International Journal of Scientific Research in Environmental Sciences (IJSRES), 1(8), pp. 179-187, 2013 Available online at http://www.

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Review Paper Livestock Products and Environment
Maryam Asghari
Researcher in Environmental Economics and International Trade and Assistant Professor at Shahid Ashrafi Esfahani University, Esfahan, Iran; Email: Maryam.Asghari@ashrafi.ac.ir
Received 14 May 2013; Accepted 07 June 2013

Abstract. Increasing demand for livestock products, together with changes in international trade, is placing pressure on the livestock sector both to adapt and expand. There is an increasing tendency to greater selectivity as to parts of the animal used for food and therefore, there is a trend from multi-purpose to single-purpose animals, with the production of animal protein the overriding objective. The aim of this paper is the examination of livestock products effects on environmental quality as agricultural trade liberalization happens in the six countries of Gulf Persian region, over 1980-2012. Our results show that this is an N-shaped EKC between income and the agricultural land expansion in this region. We find that livestock production decreases the percentage annual growth of agricultural land area use in this region as trade in agriculture sector is libered and the form of EKC has not changed when we enter livestock production index of the different countries, as agriculture trade is libered, in our model. Key words: Agriculture Trade Liberalization, Livestock Products, Environmental Quality, Environmental Kuznets Curve, Gulf Persian Region

1. INTRODUCTION The livestock has been well knit with the socioeconomic fabric of our rural economy and played an important role in the employment and income generation. The developed countries of the world have already well recognized the importance of livestock for employment and income generation and have devolved around their agriculture a prosperous, progressive and forward looking livestock enterprise. The major components through which livestock contribute to the agricultural income are milk and milk products, meat and eggs. Livestock production is an important resource ensuring global food supply, meeting the increasing demand for protein and supporting human livelihood and well-being. Both extensive and intensive livestock production systems require attention and intervention to promote fewer negative and more positive impacts on social, economic, and environmental aspect, all within a global context. In the developing countries, the income elasticity of demand for livestock products is high as compared to cereals. It is also high as compared to the developed economies. This implies that with rising per capita income, the demand for these products would rise faster in the Third World countries. Livestock production can contribute to poverty reduction and economic growth in those poor countries that are not fully exposed to globalized food markets. In rapidly growing and developed economies, market barriers and economies of scale

will continue to push smallholders out of production, thus alternative livelihoods need to be sought in other sectors. Standard economic theory concludes that liberalised agricultural trade increases social welfare. By specialising in the production of food and fibre products for which it has comparative advantage, each country‟s allocative market efficiency can be improved, thus permitting higher national and global economic growth. The returns from that higher level of growth enhance individual incomes, which in turn raise national welfare. Further liberalization of agricultural trade can affect environmental quality and the pattern of natural resource use through several, possibly offsetting, and effects. Further agricultural trade liberalization can affect the scale of production, the composition of goods produced in an economy, and the technologies used to produce output. The rapid increase of intensive (confined) livestock production and the land and livelihood needs of extensive production (rangeland grazing) are crucial challenges. The livestock sector emerges as a very significant contributor to environmental problems at every scale from local to global, including land degradation, climate change and air pollution, water shortage and pollution and loss of biodiversity. By improving allocative market efficiency through liberalised trade, the country enjoys higher economic growth and incomes, but the growth also generates negative pollution effects from the increased scale of economic activity. Increased incomes raise the social

