The document summarizes the results of an economic model analyzing future scenarios for Vietnam's pig sector. The base scenario projects that traditional pork consumption will increase 57% over 10 years while modern pork consumption doubles. Maize imports are projected to reach 4 million tons by 2023 to meet growing feed demand. Alternative scenarios examining higher income growth, technological changes, and policy options suggest the modern pig sector will likely remain small, around 4-8% of production over the next decade.

1. Future scenarios for pig sector development in
Vietnam:
Results from an updated policy simulation model
Nguyen Ngoc Que (CAP)
Nguyen Anh Phong (CAP)
Do Huy Thiep (CAP)
Karl Rich (NUPI)
Nicholas Minot (IFPRI)
Lucy Lapar (ILRI)
A Policy Dialogue on the Vietnam Pig Sector
IPSARD, 16 Thuy Khue St., Hanoi, Vietnam
14 April 2014.

2. Outline of presentation
Background on pig sector
Objectives of analysis
Methods: Description of model
Results
Base scenario
Alternative scenarios
Conclusions
Policy implications

3. Background of pig sector in Vietnam
 Pig production
 Large proportion of rural Vietnamese households grow pigs
 A few large-scale pig farms, particularly in the south
 Contract farming exists but is rare
 Marketing
 Rural areas – small farms sell locally, medium & large supply cities
 Urban areas – mix of temp neighborhood markets, permanent open
markets, and supermarkets
 Pork consumption
 Pork is dominant form of meat consumed in Vietnam
 Growing per capita consumption due to income growth &
urbanization
 Concern about safety, preference for fresh meat
 Most buy fresh from traditional market
 Small but growing demand for processed and chilled pork at modern
retail outlets in urban areas, particularly in south

4. Objectives
How will rising income & urbanization affect total pork
demand and the composition of pork demand?
How will shifts in pork demand influence pig producers,
particularly small-scale producers ie will small-scale pig
producers be squeezed out of the market?
How will growth of pig production affect maize markets
– will imports grow?
How would alternative policies, institutions, and
technologies influence evolution of pig sector?

5. Economic models
Definition: a set of equations designed to represent
the supply and demand for different goods
Model equations and relationships
External factors such as technology, world
markets, policy, and income growth
Outcomes of variables of interest: production,
consumption, trade, prices, and income

6. Economic models
Strengths
Models can represent complex interactions
between markets for related goods
Can be used to simulate the impact of alternative
policies before implementing them
Weaknesses
Cannot predict the future – they merely tell us the
logical consequences of our assumptions
Reliability of results depends on the quality of the
data and assumptions used in the model

7. Characteristics of Vietnam pig model
 Partial equilibrium
 Focused on maize and pig sector, does not attempt to
capture all sectors of the economy
 Spatial equilibrium
 Simulates markets in eight regions of Vietnam
 Each region can be surplus, deficit, or self-sufficient
 Price differences <= transportation & mkting costs
 Recursive dynamic
 Simulates over multiple periods (years) with growth in
income, population, and production technology
 We run the model to simulate 10 years into the future

8. Characteristics of Vietnam pig model
 Commodities
 Maize for human consumption and for animal feed
 Traditional pig production – small-scale production
for the fresh pork market
 Modern pig production – large-scale production for
chilled and processed pork to be exported or sold
at supermarkets
 Regions
 Seven regions: Northern Uplands, Red River Delta,
North Central Coast, South Central Coast, Central
Highlands, Southeast, and Mekong River Delta

9. Characteristics of Vietnam pig model
Production in each region based on GSO statistics
Per capita consumption based on VHLSS for total
pork consumption and ILRI-CAP survey for
traditional-modern composition
International trade based on FAO & USDA statistics
Prices derived from VHLSS.
Transportation costs between regions based on
distance and estimates of per-km transport costs
Demand elasticities from ILRI-CAP consumer survey
Supply elasticities based on estimates in similar
countries

10. Characteristics of Vietnam pig model
10 types of variables (e.g. production)
289 individual variables (e.g. production of maize in
the Central Highlands)
10 years simulated for each scenario
8 scenarios run
= 23,120 outcome variables
Need to summarize results!
Focus on national totals and averages
Focus on growth rates over 10 year period
Focus on differences between base and each other scenario

