UNIVERSITY OF ECONOMICS ERASMUS UNVERSITY ROTTERDAM HO CHI MINH CITY VIETNAM INSTITUTE OF SOCIAL STUDIES THE NETHERLANDS VIETNAM – THE NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS THE IMPACT OF FOOD SAFETY STANDARD ON COFFEE EXPORT THE CASE IN VIETNAM DURING 2005-2014 BY TRUONG TAN TAI MASTER OF ARTS IN DEVELOPMENT ECONOMICS HO CHI MINH CITY, OCTOBER -2016 ABSTRACT The objective of this study is to scrutinize the impact of FSS on the quantity of Vietnam’s coffee export Meanwhile, the regulated number of pesticides or average maximum residue levels is usually applied as a measurement of Food Safety Standard of a country The data covers 56 countries from 2005 to 2014 due to the data availability from AgrobaseLogigram’s Homologa database providing coffee FSS The Fixed effect estimator is employed in the panel gravity model Furthermore, Driscoll – Kraay Standard Errors for Fixed effect estimator is used for robustness checks Significantly, the primary findings determine that the regulated number of pesticides has a negative impact while average maximum residue levels have a positive effect on the export of Vietnamese coffee Furthermore, GDP per capita of importing countries, domestic consumption, and TWO member dummy variable demonstrate a contribution to Vietnamese coffee export Meanwhile, the real exchange rate depreciation and price*distance variable indicate a negative influence on the quantity of Vietnam’s coffee export Last but not least important, there are not any significant evidences proving the effect of trade openness and tariff on Vietnamese coffee export in the study Keywords: Food safety standard, Vietnam’s coffee export, panel gravity model i ACKNOWDGEMENT Firstly, I would highly appreciate my advisor Dr Nguyen Huu Dung for his valuable advice, consideration, and agreeable methodology during the time for conducting this thesis If there are not such valuable things, I am unable to complete my thesis in time Secondly, I am grateful to Dr Truong Dang Thuy providing me with precious instructions and encouragement Besides that, I also express my appreciation to dedicated professors and staffs in the Vietnam – Netherlands Programme who always support me during the time at VNP Thirdly, I wish to express my thankfulness to my classmates and my friendly group in Class 20 The kind assistance, useful discussion, and wonderful memories together from them will be imprinted in my heart Finally, I have no word to manifest my deep gratefulness to my loved family They have to sacrifice the best things for me to have this opportunity to study at VNP and complete this thesis ii ABBREVIATIONS CEPII The Centre d’Études Prospectives et d’Informations Internationales EEC European Economic Community EU The European Union FSS Food safety standards FTA Free Trade Agreement MRLs Maximum Residue Levels of Pesticides OLS Ordinary least squares SPS Sanitary and Phytosanitary TBT Technical Barriers to Trade TRAINS The UNCTAD Trade Analysis Information System UN Comtrade The United Nations Commodity Trade Statistics Database WTO World Trade Organization iii CONTENTS ABSTRACT ACKNOWDGEMENT ABBREVIATIONS CONTENTS LIST OF TABLES LIST OF FIGURES CHAPTER 1: INTRODUCTION 1.1 Problem statement 1.2 Research objectives 1.3 Research questions 1.4 Scope and limitations of the study 1.5 The structure of the study CHAPTER 2: LITERATURE REVIEW 2.1 The definitions 2.1.1 Pesticides 2.1.2.A maximum residue level or limit (MRL) 2.2 Some contributions to gravity model theory 2.3 Empirical research 2.3.1.Gravity model estimation using MRLs 2.3.2.Gravity model estimation using the regulated numbers of pesticides 2.3.3 Gravity model estim pesticides 2.3.4.Distance and GDP per capita in gravity model 2.3.5.Extended control variables in gravity model 2.4 Literature review summary CHAPTER 3: SITUATION OF VIETNAMESE COFFEE DURING 2005 - 2014 3.1 Advantages iv 3.2 Disadvantages 3.3 The top contribution