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demand for environmental quality which translates into policies that shift product composition and techniques of production to meet public environmental objectives via less pollution and more positive environmental services.1 By expanding the scale of livestock production, trade liberalization can increase pollution. However, countervailing forces will tend to offset the scale effect by encouraging an economy to use cleaner technologies to produce output and by encouraging specialization in the production of less pollutionintensive goods. Total emissions of greenhouse gases (GHGs) from agriculture, including livestock, depend on the source (US EPA, 2006; IPCC, 2007) and on the proportion of land conversion that is ascribed to livestock activities. Land-use change is complex and driven by a range of drivers, although it is possible to see some strong historical associations between land abundance, application of science and technology, and land-use change in some regions (Rosegrant et al., 2009) The implications of livestock demand increases on land use in the future are perhaps best discussed in relation to the different livestock production systems that occur globally. Confined livestock production systems in industrialized countries are the source of much of the world‟s poultry and pig meat production, and such systems are being established in developing countries to meet increasing demand. Future trends for these essentially landless production systems are outlined in Steinfeld et al. (2006), who describe a twostep process: as developing countries industrialize, large-scale monogastric production systems spring up and tend to be located close to urban centers to minimize the problems associated with product conservation and transportation. In the second step, transport infrastructure and technology develop sufficiently so that these intensive livestock systems are located further away from the centers of demand for the products. This movement can help to reduce some of the economic costs of production (via lower land and labor costs), improve access to feed resources via reduced feed transportation costs, and may also reduce (or make it easier to deal with) some of the environmental and human and livestock health issues associated with intensive, industrialized production (Steinfeld et al., 2006). If this two-step characterization of this process is broadly correct, then in the future these largely landless systems will become concentrated outside peri-urban areas, particularly in regions with good access to long1

distance transportation facilities (ports, railways) and/or with good access to plentiful feed resources. There are likely to be strong regional differences in the growth of industrial (confined) livestock production systems. This paper attempts to quantify the effect of livestock production, when trade is libered in agriculture sector, on agricultural land use expansion. The remainder of the paper is organized as follows. Section II presents the relation between growth and environment. Section III specifies the empirical model and the data and discusses the empirical results, while Section VI concludes. 2. ECONOMIC ENVIRONMENT GROWTH AND

- Note in this simple conception of the process adapted from Runge [1995], structural effects are not broken out separately but can be interpreted to fall within the product and technology categories.

The issue of worldwide environment has received more attention than ever, since global warming and other environmental problems are becoming more and more serious. In particular, an urgent subject for all authorities who are responsible for environmental policies is to understand and predict how the environmental quality will evolve over time. At the 67th annual meeting of the American Economic Association in 1954, Simon Kuznets delivered the presidential address „„Economic Growth and Income Inequality‟‟ and suggested that, as per capita income increases, income inequality also increases at first but then, after some turning point, starts declining (Kuznets, 1955). This changing relationship between per capita income and income inequality can be represented by an inverted-U-shaped curve, known as the Kuznets curve, for which Kuznets was awarded the Novel prize in economics in 1971. The Kuznets curve hypothesis posits that initially, at lower levels of per capita income, income distribution is skewed toward higher income levels so that income inequality is high. As income rises, skewness is reduced and income inequality becomes lower. The environmental Kuznets curve (EKC for short) is referred to as the hypothesis that the relationship between environmental degradation and per capita income exhibits an inverted-U shape. The logic of the EKC relationship is rather intuitive. In early stages of industrialization, pollution grows rapidly because high priority is given to increasing material output, and people are more interested in income than environment. In the later stage, however, as income rises, the willingness to pay for a clean environment increases by a greater proportion than income, regulatory institutions become more effective for the environment, and pollution level starts declining. The EKC hypothesis is usually described by three effects: (a) the effect of the scale of economic activity, (b) the effect of the changes in the structure of

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economic activity and (c) the effect of income on the demand for pollution abatement efforts (Panayotou, 2000). The first effect is a monotonically increasing function of income: the larger the scale of economic activity the higher the level of pollution, all else being equal. The second effect reflects the changes in the composition of the economic activity toward sectors of varying pollution intensity: a shift from agriculture to industry implies higher pollution while a shift from industry to services reverts this trend. The third effect is a monotonically decreasing function of income and it reflects the growing demand for environmental quality with higher income levels (Kukla-Gryz, 2009). Theoretical models on the EKC relationship can be classified into several categories; e.g., static vs. dynamic, macroeconomic vs. microeconomic, long term vs. short term, deterministic vs. stochastic. This paper adopts the classification based on static and dynamic models. The primary reason is that most theoretical studies in the literature mainly focus on the macroeconomic production and/or the utility of a representative agent without uncertainty. While static models are classified into production-based models and utility-based models, dynamic models are

