Impact of Different Importation Policies Scenarios on Beef Industry in Peninsular Malaysia LIVE ANIMAL IMPORTS OF CATTLE AND BUFFALO IN PENINSULAR MALAYSIA, 1971 - 1975 TO 2011 – 2015 (HEADS)

The supply side of beef industry has not responded well to the rising demand for beef. This industry is still highly dependent on imported beef and feeder cattle for beef production to meet the local demand. The objective of this study is to analyse the impacts of different importation policy scenarios on beef industry in Peninsular Malaysia. A simulation model that based on estimated market model is used to analyse the policy. The findings imply that the number of import cattle for breeding (ICTB) should be maintained, while import of cattle for slaughter or feeder cattle should be increased by 20%. This will improve beef self-sufficiency level while stabilizing beef retail price.


INTRODUCTION
Beef industry is highly dependent on importation to deal with excess demand for beef. The importations are in the forms of live animal (cattle and buffalo) and processed meat. The imported live animals are used for slaughter or as feeder animals or for breeding purposes. The main volume of the importation usually is animal for slaughter. Table 1 presents the live animal imports for the period of 1971-1975 to 2011-2015. During those periods, import of cattle for slaughter increased from 1,188 heads to 77,901 heads, while import of cattle for breeding increased from 1,566 heads to 32,621 heads. Import of buffalo for slaughter increased from 411 heads to 1,516 and import of buffalo for breeding increased from 494 heads to 1,188 heads, during the same periods.  PENINSULAR MALAYSIA, 1971-1975TO 2011-2015 Year Cattle for Breeding (Heads) Cattle for Slaughter (Heads) Buffalo for Breeding (Heads) Buffalo for Slaughter (Heads) 1971-19751,566 1,188 494 411 1976-19805,021 5,263 151 150 1981-19856,818 6,529 251 299 1986-19901,719 2,121 99 215 1991-199513,792 13,377 638 2,451 1996-200041,593 25,901 357 2,148 2001-200521,085 53,808 711 1,361 2006-201022,170 59,803 103 2,039 2011-201532,621 77,901 1,188 1,516 Sources: Department of Veterinary Services (1970-1998, Department of Veterinary Services (2011), Department of Veterinary Services (2012), and Department of Veterinary Services (2019) and Rural Development Research Table 2 shows import of beef for the period of 1971-1975 to 2011-2015. Import of beef increased from 1,436 MT during the period of 1971-1975 to 151,689 MT during the period of 2011-2015. Despite an increasing amount, the growth rate of beef import is slowing down from 34.86% to 9.26%.  PENINSULAR MALAYSIA, 1971-1975TO 2011-2015 Year Beef Import (MT) Growth (%) 1971-19751,436 34.86 1976-19807,081 21.08 1981-198511,820 36.34 1986-199028,800 17.41 1991-199552,427 8.09 1996-200069,353 5.52 2001-200596,133 8.11 2006-2010103,956 0.41 2011-2015151,689 9.26 Sources: Department of Veterinary Services (1970-1998, Department of Veterinary Services (2011), Department of Veterinary Services (2012, and Department of Veterinary Services (2019) In term of local beef production, the beef animal population are still far below to provide sufficient number of animals for slaughter. The population growth rate is slow compared to growth rate of demand for slaughtered beef animal. Table 3 presents the beef  animal population from 1971-1975 periods to 2011-2015 periods. During these periods, total beef animal population increased from 552,517 heads to 733,778 heads. Beef cattle constitute more than 50% of beef animal population with an increased share of 50.44% during the period of 1971-1975 to 86.65% during the period of 2011-2015. Although the share of beef cattle to total beef animal population increased together with its population, the growth rate of beef cattle population is showing a declining trend. The growth rate of beef cattle population used to be 5.59% during the period of 1971-1975, but the rate was only 0.91% during the period of 2006-2010 and became negative (-2.86%) during the period of 2011-2015. For dairy cattle, the population number and share to total cattle population show a declining trend. The dairy cattle population growth rate was negative during the period of 1986-1990 to the period of 2001-2005. The same situation happened with buffalo population and share to total cattle animal population as it showed a declining trend with negative growth rate for the past forty-five years.

, and Department of Veterinary
Services (2019) Incapability to meet domestic demand remains as the main problem in beef industry. The slow growth rate of production of domestic cattle and buffalo in relation to the growth rate of its product demand still exists even after great interventions by Malaysia government. Low rates of multiplication and low effects of imported breeding animal caused the population base for beef animal to still be considered small. Since the supply could not meet the demand, beef industry in Malaysia has to depend on imports especially the imports of frozen and chilled beef. For the past forty years, more than 70% of beef requirement are supported by import of frozen and chilled beef. This type of import depresses the demand for and Rural Development Research local beef as the price of imported beef is generally cheaper. The production of local beef is discouraged because of this stiff competition.
