank all of my academic supervisors, the Scientific Committee, and staff of Vietnam- Netherlands Program for their guidance and support with this thesis Finally,I would like to express my special appreciation to my whole family and classmates for helping me complete this thesis iv TABLE OF CONTENTS ABSTRACT iii ACKNOWLEDGEMENT iv LIST OF FIGURES viii LIST OF TABLES viii LIST OF APPENDICES viii ABBREVIATIONS ix CHAPTER INTRODUCTION .1 1.1 Problem statement 1.2 Significance of study .3 1.3 Research objective 1.4 Research question 1.5 Scope of study .3 1.6 Structure of thesis CHAPTER FOOD SAFETY AND VIETNAM SEAFOOD EXPORT 2.1 Food safety and policy context .5 2.1.1 Food safety .5 2.1.2 Hazard Analysis and Critical Control Points (HACCP) 2.1.3 European laws 2.1.4 Japan laws .7 2.2 Overview of vietnam seafood sector in vietnam 2.3 Evidence of food safety standards (sps agreement and technical barrier) impact on vietnam exports CHAPTER 3.LITERATURE REVIEW 12 3.1 Theoretical review of gravity model 12 3.2 Different origin of a product 13 3.3 Trade and monopolistic competition 13 v 3.4 Trade and differing factor endowments 14 3.5 Trade and differences in production technologies 14 3.6 Empirical literature 15 CHAPTER 4.RESEARCH METHODOLOGY AND DATA 18 4.1 Data collection .18 4.2 Methodology 24 4.2.1 Model specification .25 • Theoretical gravity model with importer fixed effects ………………… 26 • Theoretical gravity model with time and importer fixed effects………… 26 • Theoretical gravity model with random effects…………………………… 26 4.2.2 Dependent variables 26 4.2.3 Independent variables 26 • Vietnam’s output of seafood 26 • Population 27 • Exchange rate 27 • Food safety regulations between importing and exporting country 27 • Importing country’s GDP 27 • Distance 28 4.2.4 Estimation method 29 CHAPTER EMPIRICAL RESULTS 30 5.1 Results of Breusch-Pagan Lagrange Multiplier test, the Huasman Test, and checking of Heteroskedasticity 30 5.2 Gravity model’s estimation result .31 5.3 Trade potential .33 5.3.1 Vietnam trade potential evaluation .34 CHAPTER CONCLUSION 36 6.1 Findings .36 vi 6.2 Policy implications 37 6.3 Limitations and recommendations for future research 37 REFERENCES 39 LIST OF APPENDICES 45 vii LIST OF FIGURES Figure1.1: Vietnam seafood export (1997-2012) Figure 2.1: Total Vietnam aquaculture export (1999-2011) Figure 4.1: Average Vietnam seafood export volume (1997-2012) 18 Figure 4.2: Relationship between Vietnam seafood export and output 19 Figure 4.3: Relationship between Vietnam seafood export and importing countries’ GDP 20 Figure 4.4: Relationship between Vietnam seafood export and Japan’s GDP 21 Figure 4.5: Relationship between Vietnam seafood export and USA’s GDP 21 Figure 4.6: Relationship between Vietnam seafood export and EU15’s GDP 22 Figure 4.7: Relationship between Vietnam seafood export and distance 23 LIST OF TABLES Table 2.1: Violations of seafood hygiene standards by Vietnamese Exports, 2002-2007 Table 3.1: Summary of Empirical Studies 16 Table 4.1: Descriptive statistics of variable in the model 24 Table 4.2: Definition and measurements of all variables in this study 28 Table 5.1: Estimation results of gravity model (aggregate seafood) 31 Table 5.2: Trade potential between Vietnam and USA, Japan and EC-15 34 Table 5.3: Time of convergence 35 LIST OF APPENDICES Appendix 1: List of 15 European countries 45 Appendix 2: Regression Results 46 viii ABBREVIATIONS CEPII Centre d'Etudes Prospectives et d'Informations Internationales EU European Union FAO Food and Agriculture Organization of the United Nations FDA Food and Drug Administration HACCP Hazard Analysis and Critical Control Point Certification System MOIT Ministry of Industry and Trade NAVIQAFED National Fisheries Quality Assurance and Veterinary Directorate SPS Sanitary and Phytosanitory Standard TPP Trans Pacific Partnership Agreement TQM Total Quality Management VASEP The Vietnamese Association of Seafood Exporters and Producers WTO World Trade Organization ix CHAPTER INTRODUCTION 1.1 Problem statement Since 1984 the record of world seafood export has increased remarkably and achieved USD 102.5 billion in 2010 (FAO, 2012) The top three largest markets have been EU, Japan and United States 49 percent of world exportvalue has been from many developing countries such as Vietnam, China, Africa, etc., (FAO, 2012) 8.538e+08 Japan U.S.A export_USD 8e+08 6e+08 4e+08 2e+08 EU-15 1995 2000 2005 year 2010 2015 Source: GSO (2015) Figure 1.1: Vietnam seafood export (1997-2012) The value of seafood export has recently had a great contribution to Vietnam GDP, about 4-5% Its aquatic product export