Transcript What happens in global value chains when the final

What happens in global value chains
when the final market shifts from the
North to the South?
Masuma Farooki, Raphael Kaplinsky,
Anne Terheggen and Julia Tijaja
Development Policy and Practice,
The Open University
Freeman Centre, 12th March 2010
The increasing globalisation of VCs
Services
Services
Design
Production
Competitive pressures
Marketing
The
Industrial Divide – from
Fordism to post-Fordism
nd
2
• From supply-push to demand pull
• Critical success factor in supply-push
– Price
– Volume
– Price
• Critical success factor in demand pull
– Quality
– Differentiation
– Price
The centrality of standards in
Global Value Chains
• Private sector standards – QCD
– Quality – as in parts per million
– Cost – price reductions by suppliers
– Delivery – more frequent, smaller and on-time
deliveries
• Govt standards
– Health and safety in work
– Product safety
• Civil society
– Labour standards
– Organic standards
Shifting Centres of Production
and Consumption
Why Are Markets Shifting from the North to the
South?
Structural Weakness in the North
• Production:
• Maturing Economies (Services Dominated)
• Imports ↑ from the South
• Consumption:
• Rising HH Debt to Savings/Income Ratio
• Un-sustainable Consumption
• Large Trade Deficits
Financial Crisis 2008 brings on a period of sharp refocus
• Export more
• Consume less
Sustained Consumption in the South
• Production:
• Resource-Intensive Economies (across all commodities)
• Manufactures led trade
• Employment levels rising
• Consumption:
• Historical high Saving rate
• Consumption levels rising
Financial Crisis 2008 brings about a period of ‘stimulus’
packages to maintain/support growth
• Support domestic consumption
• Support domestic infrastructure
Economy vs. Economy
Unemployment Rate*
Country
2005
2009
Germany
US
China***
10.6
5.1
9.8
8.0
9.3
4.3
Source: * IMF World Economic Outlook (January 2010)
** OECD Statistics
*** Other sources
Industrial
Production**
2009
-17.9
-9.8
9.3%
Economy vs. Economy
Country
Germany
US
China*
Current Account
Balance
(% of GDP)
2005
2009 2014
5.1
2.9
5.1
-5.9
-2.6
-2.7
7.2
7.8
8.4
Source: IMF World Economic Outlook (January 2010)
Shaded area estimates
* Other source
General Government
Balance (% of GDP)
2005
2009
2014
-3.3
-3.2
-4.2
-12.5
0.0
-6.7
-1.4
-4.3
Household Consumption
Total UK Personal Debt (£bn)
Total Secured Lending
Total Other Consumer
Credit Lending
Total Credit Card Lending
Source: http://www.creditaction.org.uk/debt-statistics/2010/march-2010.html
Consumption in the South
China’s Share of Global Consumption of Base Metals & Meat
1990
2000
2007
Base Metals ( % Share of World Demand)
1
Aluminium
5
13
33
Lead
7
10
31
Iron Ore
4
16
48
Copper
7
12
26
Food Products (% Share of World Consumption)
Poultry
9
18
17
Pork
35
47
46
Beef
2
10
12
Soybeans
Source: 1 Macquarie Commodities Research (2008)
2: Source: Conceicao and Mendoza (2008)
40
2
Projected Global Growth
Global GDP Growth (%)
15
10
5
0
-5
-10
2006
World
2007
2008
2009
Advanced Economies
Source: IMF World Economic Outlook (January 2010)
2010
2011
Emerging Economies
Source of Future Growth
% Change
2008
2009
2011
World Output
3
-0.8
4.3
Advanced
Economies
0.5
-3.2
2.4
Developing Asia
United States
China
India
7.9
0.4
9.6
7.3
6.5
-2.5
8.7
5.6
8.4
2.4
9.7
7.8
Source: IMF World Economic Outlook (January 2010)
Shaded area is projections
Source of Future Growth
2009
2011
World Trade Volume
(goods and services)
-12.3
Imports (% change)
6.3
Advanced Economies
-12.2
5.5
Emerging & Developing
Economies
-13.5
7.7
Exports (% change)
Advanced Economies
-12.1
5.6
Emerging & Developing
Economies
-11.7
7.8
Source: IMF World Economic Outlook (January 2010)
Shaded area is projections
China’s and India are not unique..
GDP (Constant US $ 2000)
3.5
Log GDP
3
2.5
2
1.5
1
0.5
0
1
6
11
16
21
26
31
36
Elapsed years from onset of boom
China (1979-2005)
India (1979-2005)
Japan (1960-2004)
Korea (1963-2006)
41
China’s and India are not unique..
