Masters Degrees (Agricultural Economics)

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Open Access
Die teeltstruktuur van die Suid-Afrikaanse merino
(University of the Free State, 1977-12) Erasmus, Gert Johannes; De Lange, A. O.
English: 1. An analysis of the flock records kept by the Merino Stud Breeders' Association of South Africa is made. A qualitative classification of studs according to definition is made in an effort to determine the breed structure of the Merino. 2. The number of registered breeders as well as the total number of stud ewes shows. a sharp increase to 1967 with an equally sharp decline between 1970 and 1973. 3. The abovementioned changes are largely to be found in the ranks of the smaller studs. 4. The average number of stud ewes per breeder has stabilised at approximately 230 since 1966. 5. It is found that smaller studs have a smaller chance of survival. 6. The 773 active studs. in 1974 are classified as follows by definition: 15 “parent” studs, 258 “daughter studs”, 431 “general” studs, 69 “isolated” studs. 7. The "parent" studs are dominated by three studs and their "daughters" as far as supplying rams is concerned. Large differences in number of stud ewes and number of stud and and flock rams sold exist between parent studs. 8. The "family groups" ("parents" plus "daughters") are the largest vendors of stud rams (76,3 per cent of 'total) while the "general" studs and family groups sell approximately the same number of flock rams. 9. It is estimated that the registered Merino breeders supply only approximately 54 per cent of the total number of Merino rams required in the Republic. 10. Although the average number of stud ewes per breeder is small, it is estimated that registered breeders each possess on the average approximately 2 000 commercial ewes. The recommendation is made that the size of the present stud flocks be in: creased by making use of these ewes. 11. It is calculated that the registered breeders sell on the average approximately 37 per cent of their available rams but that this proportion varies considerably. The proportion of rams sold has no connection with stud size. Many registered studs sell no rams. 12. It is concluded that the breed structure of the Merino rather tends towards a two-tier structure than a classical three tier pyramid. Most of the studs are relatively more dependant on within-flock selection of rams for breeding improvement than on rams purchased. It can, however, be concluded that a more precise description of breed structure is necessary. 13. Evidence pertaining to the existence of a selection plateau in fleece weight in many cases is discussed. It is concluded that effective selection on measured performance is a necessity. 14. The implications of the present breed structure on the strategy of extension efforts with regard to the National performance Testing Scheme is discussed. It is concluded that an extension program directed at the whole Merino industry is needed and that a fleece analysis service cannot be restricted to certain "elite" flocks. 15. It is found that Merino stud flocks are largely centered in the Eastern Karoo area. The implications of this situation is discussed. 16. The necessity of inter-flock comparisons of actual genetic merit is stressed.
Open Access
'n Ekonomiese evaluasie van sommige gewasopvolgingstelsels onder droëlandtoestande in die Middel-Vrystaat
(University of the Free State, 1985-01) Grobbelaar, Jan Adriaan; Blignaut, C. S.; De Jager, J. M.; Human, J. J.