Previously, beef policy simulation in Peninsular Malaysia had been done by Mohamed, Hosseini & Kamarulzaman (2013) and Ibragimov et.al (2016). Mohamed, Hosseini & Kamarulzaman (2013) analyse the policy using Vintage approach simulation matrix model, while Ibragimov et.al (2016) use system dynamic approach for the analysis. Both of these studies did not apply robust econometric approach in developing the model. For the past 30 years there were three econometric analyses on beef industry in Peninsular Malaysia -by Mohd Jani, Jaafar & Senteri, (1989), Mohd Jani & Ibrahim (1993) and Sarmin (1998). However, these studies did not proceed with policy simulation analysis.
For livestock commodities, the behavioural nature of the relationships between the major variables in the industries of interest have to be taken into account (Vere & Griffith, 2003). Vere, Griffith & Bootle (1993) suggest that changes in inventory are independent of economic influences but primarily determined by biological lags. Other studies that also include own lags population as the explanatory for cattle inventory are Tryfos (1974), Rucker, Burt, & LaFrance (1984), Lianos & Katranidis (1993), and Buhr (1993).
On the demand side, demand for beef may be sensitive to its own price. Previous studies provide different findings on this topic. For example, Baharumshah (1993), Baharumshah & Mohamed (1993) and Mohamed & Abdullahi (2004) have found that price elasticity of demand for beef to be inelastic, indicating that consumers are not sensitive to price change. Meanwhile, Mohd Jani & Ibrahim (1993) and Tey et.al (2010), have found that the price elasticity of demand for beef is more than 1, which means consumers are sensitive to price change. Previous studies have also stated that poultry meat is the most common substitute for beef (Mohamed & Roslan, 1989;Baharumshah, 1993;Baharumshah & Mohamed, 1993;Mohd Jani, Jaafar & Senteri, 1989;Mohd Jani & Ibrahim, 1993;Tey et.al, 2010). With respect to income, it was reported that demand for beef is not sensitive to income (Baharumshah, 1993;Baharumshah & Mohamed, 1993;Mohd Jani & Ibrahim, 1993;Tey et.al, 2010).
In brief, the purpose of this study is to identify factors affecting beef production and demand in Peninsular Malaysia. The aims are to explain how breeding inventory affecting the supply of beef cattle for slaughter and to describe the expenditure of beef in Peninsular Malaysia meat market. This study provides elasticities for both supply and demand side of Peninsular Malaysia's beef industry. Then it analyses the impacts of different importation policy scenarios on beef industry in Peninsular Malaysia.

RESEARCH METHOD
For this study, a market model is utilized to perform the policy analysis. Econometric approach is used to estimate the market model. The construction of market model begins with specifying the model structure and economic relationships before estimating the parameters from historical data (Labys & Pollak, 1984). To construct the framework in this study, the basic structure of a market model by Labys (1973) is used. The basic structure of the market model is as the followings. The structure of beef industry model in this study is almost similar to the model used by Mohd Jani & Ibrahim (1993) and Sarmin (1998). The difference is that in this model, price is not a determinant for beef cattle inventory. The beef cattle inventory which depends on breeding decision may be expected to be responsive to changes in price. However, Vere, Griffith, & Bootle, (1993) suggest that changes in inventory are independent of economic influences but primarily determined by biological lags. Therefore, in this model, the beef cattle inventory is mainly determined by its own lags and other categories of sex and age. The specific framework of beef industry is presented in Figure 1 The beef industry policy simulation is conducted based of Malaysian Agricultural Policy Analysis (MAgPA) model framework. MAgPA is a multi-commodity forecasting and policy simulation model for Malaysian agricultural sector (Fatimah et.al, 2012a;Fatimah et.al, 2012b). Once the beef industry model is estimated, the coefficient or elasticities are inputted into MAgPA. In order to analyse the beef industry policy simulation, the rate of changes of import of cattle for breeding (ICTB) and import of cattle for slaughter or feeder cattle (ICTS) are set.
