China’s Garlic Imports Trade Influence On Ecuador’s Garlic Market Impact Study

In the last decade, China has been Ecuador’s main source of garlic due low prices that are below production cost, thus affected the development of domestic garlic production. The Ecuadorian government has not implemented tariff protection because of the limited domestic production, therefore in the last years the quantity of imported garlic from China had risen nearly six times, while imports from other countries like Peru and Chile remains less than10%from the total imported average. It was also found that during the last three years the increasing amount of imported garlic from China is due re-exports, Ecuador has been used as a third country in the transportation operations for anti-dumping, quotas, restrictions, to avoid high tariffs.International garlic prices influence on domestic markets depends on the amount of imported garlic, people taste and the substitutability degree between imports and local production. There is a number of long-term trends developing slowly and worsen the supply and demand of garlic. The impacts of these trends affect price which is transmitted over production, consumption and trade. The transmission level depends on several factors as domestic consumption dependence on imports or the capacity to meet the domestic demand, existence of monopolies, imports restrictions, tariffs and variations in the currency exchange rate, which in the Ecuador’s case there is no influence because its currency is U.S. dollar.China garlic’s market presents the theoretical condition of Coweb’s model. Garlic domestic market had shown a game behavior, where the producer cannot control the market price, can only have a passively acceptance of market prices, and according to the market price adjust their production to maximize profits. Once that garlic market has shown its growth cycle, can’t be midway change, and under this decision, prices and production are setting. Historically, garlic market usually presents a four-year cycle. In the absence of market orientation, farmers do not have access to the real market, and becomes difficult to have a correct understanding of the information. Most of the farmers have not proven enterprise experience; the risk-resistant ability is weak and cannot withstand impact of market changes.Garlic Import price is a very important reference in definition of domestic prices, therefore, garlic import prices can be expected to have an association degree with the domestic market. This impact will become even more rapidly according the importance level over the cost structure. In this case, China’s garlic exports accounted for91%of Ecuador total imports and domestic consumption where the price transmission could occur with greater speed. This study used statistical package (RGui) Engle-Granger cointegration model to explore the nature of the cointegration relationship between the two sectors, first normality Shapiro test was conducted, and was determined with a certain level of confidence that the variables Ecuador domestic price (pecu), imports price (cif) and quantity imported from China (ton) do not present normal distribution. Secondly, proceed with Dickey-Fuller test(ADF), testing to confirm the presence of unit roots. It should be noted that, cointegration needs that the variables are integrated in the same order, finding that the variables are integrated into an order three, I (3).Outcomes of the cointegration model determined that the relationship among the variables studied with a range of certainty of92.95%can be expressed in the equation: Pecu=94.209+0.19077cif+0.02080ton Which demonstrates the existence of cointegration relationship in the long term. Cointegration vector capture the dynamics of long-term system variables, therefore the coefficients of each equation show the balanced relationship between the variables. This representation makes clear that, within the first vector, Pecu moves in the same direction as Cif and Ton in the long term, in such a way that if Cif and Ton decreases, Pecu will also decrease.The results of the model are consistent with the behavior of the economic model in international trade, showing a clear dependence on the national price paid to producer to the Cif price. Although the response from the domestic to the Cif price was not complete (a complete answer would mean that a change in Cif causes an equivalent change in the same magnitude in the national price), this unity was significant, indicating a high magnitude of integration between the domestic market and the international garlic market.The results suggest to face the situation of dependence on imports, as long as producers have the capacity to meet domestic demand, the Ecuadorian government should adopted some protection measures for the positive impact on domestic prices for producers. Ecuador’s main problem is the garlic production yield, that compared with China’s yield is lower thirteen times, which means that producers lack access to production technology and it has a deeper effect over production costs, furthermore, should pay more attention to another factors such as efficient water management, integrated pest and diseases control, yield improvement per unit area with a good production planning in order to obtain maximum benefit.According to the level in which the increment on international prices are transmitted to the domestic market, agricultural producers would directly benefit from a higher incomes, although the increasing costs by higher prices of fertilizers, pesticides and fuel, it is likely that their effect does not reduce their profitability. In the same way these upholder could have a big impact on wages and employment especially in rural areas. Few instruments of economic policy may have the scope and coverage needed to reach rural farmers as the price system.