Afrikaans: Gewasprodusente in die Middel-Vrystaat het gevind dat die inskakeling van 'n somergewas in bestaande wintergewasproduksiestelsels, met gepaardgaande langer braakperiodes, aanleiding gee tot verhoogde graanopbrengste en 'n vermindering in onkruidprobleme en wortelsiektes. Hierdie bevindinge het daartoe aanleiding gegee dat vrae by die gewasprodusent ontstaan het rondom die ekonomiese geregverdigheid van wisselbou- en braaklandstelseis. Die doel van hierdie studie was om ten spyte van 'n gebrek aan plaaslike navorsingsresultate, die voordele en nadele van wisselbou- en braaklandstelsels, soos gereflekteer deur langtermynwinsgewendheid, teenoor die van monokultuurverbouing op te weeg en om in die proses die mees ekonomiese stelsel te identifiseer. Vir hierdie doel is 'n hipotetiese boerdery-eenheid in die ondersoekgebied gekonstrueer. Die gewasopbrengste van koring en mielies is met behulp van gewasgroeimodelle bereken op basis van die daaglikse klimaatsomstandighede in die gebied vir die tydperk 1960 tot 1983. Daar is bevind dat koringopbrengs op braaklande gemiddeld 76% hoër as die by monokultuurkoring was, met 'n koêffisiênt van variasie van 19,6 % teenoor die 51,9 % van monokultuurkoring. Braaklandmielieopbrengste was 30% hoër as die van monokultuurmielies, met 'n koëffisiënt van variasie van 49,7% by albei. Ses verskillende gewasopvolgingstelsels is geëvalueer, naamlik monokultuurkoring, monokultuurmielies, langbraakkoring, koring-koring-Iangbraak, koring-mielie-wisselbou en koring-koring-mielie-wisselbou. Deur die wins van die boerdery-eenheid vir elke stelsel te bereken, is bepaal dat dit essensieel is om 'n ekonomiese evaluasie van gewasopvolgingstelsels tot op boerderywinsvlak deur te voer, aangesien alle koste-aspekte waarin verskille kan voorkom, nie op bruto marge- en netto inkomste-vlak in ag geneem kan word nie. So is daar bevind dat die stelsel met die laagste bruto boerderyproduksiewaarde die derde hoogste marge bo veranderlike koste en die tweede hoogste boerderywins op grond van gemiddelde opbrengs gehad het. Die koring-mielie-wisselboustelsel het die hoogste boerderywins getoon. Deur jaarlikse boerderywinssyfers oor die 24-jaartermyn te bereken, is bevind dat dit belangrik is om so 'n evaluasie nie net op gemiddeldes te baseer nie. Die monokultuurstelseIs, met die laagste gemiddelde winssyfers, het in minstens 7 van die 24 jaar die hoogste boerderywins gehad. Die stelsel met die hoogste gemiddelde winssyfer het in 3 van die 24 jaar 'n verlies getoon, terwyl die langbraakkoringstelsel in geen jaar 'n verlies getoon het nie. Deur jaarlikse absolute boerderywinssyfers met behulp van prysindekse te bereken, is bevind dat 'n ekonomiese evaluasie met konstante pryse aanleiding kan gee tot 'n verkeerde besluit. Die verhouding tussen die pryse van koring, mielies, boerderybenodigdhede en verbruikersitems het gedurende die 24-jaartermyn sodanig verander dat 'n bepaling van die absolute huidige waarde van die jaarlikse boerdery- winssyfers getoon het dat die langbraakkoringstelsel of die langtermyn meer winsgewend as die koring-mielie-wisselboustelsel was. Omdat bogenoemde boerderywinsberekenings slegs die vaste koste voortspruitend uit die belegging in losgoedkapitaalitems en nie die verskil in die jaarlikse gebruik en gepaardgaande vervangingskoerse in ag geneem het nie, is die interne opbrengskoers van elke gewasopvolgingstelsel op basis van hierdie berekening het die winsgewendheidsvolgorde op basis van absolute boerderywinssyfers bevestig, alhoewel die verhouding tussen die onderskeie stelsels verander het. Hierdie berekening kan dus ook 'n verandering in die winsgewendheidsrangorde van gewasopvolgingstelsels teweeg bring, wat nader aan die kol as enige van die vorige berekenings sal wees. In die laaste instansie is die risiko van elke stelsel in terme van die waarskynlikheid om in 'n bepaalde jaar nie in staat te wees om die vaste verpligtinge van die boerdery-eenheid na te kom nie, bereken. Hierdie waarskynlikheid was 11,3% by die langbraakkoringstelsel en 22,8% by die koring- mielie-wisselboustelsel, teenoor die 54,2% van monokultuur- mielies en die 47,7% van monokultuurkoring.