11. Base scenario - assumptions
Parameters Assumptions
Per capita income growth rate 5% per year
Population growth rate 1.05% per year
Technological growth rate
Maize 2% per year
Traditional pig sector 3% per year
Modern pig sector 4% per year
Income elasticities of demand
Maize 0.25
Traditional pig sector 0.90
Modern pig sector 1.80

12. Base scenario - Results
Outcome variable Results
Consumption • Traditional pork consumption grows 4.6% (57%
increase over 10 years)
• Modern pork consumption grows 7.2% (doubles
over 10 years)
• Maize for human consumption grows slowly (1.7%)
• Maize for feed grows 4.4%
Production Traditional & modern pig sectors grow 4.6 & 6.5%
Prices Traditional pork prices rise slightly as demand
outpaces technology. Other prices stable.
International trade • Slightly rising modern pork exports.
• Maize imports grows 8.1% reaching to 4 million
tons in 2023, as demand outpaces technology
Share of modern pig
sector
Remains constant at around 4%. Modern pork
demand rising slower, but offset by rising exports.

13. Higher income growth scenario
Assumption Change from base scenario
Per capita income growth rate 5%  10% per year
Outcome variable Results compared to base scenario
Consumption • Traditional & modern pork demand grows more
quickly (4.6% 7.3% and 7.2% 14.1%).
Production Modern and traditional pig sectors grow more quickly
(4.6% 7.3% and 6.5% 8.9%)
Prices • Retail price of traditional pork rises faster (3.4%
9.3%)
• Price rises in modern pork and maize muted by trade
International trade • Modern pork exports stop after 2 years, as growth in
domestic demand chokes it off.
• Maize imports grow more, reaching 7.4 m tons
Share of modern pig Rises slightly from 3.6% to 4.1%. Modern pork

14. Higher technological growth in modern pig sector
Assumption Change from base scenario
Technological growth in modern pig sector 4%  10% per year
Outcome variable Results compared to base scenario
Consumption • Little change from base scenario
Production • Modern pig sector grows more quickly (6.5 12.6%)
• No change in traditional pig sector
Prices Same pattern as in base scenario, modern pork prices
hardly fall because it is a tradable good
International trade • Modern pork exports increase 9.4 times over 10
years, reaching 91 thousand tons.
• Maize imports grow to 4.5 million tons over 10 years,
more than in baseline (4 mt)
Share of modern pig
sector
Rises from 3.6 to 8.2% over 10 years. Modern pork
demand rising slower (3 to 4%).

15. No technological growth in traditional pig sector
Assumption Change from base scenario
Technological growth in traditional pig sector 3%  0% per year
Outcome variable Results compared to base scenario
Consumption • Lower growth in traditional (4.6% 3.4%)
• Higher growth in modern (7.2 8%)
Production • Lower growth in traditional pig (4.6% 3.4%)
• Almost no change in modern pig and maize
Prices • Retail price of traditional pork grows at 7.5%, (doubles
over 10 years)
• Maize price stable with slower growth of feed demand
International trade • Modern pork exports reduce 81%
• Maize imports decline to 3.4 million tons over 10 years,
less than in base (4 m.t.)
Share of modern pig
sector
Rises from 3.6 to 5.0%. Share of modern pork demand
rising a bit faster (3 to 5%).

16. No technological growth in maize sector
Assumption Change from base scenario
Technological growth in maize sector 2%  0% per year
Outcome variable Results compared to base scenario
Consumption • Almost no change (both pork & maize)
Production • No change in pig production
• Maize production growth falls from 2.2 to 0.2%
Prices No change in maize prices due to imports. Pork prices
stable.
International trade • Little effect on modern pork exports
• Maize imports rise to 4.9 million tons over 10 years
Share of modern pig
sector
As in base scenario, remains stable at 4.4%. Modern
pork demand is same as in base (4%) over 10 years.