Growth of Exports (Constant US $)
6
Log Exports
5
4
3
2
1
0
1
6
11
16
21
26
31
36
Elapsed years from onset of boom
China (1979-2005)
India (1979-2005)
Japan (1960-2004)
Korea (1963-2006)
41
Households according to disposable income bracket
in BRIC countries: 2002/2007 '000 households
Distinctive Features of Low
Income Markets
• Demand is commodity-intensive
Distinctive Features of Low
Income Markets
• Demand is commodity-intensive
• Price Price and affordability
• Standards not important
–Undifferentiated products and low firm
standards
–Few state concerns with health and safety
–Weak civil society
• Import of relatively unprocessed products
–similarity of labour endowments
–insensitivity to environmental issues
Cassava in Thailand
•
•
•
•
Cassava the poor men’s crop
4th more important source of starch. Staple, food security
Bulky and perishable
Traded in processed form: intermediate products
Farmers
roots
roots
starch waste
Drying
Chips
yards
-
Native starch factories
normal chips
Export (ethanol) China
clean chips
starch waste
dried native starch
slurry
Modified starch factories
Domestic (feed)
normal chips
starch waste
Pellet plants
Food industry
domestic / export
via exporters
Non food industry
domestic / export
Export (feed) EU, etc
Starch derivatives
domestic / export
or starch
Cassava in Thailand
•
•
•
•
•
•
•
Cassava the poor men’s crop
4th more important source of starch, staple, food security
Bulky and perishable
Traded in processed form: intermediate products
Thailand third largest producer
Thailand the largest global exporter
Unique in Thailand as predominantly industrial crop
Thailand’s Share in World Cassava
Exports, 1961-2007
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
Starch
Dried cassava
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
1979
1977
1975
1973
1971
1969
1967
1965
1963
1961
0%
100%
6
5
80%
70%
4
60%
50%
3
40%
2
30%
20%
1
10%
0%
0
1999
2000
2001
Share EU
2002
2003
Share China
2004
2005
Share Korea
2006
2007
2008
Total volume
Metric tonnes
Share in Thai dried cassava exports
90%
Millions
Thai Dried Cassava:
The shift in Export Destination
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
Metric Tonnes
Millions
Thai Cassava Export Composition
12
10
8
6
4
2
0
Starch
Pellets
Chips
Thai Cassava Export: China vs. Japan
20%
14%
18%
12%
16%
10%
14%
12%
8%
10%
6%
8%
4%
6%
4%
2%
2%
0%
0%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
China value
China volume
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Japan value
Japan volume
Thai Cassava Export: China vs. Japan
20%
14%
18%
12%
16%
10%
14%
12%
8%
10%
6%
8%
4%
6%
4%
2%
2%
0%
0%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
China value
China volume
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Japan value
Japan volume
Thai Cassava Export: China vs. Japan
20%
14%
18%
12%
16%
10%
14%
12%
8%
10%
6%
8%
4%
6%
4%
2%
2%
0%
0%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
China value
China volume
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Japan value
Japan volume
Thai Starch Export Composition to China
80%
70%
60%
50%
40%
30%
20%
10%
0%
2001
2002
2003
Native starch
2004
2005
Modified starch
2006
Farmers
roots
roots
starch waste
Drying
Chips
yards
-
Native starch factories
normal chips
Export (ethanol) China
clean chips
starch waste
dried native starch
slurry
Modified starch factories
Domestic (feed)
normal chips
starch waste
Pellet plants
Food industry
domestic / export
via exporters
Non food industry
domestic / export
Export (feed) EU, etc
Starch derivatives
domestic / export
or starch
Concluding on Thai cassava sector
•
•
•
•
•
Two families of products – dried cassava and starch
Each family has higher value sub-products
Market shifts from EU to China for dried cassava
China wants chips not pellets
Standards: EU HACCP & GMP
China high starch content
But because of different industries
Concluding on Thai cassava sector
•
•
•
•
•
China’s starch demand growing
More native starch
Standards: based on industries
China price sensitive
Speculations: level of market sophistication?
Timber in Gabon
•
•
•
•
•
Oil
Under-populated and labour shortage
Corruption
Untapped minerals
Timber (tropical wood)
– 13th largest producer
– 3rd largest exporter (16% market share)
Timber Value Chain in Gabon
China’s Growing Share of Exports in
Timber Processing Industries (percent)
Furniture
Veneer
Plywood
Fibreboard
1992
2.7
0.7
0.2
0.5
Source: compiled from UN Comtrade accessed December 2009
2008
24.7
0.1
0.2
11.4
China’s Imports of Logs and Wood
Products (1,000 m )
3
18000
4500
16000
4000
14000
3500
12000
3000
10000
2500
8000
2000
6000
1500
4000
1000
2000
500
0
0
1970
1975
Logs (left)
1980
1985
Sawnwood (right)
Source: compiled from FAO ForesSTAT accessed December 2009
1990
1995
2000
Veneer sheets (right)
2005
Plywood (right)
Logs and Wood Product Demand
Distribution for China and the EU-15
(1997-2006; 1,000 m3)
2000
1750
1500
1250
1000
750
500
250
0
logs
sawnw.
veneers
plyw.
China
Source: compiled from FAO ForesSTAT accessed December 2009
logs
sawnw.
veneers
EU-27
plyw.
Chinese and EU buyers’ CSFs - Logs
(1=not important, 5=very important)
Price
EU
CN
Environmental
compliance
Volume
5
4
3
2
1
0
Variety tree species
Quality
Chinese and EU buyers’ requirements –
International Regulation and Standards
(1=not important, 5=very important)
EU
Formaldehyde emissions
5
CN
ISO standards
4
3
Phytosanitary
requirements
2
1
GPP
0
Sustainability certification
requirements
Product testing
requirements
Building codes
Legality certification
requirements
Concluding on Gabon’s Timber Sector
• Strong endowment of scarce resource (esp. Okoumé)
• Growth of value adding production (sawnwood, veneer and
plywood) due to GA legislation and EU demand
• China becomes the dominant global importer with growing
domestic processing capacities
• China only wants unprocessed logs
• Standards?
– Growing importance in EU (both state and civil society)
– Chinese buyers uninterested
• Complex developmental impacts
Some questions
• How generalisable across sectors?
• Is this a moving frontier –
–Northern markets will reappear?
–China becomes a quasi-northern market?
• What about India and other emerging
economies?
• Distributional implications?
• Static or dynamic comparative advantage?
• South-South – win-win or win-loose….?