Open Access
'n Ekonomiese evaluering van alternatiewe spilpuntbeleggingstrategieë in die Suid-Vrystaat substreek met inagneming van risiko
(University of the Free State, 1989-11) Meiring, Jan Andries; Oosthuizen, L. K.
English: The lack of reliable procedures for the economic evaluation of centre pivot investment alternatives results in unsatisfactory research results in respect of the economics of irrigation on the one hand, and often causes irrigation farmers to make investment decisions that are economically inefficient and financially unfeasible on the other hand. The purpose of the study was to develop and illustrate a scientific procedure to evaluate the economic profitability and financial feasibility of alternative centre pivot investments in the Southern Free State subregion, taking risk into account. There are approximately 112 land owners in the area studied, and approximately 80 per cent of the 8 500 hectare of scheduled irrigation area is under centre pivot irrigation. Data was collected by means of the group discussion and the Dephi technique. Data was also generated by means of the PUTU crop growth simulation model. The research methodology entailed, firstly, the development of a cost-accounting procedure for centre pivots which took the technical aspects of the systems into account. Eighteen representative centre pivot systems were compiled and designed for the Southern Free State subregion. After irrigation cost-accounting was done for all the systems, economic profitability analyses were carried out by means of the net present-value technique. Given a crop rotation system of wheat, maize and cotton, the economic analyses for a period of fifteen years were made and repeated twenty times for each investment alternative. Production and price risk were taken into account in the analyses by simulating yields and making the series analyses. The net benefit: investment ratio was used to rank the centre pivot systems according to relative profitability. Subsequently financial profitability analyses for six profitable centre pivot investments were made by applying the cash flow technique. Finally risk-efficient investment strategies were selected by means of stochastic dominance criteria. The main result of the study was that a procedure for the economic evaluation of appropriate centre pivot investment strategies was developed whereby irrigation farmers and advisers can analyse the economic profitability and financial feasibility of centre pivot systems satisfactorily. In general the objectives of the study were achieved to a sufficient extent. A cost-accounting procedure was developed that took the technical properties of centre pivot systems into account fully. Fixed and variable cost, as well as the marginal factor cost of centre pivot irrigation, can be estimated by hand method or computer programme for new or existing centre pivot systems. Eighteen typical centre pivots ranging in size from thirty to sixty hectare, with application capacities of 8 mm, 10 mm and 12 mm and pumping heights of -15 m and 10 m were developed for clay and sandy soils in the study area. An increase in pumping height and capacity led to higher fixed and variable costs, while clay soils also had higher irrigation costs than sandy soils. All eighteen typical centre pivot systems in the Southern Free State were economically profitable. A sixty hectare system with a static height of -15 m and a capacity of 12 mm on sandy soil under irrigation was the most profitable centre pivot investment with an aggregate net present value of R563 238. Production and price risk caused big differences in the net present value that can be expected. Two of the six selected profitable centre pivot systems are financially unfeasible if a cooperative loan for a period of five years at an interest rate of 19.75 per cent is used. The probabilities that a cash flow deficit will occur during the five years of the investments are 65 and 70 per cent and the deficit can amount to R20 678. Risk-efficient investment strategies were selected by means of first order stochastic dominance. The most important implication of the study is that the economic and financial analyses of the economics of irrigation must be extended to a total farm level.
Open Access
An economic evaluation of crop rotation systems under centre pivot irrigation in the Southern Free State sub-area
(University of the Free State, 1992-11) Den Braanker, Johan Pieter Diederick; Oosthuizen, L. K.