rankings for the importing Vietnamese cof CHAPTER 4: ECONOMETRIC MODEL AND DATA 4.1 Specification of the model 4.1.1 Gravity model 4.1.2.Extended variables in gravity model 4.2 Data 4.2.1 Data source 4.2.2 Data description 4.2.3 Descriptive statistic 4.3 Econometric models 4.3.1 Pooled OLS 4.3.2 Fixed Effect Estima 4.3.3 Random Effect esti 4.3.4.Driscoll and Kraay estimation 4.4 Choosing between OLS, Fixed Effect, and Random 4.4.1.F Test for pooled OLS or Fixed Effect estimation 4.4.2.Breusch and Pagan Lagrangian Multiplier Test for Random Effect or OLS 4.4.3 The Hausman test 4.5 Post-estimation tests 4.5.1 Multicollinearity 4.5.2 Heteroskedasticity 4.5.3 Serial correlation CHARTER 5: EMPIRICAL RESULTS 5.1 Correlation matrix of all variables in the model 5.2 Estimating the intuitive gravity model 5.3 Empirical results v 5.3.1 The empirical results in the gravity model u pesticides variable 5.3.2 The empirical results in the model using av variable 39 CHAPTER 6: CONCLUSIONS AND POLICY IMPLICATIONS 6.1 Conclusions 6.2 Main findings 6.3 Policy implications 6.4 Limitations and future research REFERENCES APPENDICES vi LIST OF TABLES Table 3.1 Top 10 importing countries (selected data on share export quantity during 2005-2014) Table 4.1: Descriptive statistical analysis Table 5.1: The empirical results using the regulated number of pesticides variable Table 5.2: The empirical results using average maximum residue levels variable vii LIST OF FIGURES Figure 1.1: Vietnam’s coffee export value in the period of 2004-2014 Figure 2.1 : Analytical Framework for Vietnam’s Coffee Export and its influencing factors 17 Figure 3.1: Distribution of Vietnam’s coffee to the major importing countries in the period of 2005-2014 21 Figure 3.2 : The top ten rankings for the major importing Vietnamese coffee countries annually Figure 5.1: The correlation matrix of variables Figure 5.2: The relationship between Pdistance and Vietnamese coffee export Figure 5.3: The relationship between GDP per capita of importing countries and Vietnamese coffee export viii CHAPTER 1: INTRODUCTION 1.1 Problem statement It is undeniable that Vietnam is an agricultural country although the government is still moving towards industrialization and modernization in the future Meanwhile, agricultural products in general and coffee commodity in particular play a crucial position in export turnover of Vietnam To describe this matter, it may consider the total exports of Vietnam in the period of 2004-2014 which has been increasing significantly recent years Figure 1.1: Vietnam’s coffee export value in the period of 2004-2014 The Vietnamese economy has been entering a new development stage after joining WTO since 2007 wherein coffee export sector also adjusts to a great turning point The value of coffee export reached more than USD 2.1 billion in 2008 Subsequently, it dropped in the two following years with the value export of nearly USD 1.76 and 1.90 billion respectively Nevertheless, there are also some years witnessing the decline in coffee export from Vietnam Specifically, demand from these countries and regions were also dropped slightly in 2010 and 2011 due to the change in food safety regulations However, it resumes good performance period from 2011 to 2014 Furthermore, Vietnamese coffee is noticeably exported to many countries around the world At the same period times, the tariff barriers in the world incline to drop Specifically, as a result of WTO, FTA joining or agreements on bilateral and multilateral treaties among countries, tariff is on the way to be lowered gradually Predictably, it will not be the important barrier in the coming time In practice, Henson and Loader (2001) identify that it appears to Chen, M X., Otsuki, T., & Wilson, J S (2006) Do standards matter for export success? 