17. Higher income elasticity of modern pork
Assumption Change from base scenario
Income elasticity of modern pork 1.8  2.7
Outcome variable Results compared to base scenario
Consumption • Higher growth in modern pork demand (7.2%
9.4%), almost 2.5 times increase over 10 years
Production • Growth in modern pig production rises 6.5% 8.3%
• Little change in traditional pig or maize sectors
Prices Retail price of modern pork rises a total of 8.2% over
10 years as demand outstrips technological change
International trade • Modern pork exports stop after 4 years instead of
continuing through 10+ years as in base.
• Maize imports almost similar to in the base
Share of modern pig
sector
Rises from 3.6 to 5.2%. Modern pork demand rising a
bit faster (3 to 5.2%).

18. Higher income elasticity & higher tech growth
in modern pig sector
Assumption Change from base scenario
Income elasticity of modern pork 1.8  2.7
Technological growth in modern pig sector 4%  10%
Outcome variable Results compared to base scenario
Consumption • Growth in modern pork demand rises from 7.2% to
12.1%, triples (3-fold increase) over 10 years
Production • Growth in modern pig production rises 6.5% 12.6%
• No change in traditional pig or maize sectors
Prices Little decrease in traditional & modern pork price
growth, as in base scenario
International trade • Maize imports rise to 4.5 millions tons, more than in
base scenario (4mt) because of modern sector growth
Share of modern pig
sector
Rises from 3.6% to 8.2%. Share of modern pork
demand rising a bit slower (3 to 6.7%).

19. Worst –case scenario for traditional pig sector
Assumption Change from base scenario
Per capita income growth 5%  10%
Income elasticity of traditional pork 0.9  0.5
Income elasticity of modern pork 1.8  2.7
Technological growth in traditional pig sector 3%  0%
Technological growth in modern pig sector 4%  10%

20. Worst –case scenario for traditional pig sector
Outcome variable Results compared to base scenario
Consumption • Growth in traditional pork demand 4.6%  3.7%
• Growth in modern pork demand 7.2%  24.1% (9x)
Production • Growth in traditional pig output 4.6%  3.7%
• Growth in modern pig output 6.5%  15.2% (4x)
Prices Retail pork prices rise 8-9%, more than in base
scenario (4-5%)
International trade • Modern pork exports stop after year 2
• Maize imports rise to 4.7 million tons, more than in
base scenario (4mt) because of modern sector growth
Share of modern pig
sector
Share rises from 3.6% to 11.3%. Share of modern pig
demand grows very rapidly from 3% to 21.8%, but
from a very small base

21. Conclusions
 Modern pig sector is very small
 Large-scale modern producers are about 4% of
national production
 Consumption of frozen, chilled, and canned pork is
just 3% of total
 Modern sector will remain small over the next decade
 Modern sector 4-8% of pig production over next 10
years except under extreme assumptions
 In worst-case scenario for traditional sector, modern
sector grows 4-fold but still only reaches 11% of total
production. Its demand share reaches 22% of total
due to decrease in supply & demand of traditional pork,
and due to stop export of modern pork.

22. Conclusions
 Growth in modern sector depends more on technology than
demand (as surplus could be exported)
 With exports, changes in demand affect volume of
exports, not production
 Improved technology expands output
 Pork exports fade out within 10 years in most scenarios
 Rapidly growing demand is likely to displace exports
 Only exception: high technological growth in modern pig
sector
 Maize imports rise to 4-5 million tons (doubles or triples as
compared to that in 2013)
 Exception: Lowest maize imports (3 million tons) if
traditional pig production technology is stagnant
 Exception: Imports over 7 m tons if income growth is
high

23. Policy implications
 Not necessary to protect small-scale pig farmers
• Small-scale pig sector may grow more slowly than
large-scale, but will not decline
• Modern large-scale sector too small to threaten
traditional small-scale sector for at least 10 years
production
• Regulation of modern large-scale pig production
• For environmental and food safety reasons
• But not out of equity concerns
• Nor should government “impose” modernization of
small-scale production for its own sake
• Food safety and animal disease regulation of
traditional sector must take into account feasibility
and cost-benefit ratio

24. Policy implications
 Highlights important of technological improvement
• In modern sector, technology will maintain
exports in face of growing domestic demand
• In traditional sector, technology will reduce price,
maintain market share, and have pro-poor
impact
• In maize sector, technology will reduce and delay
maize imports in response to growing pig and
poultry sectors