English: The lack of sufficient and accurate knowledge of the effect of alternative crop rotation systems on economic profitability and financial feasibility for irrigation farming indicates that farmers purchase mechanisation systems and plant successive crops without having determined the effect of these actions on long term farm profitability and feasibility. The importance of the study is reflected by the large numbers of irrigation farmers and the relatively large number of farmers having a high debt to asset ratio. The study is done in the irrigation area below the P.K. le Roux Dam but can also be applied to other irrigation areas without the need for structural changes. The objective of this study is to determine the economic profitability and financial feasibility of alternative crop rotation systems in the research area, taking into consideration price, production and financial risks. The lack of comparable and accurate information on crop yield and gross water requirements over a lengthy period necessitated these values to be simulated. Data on crops, soils and climate are used to validate and calibrate the PUTU crop growth simulation model P9MZAB3 for this area. The BEWAB irrigation scheduling model is .used to determine the irrigation scheduling of the crops. The calibrated PUTU model then is used to generate the crop yields and .gross water requirements for wheat, late maize, cotton, peanuts, dry beans, lucerne and soyabeans for a period of eleven consecutive years . Selected farmers in this area provided the data on crops and crop rotation systems. Based on economic, agronomic and practical principles, fourteen alternative crop rotation systems are developed. For each typical crop rotation system an appropriate mechanisation system, which includes a centre pivot irrigation system, is developed. The crop rotation systems are evaluated to run over a period of ten years. The irrigation systems are used to irrigate an area of sixty hectares with a predominantly sandy soil. Depending on the crop rotation system various land utilisation percentages (degree of double cropping) are considered. The systems are used to irrigate areas with two different pumping heights: +10 m (Sarel Hayward canal) and -15 m (Ramah area). The simulated gross water requirements of the crop rotation systems are calculated and compared for the ten-year period to the available water quota. The results indicate that the maximum water quota of 900 000 m3 is sufficient in satisfying the gross water requirements of the follbwing crop rotation systems: 45W45LM15P (The number refers to the number of hectares while the symbols are explained as W = Wheat, LM = Late Maize, P = Peanuts, L = Lucerne, S =:= Soyabeans and C = Cotton) 30W30S30L, 30W30LM30L 30W30S30LM30L 30W30LM30C30L 30W30S30C30L Price risk is the result of crop prices that change over time. For late maize and wheat price scenarios are determined. By using linear regression analysis on the basis of historical national production levels of these crops, equivalent 1990 adjusted national production levels and prices are calculated. The prices of dry beans and lucerne hay are subject to price variability and determined largely by supply and demand situations. A procedure, is followed to generate a distribution of prices for these two crops that takes the price variability into consideration. For soyabeans, cotton and peanuts no quantifiable price risk is assumed and subsequently predetermined fixed prices are used. By using an irrigation system cost calculation method the fixed, variable and marginal irrigation system costs are calculated for the two systems with different pumping heights. On the basis of the supplied data on crops, mechanisation costs and determined average crop prices and yields, the crop budgets are developed and the net margins calculated. The crop net margins are the basis on which the different crops are analysed for economic profitability. For the consideration of production and price risks the net margins of the crops in the budgets are calculated for each year of. the ten-year period on the basis of randomly selected crop prices and yields from the respecti ve price and yield distributions. This process is repeated twenty times to obtain a distribution of twenty net margins for ten years for each crop. The net present value method is used to calculate the economic profitability of the crop rotation systems. By including in the calculation the distributions of the determined net margins the production and price risks are taken into consideration. On the basis of the net present values and ratios of net present values to investment the economic profitability of the crop rotation systems can be evaluated on an equal basis. The results indicate that crop rotation systems with late maize and/or soyabeans as the main summer crops are the least profitable, while crop rotation systems with lucerne and cotton as the main summer crqps are the most profitable. The results also indicate that crop rotation system irrigated by the systems with higher pumping heights have a considerably lower economic profitability. In the financial feasibility analysis the crop rotation systems are analysed for a hypothetical farm for cash deficits for the ten-year period by comparing basically the cash incomes with the cash costs (financial obligations). On the hypothetical farm two sixty-hectare areas are irrigated and only the associated revenues and costs are considered. In the financial feasibility analysis the financial risks are firstly incorporated by including the distribution of net margins and secondly by using three different debt to asset ratios. The annual cash costs are calculated for each year for the ten-year period and for each debt to asset ratio. The annual cash incomes are calculated from the crop net margins minus the non-cash fixed costs for each year for the ten-year period. A decision rule is implemented to determine. when a crop rotation system is feasible. The results indicate that the debt to asset ratio is the main factor influencing financial feasibility of the crop rotation systems. For a 70/30 debt to asset ratio all crop rotation systems are unfeasible for the irrigation systems with a positive pumping height (+10 m) and unfeasible, except one (30W30S30C30L), for the negative pumping height (-15m). For a 50/50 debt to asset ratio only five crop rotation systems are feasible for irrigation systems with positive and negative pumping heights (30W30S30L; 30W30S30LM30L; 30W30LM30L; 30W30LM30C30L; 30W30S30C30L). For a 20/80 debt to asset ratio all crop rotations systems except one (60W60LM) are feasible for both pumping heights. The conclusion is that the debt to asset ratio is more important in obtaining financial feasibility than the choice of the crop rotation system and the given crops.