Three different scenarios are defined; scenario 1, scenario 2 and scenario 3. Scenario 1 assumes that the beef industry grows at current rates of 10% for ICTB and 15% for ICTS. Scenario 2 tries to analyse the effects of increasing the ICTB while maintaining the number of ICTS. The rate of changes for ICTB is 20% and ICTS is 0%. This scenario reflects the intention of improving the population base of the beef cattle rather than investing more on foreign supply of beef cattle for their meat. The focus of this policy is more on increasing the breeding activities. Scenario 3, on the other hand, examines the effects of importing more cattle for slaughter or feeder cattle as the rate of changes of ICTS is set at 20% while ICTB is set at 0%. This scenario reflects the intention of supplying more fresh beef to the domestic and Rural Development Research market in order to reduce the dependency on import of frozen and chilled beef. The investment on breeding animal are maintain as it is. (MODIFIED FROM MOHD JANI & IBRAHIM, 1993, SARMIN, 1998, AND VERE & GRIFFITH, 2003

RESULT AND DISCUSSIONS
The estimated beef industry model in Table 5, 6 and 7 indicate that there are significant relationship between the dependent variables and the independent variables. The signs of the estimated independent variables are consistent with the priori expectation. In term of R2, the estimates are quite satisfactory. Jarque-Bera statistic shows that the residuals for each equation are normally distributed. Breusch-Godfrey Lagrange multipliers (BGLM) and Durbin-Watson tests indicate that there is no autocorrelation bias appears in the estimation. The estimated equations of beef cattle inventory are presented in Table 5. In female cattle above 3 years (FCA3) and female cattle below 3 years (FCB3) equations, one-year lagged of their own population are significance at 1% level. One-year lagged FCB3 also appears to be significance in FCA3 equations. The results suggest the importance of FCB3 in the development of FCA3. Retaining female cattle for longer period in beef cattle farming will increase breeding cattle population. Young female cattle are strictly retained for breeding purposes. In cattle breeding also, beef cattle operators need to explore more on artificial insemination (AIBA) and imported cattle for breeding (ICTB). The elasticities of FCA3 with respect to imported cattle for breeding (ICTB), FCB3-1, FCA3-1, and FCA3-2 are 0.0020, and Rural Development Research 0.1964, 0.5594, and 0.0355 respectively. While for FCB3, the elasticities with respect to FCB3-1, AIBA-1 and ICTB are 0.9515, 0.0010 and 0.0065 respectively.
Male cattle below 3 years (MCB3) and male cattle above 3 years (MCA3) equations also show the significance of their own one-year lagged population at 1% level. In MCA3 equation, one-year lagged MCB3 is significant at 5% level. The elasticity between one-year lagged MCB3 and MCA3 indicates that 1% increase in one-year lagged MCB3 will increase the MCA3 by 0.1482%. With low elasticities between MCB3 and one-year lagged AIBA (0.0602), and between MCB3 and one-year lagged FCA3 (0.0488), AIBA need to be explored more and the birth rate by female cattle needs to be increased in order to produce more male cattle.
The estimated equations of beef supply are presented in Table 6. In domestic cattle slaughtered (DSCFS) equation, MCB3 is significant at 10% level, suggesting that young male cattle population is important to sustain the supply of cattle for slaughter. The elasticities of DSCFS with respect to MCA3 and MCB3 are quite close at 0.4128 and 0.4519 respectively. This suggests that most of the cattle being channelled for slaughter are males. Slaughter of female cattle is being delayed for more than 3 years as FCA3 enter DSCFS equation with three-years lagged. The elasticity is 0.2542, indicating that 1% increase in three-year lagged FCA3 will increase DSCFS by 0.2542% which is almost half smaller than MCA3 and MCB3. Supply of cattle for slaughter is also influenced by price of beef (RPB). When RPB increase 1%, DSCFS will increase by 0.1992%. In contrast to DSCFS, three year lagged female buffalo above 3 Years (FBA3) is significant at 10% level in domestic buffalo slaughtered (DSBFS) equation. This indicates that older female buffalo is an important determinant in supplying buffalo for slaughter. The Impact of Different Importation Policies ….. (Buda et.al) elasticity between DSBFS and three-year lagged FBA3 is 0.4098. The contribution of male buffalo to supply of beef animal for slaughter is insignificant because buffalo population has been shrinking since mid-1960s due to technological advancement in paddy farming (Mohd Jani & Ibrahim, 1993). Therefore, the elasticity of DSBFS with respect to male buffalo above 3 Years (MBA3) and male buffalo below 3 years (MBA3) are only 0.1536 and 0.1641 respectively. DSBFS also does not respond to price as the elasticity between DSBFS and RPB is only 0.0253.