classified further to include policy-based models and the real options approach (Kijima, al. 2010) Note that most of the theoretical papers succeed only to illustrate an inverted-U-shape pattern and few of them shows an N-shaped pattern. It is therefore required to develop sophisticated models that are flexible enough to explain the actual environmentincome relationship and to predict how the environmental quality will evolve in future within a unified framework. Such theoretical models supported by ample empirical studies can be useful for environmental policy makers, because the evolution of pollution is linked not only with a development path or economic growth, but also with policy response. See, e.g., Grossman and Krueger (1995), Magnani (2001). Conventional EKC studies employ functional forms where results can be evaluated with respect to the presence or absence of a turning point (TP) and the significance of the parameters computed (Agras and Chapman, 1999). The following equation shows that a reduced functional form is applied to find out the best possible relationships between environmental pollution level and economic growth: (1)

Yit = αi + β1Xit + β2X2it + β3X3it + β4Zit + ɛit where “Y” is environmental indicators, “X” is income and “Z” relates to other variables of influence on environmental degradation. Here, the subscript “i” is a country, “t” is time, “α” is constant, “ε” is error term while “βk” is the coefficient of the “k” explanatory variables (Chow, 2006; Dinda, 2004; Ekins, 1997; Shafik, 1994). Eq. (1) provides us with a method to test several forms of environmenteconomic development/growth relationships. The model (1) provides important information as to the form of the relationship between environment and economic growth. Namely, if 1  0 ( 1  0 ,

respectively) while  2   3  0 , then there is a monotonically increasing (decreasing) relationship between income x and environment y. If, on the other hand, 1  0 ,  2  0 and  3  0 , then we observe an inverted-U-shaped relationship, the original EKC pattern. Note that, in this case, the turning point of the curve is given by x *  

1

2 2

. Finally, if 1  0 ,

 2  0 and  3  0 , then we come up with an Nshaped relationship. Of course, when 1   2   3  0 , this indicates that there is no relationship between income x and environment y. The other cases are not of interesting the EKC literature.

However, some papers are skeptical about the EKC hypothesis, and some criticize the concept and methodology of empirical studies. For example, a variety of time series, cross-section and panel data analyses indicate that the empirical results are sensitive to the sample of countries chosen and to the time period considered (Grossman and Krueger, 1993; Selden and Song, 1994; Hill and Magnani, 2002). The results may change by the choice of scaling factors to be used in regression models (Borghesi, 2001). Also, empirical studies are based on reduced-form models that assume specific functional forms a priori to estimate the environment-income relationship.1 In reality, the environment-income relationship could be more complicated than the assumed functional forms (see, e.g., Section 4 in Borghesi, 2001). Hence, it is not sufficient to conclude an EKC relationship based on such empirical studies and, as Pearson (1994) argues, more sophisticated techniques of curve fitting should be investigated, so that our findings are not determined by specific functional forms. The fitted function should be decided, based on theoretical research, for the complex bi-directional relationship between environmental quality and economic-social development. A comprehensive review of the empirical literature examining the EKC hypothesis is presented by Soumyananda (2004) and Verbeke and Clercq (2006).

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Using new international data, Hettige et al. (2000) test the environmental Kuznets curve (EKC) hypothesis for industrial water pollution. They measure the effect of income growth on three determinants of pollution: the share of industry in national output, the share of polluting sectors in industrial output, and „„end-of-pipe‟‟ (EOP) pollution intensities (per unit of output) in the polluting sectors. They find that the industry share of national output follows a Kuznets-type trajectory, but the other two determinants do not. When combined, their results imply rejection of the EKC hypothesis for industrial water pollution: it rises rapidly through middleincome status and remains roughly constant thereafter. Mills et al. (2009) test this environmental Kuznets curve (EKC) using estimates of per capita income and deforestation rates (index of biodiversity threat) for 35 tropical countries. They introduce the use of quantile regression and spatial filtering to reanalyze this data, addressing issues of heteroskedasticity and spatial autocorrelation. They note that preliminary analysis using these methods provides some initial evidence for an EKC. However, a series of panel analyses with country-specific dummy variables eliminated or even reversed much of this support. A closer examination