has become one of four major export products in terms of value In 2014, export value of seafood was USD 7.84 million, 16.5% higher than 2013 (FAO, 2012) According to Vietnam Association of Seafood Exporters and Processors (VASEP), in 2014 Vietnam exceeded the target of USD Sweden The U.K Luxembourg 1429578 5.94 4228410 -5.91 317438.1 -34.68 1-Convergence – Divergence 1 Source: Author’s calculation Top ten countries with smallest time of convergence are shown in Table 5.3 Obviously, these countries belong to European group It confirmed that this long-time market still promised many opportunities for Vietnam seafood export Table 5.3: Time of convergence Belgium Time of convergence 17614411.35 Denmark 3430843.563 France 197795349 Germany 633502169.8 Greece 3034172.84 Italy 45538961.78 Portugal 20110437.09 Spain 132123408 The UK 105730151.7 Luxembourg 109555.89 Country Source: Author’s calculation 35 CHAPTER 6: CONCLUSION This chapter will summarize the main methodology and the empirical results obtained from regression Several policy implications will be recommended based on results The limitations are also drawn out andrecommendations for future research will be suggested 6.1 Findings The main purpose of this paper is to find how the food safety regulations affect Vietnam seafood export and make some policy recommendations because seafood export plays an important role in developing economy Gravity model has been chosen because it is considered as one of the most successful tools of explaining bilateral trade Its estimation of period of 1997 and 2012 gives the most updated results Other than basic variables of gravity model, other variables including population of Vietnam and importing countries, exchange rate, food safety regulations were added to better explain the dependent variable Result of Hausman test has showed the fixed effects model is better than random effects model to estimate regression Because the fixed effects model is in shortage of coefficients of distance and Vietnam population, the coefficients of random effects models have been used to explain their effects on dependent variable Estimation results have not shown the clear effect of food safety regulations With imported fixed effects, food safety regulations variable is statistically significant, but the sign is not Food safety regulations are considered a catalyst instead of barrier to Vietnam seafood export When adding time fixed effects to the model, the food safety regulations become an insignificant factor It implies that Vietnamese firms might not compete against other firms with similar products It’s expected that Vietnamese firms to focus more on food safety regulations and comply it properly The GDP and distance on Vietnam seafood export are insignificant factors of determining seafood exports Vietnam seafood export pattern does not seem to follow 36 the theoretical gravity model It the case of GDP, Vietnam might not focus on the rich countries to develop business, but have to find out the client is in favor of Vietnam seafood Distance is a proxy of transportation costs which less affect the Vietnam seafood export The dependent variables might be affected by border effects The bilateral exchange rate is statistically significant and shows positive relationship with Vietnam seafood export In other words, to promote seafood export in particular and all other commodities in general, Vietnam should devalue its currency Based on the result of speed of convergence, EU is promising market which Vietnam manufacturer should focus on 6.2 Policy implications Results of this studies show that determinants of Vietnam seafood exports are food safety regulations and exchange rate The food safety regulation can be a catalyst for Vietnam seafood sector The findings recommend that the Vietnamese Government should establish a strong controlling system to monitor the responsibility of different ministries and agencies at different layers It also helps the local firm to meet the food hygiene requirement (Le & Pham, 2010) In the firm levels, the exporter should invest more on equipment and R&D to comply with food safety requirement In addition, due to financial constraint, most of Vietnamese firms cannot invest the whole product chain to meet requirement of HACCP, EU laws or Japanese laws, they can cooperate with other international companies to deal with issue The exchange rate also has positive effects on export Policy makers should take it into consideration when designing monetary policy 6.3 Limitations and recommendations for future 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