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THE DYNAMICS OF THE MARKET FOR RHINO HORN & THE IMPLICATIONS OF DIFFERENT
POLICY CHOICES
A Presentation by Mavuso Msimang
SOME POINTS OF DEPARTURE
1. There IS a market for rhino products. This has a number of implications: i. Declaring the trade in rhino
products “illegal” under CITES has not closed the market down.
ii. A product’s illegal status does not negate the laws of supply and demand. But it makes it harder to analyse and study a market when the product concerned cannot be legally traded.
iii. From the perspective of the participants in the market (suppliers and consumers) rhino products are not innately different from many other products: they can be supplied profitably and satisfy particular wants or needs.
2. A functioning market is a dynamic entity. We cannot know everything about it and be able to predict with certainty how it will respond under all circumstances. This is NOT an excuse to do nothing.
3. The market for rhino products is closely related to the market for live rhinos. De-coupling risks damage to one or both markets.
2 Copyright: Blueprint & Keith Lockwood
FACTORS AFFECTING THE DEMAND FOR RHINO HORN
3 Copyright: Blueprint & Keith Lockwood
Start with something that we may have a chance of knowing (or finding out!)
Price of horn in final markets = EQUILIBRIUM PRICE
Quantity of rhino poached x Average mass of poached horns = EQUILIBRIUM QUANTITY
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4 Copyright: Blueprint & Keith Lockwood
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Try to estimate other points (P-Q combinations) along the demand function
Price elasticity around the current equilibrium price is a KEY VARIABLE in any model of the market.
5 Copyright: Blueprint & Keith Lockwood
Identify the main factors that will cause demand to shift – i.e. that change demand
CHANGES IN: • Incomes of consumers • Their tastes & preferences • The number of consumers
(Population) • Expectations of the security
of supply & future prices
6 Copyright: Blueprint & Keith Lockwood
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DNORMAL DINFERIOR
Determine what is likely to happen to the incomes of current (and prospective) consumers
All indications are that the demand for rhino horn is a normal good – i.e. responds “positively” to increases in consumer incomes
7 Copyright: Blueprint & Keith Lockwood
0
100
200
300
400
500
600
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200020012002200320042005200620072008200920102011201220132014201520162017
Inde
x: 2
000
= 10
0
China
Vietnam
Advanced Economies
European Union
Newly Industrialised Asian Economies
Sub-Saharan Africa
Projections
Comparative trends in incomes in consumer & other markets
The major consumer markets of rhino horn have seen substantial increases in average incomes. These are projected to increase over the next five years
Source: IMF WEO, Sept 2012
8 Copyright: Blueprint & Keith Lockwood
Which consumers can afford real rhino horn?
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$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
Quintile 1(Lowest
20%)
Quintile 2 Quintile 3 Quintile 4 Quintile 5(Highest
20%)
$1,6
90
$2,8
90
$4,3
24
$6,4
88
$14,
101
Aver
age
Inco
me
per P
erso
n in
Chi
na -
2012
3.8%
1.0%
Cost of 1g of Rhino Horn as % of Average Annual
2.2%
1.5%
0.5%
China
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$,500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
Quintile 1(Lowest
20%)
Quintile 2 Quintile 3 Quintile 4 Quintile 5(Highest
20%)
$,42
9
$,73
4
$1,0
98
$1,6
48
$3,5
81
Aver
age
Inco
me
per P
erso
n in
Vie
tnam
- 20
12
15.1%
3.9%
Cost of 1g of Rhino Horn as % of Average Annual
8.9%
5.9%
1.8%
Vietnam
Average households in corresponding quintiles in SA spend between 1.21% and 1.54% on ALL medical
expenditure 9 Copyright: Blueprint & Keith Lockwood
Implications of income growth for the market price of rhino horn
Year
Estimated average annual income in China Price of rhino horn supported by projected rise in average incomes
(US$/kg) Quintile 1 (Lowest
20%) Quintile 2 Quintile 3 Quintile 4 Quintile 5 (Highest 20%)
2012 $1 690 $2 890 $4 324 $6 488 $14 101 $65 000 2013 $1 847 $3 159 $4 725 $7 091 $15 409 $71 033 2014 $2 019 $3 452 $5 165 $7 750 $16 843 $77 643 2015 $2 204 $3 770 $5 639 $8 463 $18 392 $84 782 2016 $2 404 $4 112 $6 151 $9 231 $20 061 $92 476 2017 $2 622 $4 485 $6 709 $10 068 $21 880 $100 860
Year
Estimated average annual income in Vietnam Price of rhino horn supported by projected rise in average incomes
(US$/kg) Quintile 1 (Lowest
20%) Quintile 2 Quintile 3 Quintile 4 Quintile 5 (Highest 20%)
2012 $429 $734 $1 098 $1 648 $3 581 $65 000 2013 $463 $792 $1 185 $1 779 $3 866 $70 163 2014 $500 $855 $1 279 $1 919 $4 171 $75 702 2015 $536 $917 $1 372 $2 060 $4 476 $81 239 2016 $575 $983 $1 470 $2 206 $4 794 $87 011 2017 $616 $1 053 $1 575 $2 364 $5 138 $93 252
Income elasticity is another key variable for modeling
10 Copyright: Blueprint & Keith Lockwood
Role of population shifts in (current) major consumer markets
Population (Millions) Net Additional Population – Relative
to 2012 (Millions)
Net Additional Rhino Horn
Consumers – Relative to
2012
Additional Kg of Horn
Demanded Due to Population
Increase – Relative to
2012
Year
Chin
a
Viet
nam
Tota
l
2012 1355 90 1445 2013 1362 91 1453 8 19 650 19.6 2014 1368 93 1461 16 39 415 39.4 2015 1375 94 1469 24 59 295 59.3 2016 1382 95 1477 32 79 300 79.3 2017 1389 96 1485 40 99 418 99.4
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May appear relatively benign in overall scheme of things, but constitutes an on-going and potentially expanding consumer base. Should be a focus of demand management efforts. Should not ignore other potential new markets
11 Copyright: Blueprint & Keith Lockwood
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The effect of changing preferences on horn consumption
Demand reduction is a key challenge, and probably won’t be easy. Need to target “easier win” niches (youth, new uses, possible new markets). Needs to be pre-emptive.
