Import demand elasticities for farmed salmon in the European Union and United States.

Abstract

This research has been conducted to investigate the demand structure of farmed salmon in EU and US markets between 2002 and 2014, and moreover to find the impact of the financial crisis on the demand for farmed salmon. The analysis includes 155 monthly observations from January 2002 to November 2014 in respect of the quantity and value of farmed fresh and frozen salmon exported from Norway, Chile and the rest of the world (ROW) in the EU and US markets. Linear approximation of an Almost Ideal Demand system (LA/AIDS) has been used to estimate demand elasticities. The demand model is estimated by using seemingly unrelated regression (SUR). The five-equation demand system is estimated separately for the EU and the US. Moreover, then all ten equations are integrated and estimated together to demonstrate the difference between the two markets. Finally, the impact of the financial crisis is captured by estimating the demand model before and after the financial crisis in both markets. The results show that the fresh farmed salmon demand is price elastic whereas the frozen farmed salmon is price inelastic in the EU market. However, both fresh and frozen salmon demands are price inelastic in the US market during the same period. Moreover, research reported a clear difference in the market structure of both regions: the EU market is dominated by Norwegian fresh salmon while US consumers prefer salmon from Chile and the ROW. Furthermore, the impact of financial crisis on both salmon markets is quite significant, particularly in the US market. In the EU market, before the financial crisis, demand for Norwegian fresh, Chilean frozen and ROW fresh salmon was elastic with respect to their price but none of the products remained elastic after the financial crisis. So the EU salmon market is a stable market. On the other hand, demand elasticities were found to be more price elastic in the US market after the financial crisis in the US salmon market. The contribution of this study of salmon demand is that previous studies have not integrated the EU and US salmon markets in order to investigate demand elasticities. Moreover, the impact of the financial crisis has not been explored either in the earlier literature on salmon demand.