of conservation practices and environmental indicators within the countries, particularly those countries that drove our initial support, suggests that wealth is not a reliable indicator of improved conservation practice. Their findings indicate that an EKC for biodiversity is overly simplistic and further exploration is required to fully understand the mechanisms by which income affects biodiversity. 3. EMPIRICAL MODEL 1.3. Our Model In the above discussions, we have seen that livestock products are a key determinant of agricultural landuse expansion. So, we need to a new model to the cross-country analysis of agricultural land use expansion. The model should concentrate on explaining agricultural land use expansion, Ait  Ait 1 , on the other hand, agricultural land-use increasing have a nonlinear quadratic relationship according to the EKC hypothesis. Hence, the long-run steady-state relationship between land-use increasing, livestock products and output can be specified as follows:

Ait  Ait 1 × 100= αi + β1Xit + β2X2it + β3X3it + β4LPit*OPit + ɛit (2) Ait 2013 World Development Indicators‟ (WDI‟s) on-line where Ait  Ait 1 × 100 is the percentage annual WDI 2013 (http://publications.worldbank.org/wdi). Ait

growth of agricultural land area use represents the dependent variable for agricultural land use expansion in the analysis; Xit the agriculture sector per capita value added (measured in local currency); X2it, the square of agriculture sector per capita value added (measured in local currency) and X3it the cube of agriculture sector per capita value added (measured in local currency), LPit the livestock production index (1999-2001=100); OPit is trade openness in agriculture sector ((agriculture production exports + agriculture production imports)/ agriculture value added), ɛit is the error term. The parameters β1, β2, β3 and β4 are the long-run elasticities of agricultural land use expansion with respect to per capita value added, squared per capita value added, cube of per capita value added in agriculture sector and livestock production index as trade be libered in agriculture sector, respectively. 2.3. Data Sources The time period covered in the estimations is 19802012 across the in the six Golf Persian countries (Iran, Bahrain, Kuwait, Oman, Saudia Arabia, United Arab Emirates). Data are obtained from the World Bank‟s

3.3. The Model Estimation and Results We estimate the equation (2) using fixed and/or random effects of panel data and stata 10 for the agricultural land expansion for in the six Golf Persian countries. The random effects model examines how group and/or time affect error variances. Lagrangemultiplier test for random effects developed by Breusch and Pagan (1980) and as modified by Baltagi and Li (1990). The Breusch-Pagan Lagrange Multiplier test for heteroskedascity is supposedly able to detect heteroskedasticity which is an arbitrary function of some set of regressors. The null hypothesis of the one-way random group effect model is that variances of groups are zero. If the null hypothesis is not rejected, the pooled regression model is appropriate. The fixed-effects regression model estimated invokes the ordinary least squares (OLS) estimator for point and interval estimates under the classical assumptions that the error process is independently and identically distributed. The error process may be homoskedastic within cross-sectional units, but its variance may differ across units: a condition known as groupwise heteroskedasticity. We need to calculate a

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modified Wald statistic for groupwise heteroskedasticity in the residuals of a fixed-effect regression model. Greene‟s discussion of Lagrange multiplier, likelihood ratio, and standard Wald test statistics points out that these statistics are sensitive to the assumption of normality of the errors. The modified Wald statistic computed here is viable when the assumption of normality is violated, at least in asymptotic terms. We compare a fixed effect model and its counterpart random effect model by Hausman test. The Hausman specification test examines if the individual effects are uncorrelated with the other

regressors in the model. Since computation is complicated, let us conduct the test in Stata. Before turning to the empirical analysis, we need to consider the econometric issue that some of the variables may be trended and contain unit roots, in which case the regression results are spurious, unless the variables are cointegrated. Levin, Lin & Chu and Im, Pesaran & Shin (2003) develop the methods to test unit roots in heterogeneous panels. The null hypothesis of non-stationarity is rejected at the 1% level for each of the eight relevant variables. Therefore, we make the unit root test of Levin, Lin & Chu and Im, Pesaran & Shin W-stat to test for it. The results show that all variables are stationarity at level (Table 1).