12 Copyright: Blueprint & Keith Lockwood
Role of expectations of price and supply changes on demand
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DPup, Sdown DPdown, Sup Expectations tend to be self-fulfilling. Provides basis for speculative demand, and stock-piling and can lead to a race to the bottom. Expectations of the legalisation of trade could lead to reduction in demand in the short term.
13 Copyright: Blueprint & Keith Lockwood
KEY FACTORS IN THE SUPPLY OF RHINO HORN
14 Copyright: Blueprint & Keith Lockwood
Main factors that will cause supply to shift – i.e. a change in supply
CHANGES IN: • Costs of production • The number of suppliers • The price of related
products in production • Expectations of future
market prices
15 Copyright: Blueprint & Keith Lockwood
The impact of changes in the costs of production on the supply of rhino horn
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Cost of Production Poachers
Bribes to Officials
Transport Costs
Distribu- tion
Gross Margin
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More effective anti-poaching, anti-corruption measures raise costs of
production
What is the product of the criminal syndicates?
16 Copyright: Blueprint & Keith Lockwood
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The impact of changes in the number of suppliers on the market for rhino horn
Number of syndicates operating likely to be fairly small – so entry or exit of new suppliers could result in pronounced shifts in supply curve. Danger that new syndicates could be associated with new markets and uses (need to innovate to secure market share). Legal supply would be similar to entry of a new supplier
17 Copyright: Blueprint & Keith Lockwood
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Increase in price
of substi-tute in
produc-tion
Increase in price of comple-ment in
production
The impact of changes in prices of alternatives in production
If rhino owners/custodians can benefit from living AND dead rhino, then an increase in the price of dead rhino will lead to an increase in the “supply” of live rhino. If price/profitability of rhino horn falls, syndicates could increase proportions of other product that are relatively more profitable that are moved through supply chain (other animal products, drugs, people?)
18 Copyright: Blueprint & Keith Lockwood
PUTTING DEMAND AND SUPPLY TOGETHER IN A MARKET
19 Copyright: Blueprint & Keith Lockwood
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The impact of incomes and population growth on demand is inevitable
Barring natural population disasters and Asian economic crises, an increase in demand due to income and population growth is inevitable. Situation will be worsened if new country markets are developed. To reduce number of rhinos poached means we need to focus on other variables that we can exert some level of control over.
20 Copyright: Blueprint & Keith Lockwood
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Anti-poaching efforts remain important in trying to offset the effects of demand growth
Improved anti-poaching efforts are necessary, but they will push up the price further, which could attract new entrants. Existing syndicates unlikely to leave the market. Improvements in anti-poaching effectiveness of close to 30% may be necessary – JUST TO OFFSET EFFECTS OF INCOME AND POPULATION GROWTH
21 Copyright: Blueprint & Keith Lockwood
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Demand reduction probably difficult, but essential
Effective demand reduction essential, BOTH to limit future demand growth, and reduce current demand. But, to reduce number of animals poached below current levels will need very significant demand reduction (25% or more)
22 Copyright: Blueprint & Keith Lockwood
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SLegal
LEGAL
Trade has a role, but needs to be supported by other measures
To be effective in reducing rhino loss, legal trade must displace illegal supply. Therefore, anti-poaching efforts must be sustained/ improved. There is a risk that additional supply will reduce price over an elastic part of the demand curve – leading to a big increase in the quantity demanded. Legal trade should be released slowly into the market – NO BULK SALES. Excessive implicit/admin costs associated with legal trade will push consumers back to illegal trade
ILLEGAL
23 Copyright: Blueprint & Keith Lockwood
THANK YOU DISCUSSION
24 Copyright: Blueprint & Keith Lockwood