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European Review of Agricultural Economics, jbr062 48 APPENDICES Pooled OLS regression  Pooled OLS regression having ln_regnum Source Res ln_netw ln_pdis ln_gd ln_r ln_dc ln_re tra si wt  VIF Variable ln_gdpperc ln_dconsum ln_rexrate simptax tradeopn ln_regnum ln_pdis wtomemb Mean VIF 49  Pooled OLS regression having ln_avermrl Random Effect regression  Random Effect regression having ln_regnum Random-effects GLS regression Group variable: id R-sq: with betw over corr(u_i, ln_netwei ln_pdista ln_gdpp ln_reg ln_dcon ln_rexr trade simp wtom _c sigm sigm  Breusch and Pagan Lagrangian multiplier test for choosing Pooled OLS or Random Effect regression Breusch and Pagan Lagrangian ln_netweight[id,t] Estimated = multiplier Xb + test u[id] + for random effects e[id,t] results: Test: Var( 51  Random Effect regression having ln_avermrl Random-effects GLS regression Group variable: id R-sq: withi betwe overa corr(u_i, ln_netweig ln_pdistan ln_gdppe ln_averm ln_dcons ln_rexra tradeo simpt wtome _co sigma sigma r  Breusch and Pagan Lagrangian multiplier test for choosing Pooled OLS or Random Effect regression Breusch and Pagan Lagrangian multiplier test for random effects ln_netweight[id,t] = Xb + u[id] + e[id,t] Estimated results: Test: Var(u 52 Fixed Effect regression  Fixed Effect regression having ln_regnum Fixed-effects (within) regression Group variable: id R-sq: within between overall corr(u_i, Xb) F 53  Fixed Effect regression having ln_avermrl Fixed-effects (within) regression Group variable: id R-sq: within between overall corr(u_i, Xb) F 54 Hausman Test  Hausman Test for choosing Fixed Effect or Random Effect for ln_regnum B Test: Ho: = b = consistent under inconsistent under Ha, efficient difference in coefficients Ho and Ha; obtained from xtreg under Ho; obtained from xtreg not systematic chi2(8) = (b- B)'[(V_b- V_B)^(-1)](b - B) = 38.05 0.0000 Prob>chi2 = (V_b-V_B is not positive definite)  Hausman Test for choosing Fixed Effect or Random Effect for ln_ avermrl (b) ln_pdistance ln_gdpperc ln_avermrl ln_dconsum ln_rexrate tradeopn simptax wtomemb b = consistent under Ho and Ha; obtained from xtreg B = inconsistent under Ha, efficient under Ho; obtained from xtreg Test: Ho: difference in coefficients not systematic chi2(8) = (b-B)'[(V_b-V_B)^(-1)](b-B) = Prob>chi2 = (V_b-V_B is not positive definite) 55 Heteroskedasticity and autocorrelation test  Modified Wald test testing heteroskedasticity for ln_regnum Modified in fixed H0: sigma(i)^2 chi2 (44) Prob>chi2  Wooldridge test testing autocorrelation for ln_regnum Wooldridge test for autocorrelation in panel data H0: no first-order autocorrelation F( 1, 56  Modified Wald test testing heteroskedasticity for ln_avermrl Modified in fixed H0: sigma(i)^2 chi2 (44) Prob>chi2  Wooldridge test testing autocorrelation for ln_avermrl Wooldridge test for autocorrelation H0: no first - order autocorrelation F( 1, 29) = 12.958 Prob > F = 0.0012 in panel data 57 Driscoll-Kraay Standard Errors for Fixed Effects Regression  Driscoll-Kraay Standard Errors for Fixed Effects Regression having ln_regnum Regression with Driscoll-Kraay standard errors Method: Fixed-effects regression Group variable (i): id maximum lag: 58  Driscoll-Kraay Standard Errors for Fixed Effects Regression having ln_avermrl Regression with Driscoll-Kraay standard errors Method: Fixed-effects regression Group variable (i): id maximum lag: 59 ... 3.2 that the coffee exports from Vietnam are analyzed from 2005 to 2014 The importing coffee of Vietnam from selected countries and regions were increasing in during 2005 to 2014 In contrast,... to the impact of other elements It creates the psychological effect on the production of coffee growers and businesses purchasing coffee export making coffee production to decline as well Finally,... Vietnam' s coffee industry has seen a boom in production to become the world's top producer of coffee causing coffee export to be accounted for the second position in the world in terms of exporting