The estimated equations of beef demand are presented in Table 7. Beef consumption per capita (CPCB) is significantly determined by own price of beef (RPB) and income per capita (GDPPC) at 10% and 1% level respectively. Own price elasticity is negative which is a priori to demand theory. Increase in RPB by 1% will result in a 0.5651% decrease in CPCB. This result is consistent with the findings by Baharumshah (1993), Baharumshah & Mohamed (1993) and Mohamed & Abdullahi (2004) which indicates that price elasticity of demand for beef is inelastic. The elasticity of CPCB with respect to GDP per capita (GDPPC) is elastic at 1.1573, indicating that 1% increase in GDPPC will increase CPCB by 1.1573%. The elasticities of CPCB with respect to price for chicken meat (RPC) and price for fish (RPF) are 0.2090 and 0.1089 respectively. Chicken meat and fish are substitute products for beef. For beef industry policy simulation, beef production is projected to increase from 46,938 MT in 2011 to 96,472 MT in 2020 under scenario 1. This increase is caused by domestic cattle slaughtered which are projected to increase by an average of 0.38% annually. Domestic buffalo slaughtered are projected to decrease by an average of 0.25% annually. On the other side, beef consumption is also projected to increase from 164,578 MT to 263,911 MT during the same period. Beef consumption per capita is projected to increase from 7.11 kg to 9.46 kg. Beef self-sufficiency level increase from 28.52% in 2011 to 36.55% in 2020. Although the beef self-sufficiency level increases, beef import is still projected to increase by an average of 4.00% annually during the same period in order to stabilize the beef price. During the period of 2011 to 2020, beef retail price is projected to increase from RM19.15 to RM26.78. and Rural Development Research Under scenario 2, there is only a slight increase in beef production (TFBP) from 44,543 MT in 2011 to 45,798 MT in 2020. This is mainly due to the characteristic of beef production which depends much on imports of feeder cattle or cattle for slaughter. Although there are domestic cattle slaughtered (DSCFS), it still has a limit because not all domestic cattle can be slaughtered. This can be seen in the small growth rate of domestic cattle slaughtered at 0.56%. As for domestic buffalo slaughtered, it keeps on decreasing from 11,147 heads in 2011 to 10,376 heads in 2020. On the demand side, beef consumption per capita (CPCB) increases from 7.01 kg to 8.15 kg during the same period. As the population grows, total beef consumption (TCB) increases from 162,183 MT to 227,417 MT. Because of this rapid growth in beef consumption and only slightly increment in beef production, beef self-sufficiency level decreases from 27.46% to 20.14% during the same period. To fulfil domestic demand for beef, beef import grows annually at 4.86% rate during the same period. Beef retail price increases drastically from RM19.62 to RM35.15.
Lastly, beef production (TFBP) under scenario 3 is projected to increase drastically from 47,728 MT in 2011 to 131,849 MT in 2020. The effect of such growth causes a slight increase in beef retail price, from RM19.00 to RM21.39. When the supply side of beef industry drastically increases, the demand side will also increase due substitutability effect as beef is substituted for mutton and chicken meat. Consumer shifts to beef because beef retail price is declining in real term. Beef consumption increases from 165,368 MT in 2011 to 299,289 MT in 2020. Beef self-sufficiency level also increases from 28.86% to 44.05% during the same period.

CONCLUSIONS
Based on the estimated beef industry model, it can be said that the beef cattle population is still far from being able to supply sufficient amount of animal for slaughter because of low performance in breeding activities. This can be seen through the equations in the beef cattle inventory block. In beef cattle inventory block, beef cattle population are highly influenced by the population of its own lagged. Female cattle are the most important component in beef industry. The elasticity of FCB3-1 in FCA equation (0.1964) suggests that the mortality rate or death loss from female cattle is quite high as the elasticity is considered small. While the elasticity of FCA3-1 in MCB equation (0.0488) indicates the female cattle do not perform well in breeding activities. The productivity (in term of producing calf) needs to be continuously improved in order to increase the calving rate. The good sign in beef industry is that producers tend to hold female breeders for longer period as shown by the elasticity of FCA3-3 in slaughter equation.
Meanwhile, on the demand side, income elasticity of demand for beef is elastic, indicating that a 1% increase in income per capita (GDPPC) will increase beef consumption per capita by 1.1573%. The substitutability of chicken meat and fish are not elastic as the elasticities of chicken meat price and fish price with respect to beef demand are only 0.2090 and 0.1089 respectively. Impact of Different Importation Policies ….. (Buda et.al) From the estimation of beef industry equations, it can be summarized that death loss from female cattle contributes to low productivity of beef cattle. Meanwhile, from the beef industry policy simulation, it can be seen that fresh beef supply significantly depend on import of cattle for slaughter or feeder cattle.
To conclude, Malaysia can still improve the beef self-sufficiency level. The importation policy of breeder cattle should be improved on the quality such as low mortality rate and high yield. If this could be done, in the long run, breeding activities could be improved and consequently the multiplication rate of beef cattle could be increased. At the same time, the government has to deal with the increasing demand for beef through increasing the supply of fresh beef by continue importing cattle for slaughter or feeder cattle. This will help to stabilize the price of beef as the price of beef not only affects the beef industry, but could affect the supply and demand for other meats.