Variables
Ait  Ait 1 Ait

Table 1: Variables stationarity tests in the region Levin, Lin & Chu- Test Im, Pesaran and Shin Wstat -Test Statistic Prob Statistic Prob -4.76166 0.0000 -5.38136 0.0000 × 100 -1.70375 -3.76847 2.66335 -5.33756 0.0442 0.0001 0.0000 0.0000 -9.23834 -3.94342 4.02245 -5.22526 0.0001 0.0000 0.0000 0.0000

Xit X2it X3it LPit*OPit

The results of table 2 show empirical analysis of the EKC hypothesis. It is that, when using panel data, ignoring country-specific characteristics likely correlated with livestock production may produce biased and inconsistent estimates of the relationship between development and the environment. The all coefficients of the variables except constant coefficient are significantly. The results provide us to a cubic polynomial or N-shaped form of environment–economic development/ growth relationships. We establish the link between livestock production and the environmental Kuznets curve in the economies where the environmental quality is a public good and a technology for environmental protection exists. The robust standard errors are White‟s heteroskedasticity-corrected standard errors (1) The acceptation of model by the Hausman test. (2) The hausman test tests the null hypothesis that the coefficients estimated by the efficient random

effects estimator are the same as the ones estimated by the consistent fixed effects estimator. If they are (insignificant P-value, Prob>chi2 larger than .05) then it is safe to use random effects. If you get a significant P-value, however, you should use fixed effects. (3) For FE regression model, the modified Wald test for groupwise heteroskedasticity is used while the Woolridge test for autocorrelation in panel data (Ho: no autocorrelation) is applied. We examine whether the path of environmental quality, a cross-sectional EKC, change when we use livestock production index variable of different countries as agricultural trade liberalization happen in the region in our model. The results show that the form of EKC has not changed when we employ the model with livestock production index of the different countries as agriculture trade is libered. Also, livestock production decreases the percentage annual growth of agricultural land area use under agriculture trade liberalisation in this region (table 3).

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Table 2: The determinants of the percentage annual growth in agricultural land area use in the six gulf Persian countries
Variables C Xit X2it X3it R2 Groups Number of observation Wald Test Prob > chi2 Breusch and Pagan LM test Prob > chi2 Modified Wald Test for heteroskedasticity(3) Prob > chi2 Hausman Test(2) Prob > chi2 Wooldridge test for autocorrelation in panel data Prob > F Fixed Effects 51387.88 (1.85) .0000128* (2.55) -4.40e-16* (-1.88) 4.78e-27** (1.47) Random Effect(1) -33302.11 (-1.03) .0002052* (16.04) -1.07e-14* (-11.99) 1.45e-25* (9.83) 0.6946 6 186 345.59 0.0000 1033.57 0.0000

6 186 6.51 0.0107

5.2e+09 0.0000

2(1)= 267.18
0.0000 10766.409 0.0000

Note: T-statistics are shown in parentheses. Significance at the 99%, 95% and 90% confidence levels are indicated by *, **and ***, respectively.

