Tariff endogeneity: effects of export price of desiccated coconuts on edible oil market in Sri Lanka

Abstract

Fresh coconut is the main raw material for the production of coconut oil and desiccated coconut. A close examination of the import policy of the Sri Lankan government on edible oils indicates that import tariffs on edible oil are lowered when the supply of fresh coconut in the domestic market is limited. It has been claimed that the desiccated coconut producers lobby for lower import tariffs on edible oil so as to raise fresh coconut availability when the demand for desiccated coconut is higher. The objective of the study is to determine whether there is a relationship between import tariff on edible oil and export price of desiccated coconut. A partial equilibrium model was specified for the coconut market, estimated using a seemingly unrelated regression method and simulated for changes in export prices of desiccated coconut. Monthly data for the period 1990-2009 gathered from published sources were used for the analysis. The findings revealed that the import tariffs are endogenously determined and export price of desiccated coconut has a statistically significant negative effect on the tariff level. The cross price demand elasticity of coconut oil with respect to palm oil price is positive and statistically significant indicating a strong link between the two markets.Tropical Agricultural Research Vol. 25 (4): 476 – 486 (2014)

Keywords

• coconut oil, desiccated coconut, endogenous tariff