Table 3: The Determinants of the percentage annual growth in agricultural land area use in the six gulf Persian countries
Variables C Xit X2it X3it LPit*OPit R2 Groups Number of observation Wald Test Prob > chi2 Breusch and Pagan LM test Prob > chi2 Modified Wald Test for heteroskedasticity(3) Prob > chi2 Hausman Test(2) Prob > chi2 Wooldridge test for autocorrelation in panel data Prob > F Fixed Effects 57020.64 (2.90) .0000321* (4.17) -1.15e-15* (-3.30) 1.28e-26** (2.77) .4898897 (0.17) Random Effect(1) 72281.47 (1.41) .0002352 * (15.53) -1.30e-14* (-12.78) 1.82e-25* (10.77) -1166.264 ** (-2.29) 0.7067 6 186 436.11 0.0000 1065.04 0.0000

6 186 17.36 0.0002

5.0e+05 0.0000

2(1)= 0.31
0.5803 1169.810 0.0000

Note: T-statistics are shown in parentheses. Significance at the 99%, 95% and 90% confidence levels are indicated by * , **and ***, respectively.

The robust standard errors are White‟s heteroskedasticity-corrected standard errors: (1) The acceptation of model by the Hausman test. (2) The hausman test tests the null hypothesis that the coefficients estimated by the efficient random effects estimator are the same as the ones estimated by the consistent fixed effects estimator. If they are (insignificant P-value, Prob>chi2 larger than .05) then it is safe to use random effects. If you get a significant P-value, however, you should use fixed effects.

(3) For FE regression model, the modified Wald test for groupwise heteroskedasticity is used while the Woolridge test for autocorrelation in panel data (Ho: no autocorrelation) is applied. 4. CONCLUSIONS Livestock production has been increasing at a rapid pace in many developing regions, sometimes with a consequent increase in the associated environmental problems, and there are concerns in many countries

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that these environmental problems will continue to worsen over time. There is also a belief by some that international trade may further exacerbate the problems. Some countries have a comparative disadvantage in livestock production. Government assistance, including agricultural trade barriers, has been used to encourage domestic livestock production to help meet the growing domestic and export demands. Such assistance has in some cases led to more intensive livestock farming systems. The expansion in production and the development of intensive livestock systems have caused concerns over waste disposal. Environmental degradation such as land use from increased livestock production is increasing the private and social marginal costs of livestock production. We investigated the livestock products effects on environmental quality as agricultural trade liberalization happen, over the period 1980–2012 using panel data specifications in the six Golf Persian countries. The first implication of our results relates to empirical analysis of the EKC hypothesis. It is that, in the framework of a reduced form regression and using panel data, this is a cubic polynomial or N-shaped form between income and the agricultural land use expansion in the six Golf Persian countries. The other results of our estimation using panel data are that livestock production decreases the agricultural land use expansion under agriculture trade liberalisation in this region and the form of EKC has not changed when we estimate the model with livestock production index of the different countries as agriculture trade is libered. REFERENCES Agras J, Chapman D (1999). A Dynamic Approach to the Environmental Kuznets Curve Hypothesis. Ecological Economics, 28: 267-277. Borghesi S (2001). Environmental Kuznets curve hypothesis: A Survey. In: Franzini M, Nicita A (Eds.), Economic Institutions and Environmental Policy. Ashgate Publishing, Farnham, UK, pp. 201-224. Cagatay S, Saunders C (2003). Lincoln Trade and Environment Model (LTEM): An Agricultural Multi-Country, Multi-Commodity Partial Equilibrium Framework. Agribusiness and Economics Research Unit, Research Papers, No: 254, Commerce Division, Lincoln University. Dinda S (2004). Environmental Kuznets curve hypothesis: A Survey. Ecological Economics, 49: 431-455.

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Assistant Professor Dr. Maryam Asghari got B.A in Mathematics from Isfahan University/Iran in 1998. She obtained M.A in economic science from Islamic Azad University, Khorasgan / Iran in 2002. She researched in CEMAFI laboratory, Sophia-Antipolis-Nice University/France, for receiving PH.D over 2003-2009. She published many papers in international and Iranian journals the issues of environmental economics, international economics, tourism and national security. She teaches many courses such as natural resources, energy economics and microeconomics in Shahid Ashrafi Esfahani University, Iran. She is the manager of research department of this university. Dr. Maryam Asghari got best researcher award in Esfahan province in 2012. She is The Director-inChief of International Journal of Economic Research and Analysis and cooperates closely with several international journals.

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