Open Access
Simulation studies on Digitaria eriantha Steud. Subsp. eriantha at differing soil nitrogen levels
(University of the Free State, 1993-11) Howard, Micheal David; De Jager, J. M.
Abstract not available
Open Access
Possible predictors determining the adoption of potatoes (solarum tubercosum) into the wheat (triticum aestivum) based cropping system in Mokhotlong, Lesotho
(University of the Free State, 2000-12) Serage, Kgadiko Lucas; Nell, W. T.
No abstract available
Open Access
Taxing agriculture: an analysis of a possible land and capital gains tax
(University of the Free State, 2001-02) Dannhauser, Andries Petrus; Van Schalkwyk, Herman
English: The South African agricultural sector has experienced a lot of deregulations over the past decade. This process marked the end of state subsidies, favourable commercial agricultural policy and border control measures that, in the past, provided a safety net for commercial farmers. Together with the transformation process, various policy changes occurred and included the transformation of agricultural policy to the benefit of emerging, small and subsistence farmers. Commercial farmers lost their once held favourable position and had to adapt in a globally exposed sector with very little state support. Today, the agricultural sector is challenged with the possible introduction of two new taxes. Since 1992, a South African land tax has been under intensive investigation. This prospect gave rise to divergent opinions and arguments regarding the effect of a land tax on farm operating costs, farmland values, productivity, financing of local governments and other possible effects. During February 2000, the 30-year old possibility of a South African capital gains tax (CGT) gained momentum with the announcement by Minister Trevor Manuel that such a tax will be imposed on April 1st 2001. The past incapacity of the tax administration to handle CGT was supposedly overcome with the introduction of the New Income Tax System (NITS). SARS is confident that they can now handle the administration behind a capital gains tax. With the aim of obtaining some information with regard to the possible effects that a land tax may have, it was necessary to simulate the agricultural sector. Satisfying this need involved the use of static and dynamic linear programming techniques. Different agricultural regions in South Africa were identified for data gathering and subsequent inclusion in the analysis. Specific case studies were chosen and are situated in the Mpumalanga area, the Great Karoo area, the Olifants River irrigation scheme, Potchefstroom area, Bloemfontein area and the Kwazulu-Natal area. Various scenarios were constructed and the effect of the land tax at different rates, different land tax bases and different deductibility rates from income tax were tested. With these results at hand it was possible to provide some guidelines in terms of the effect of a land tax regarding different implementation strategies. In terms of capital gains tax, a thorough literature study indicated that CGT reduces the amount of savings and investments. It furthermore discourages investment in risk-bearing investments such as agriculture. In the CGT analyses, a case study is used to determine the effect of land and capital gains tax on the repayment ability of a farm. With the aim of obtaining some information with regard to the possible effects that a land tax may have, it was necessary to simulate the agricultural sector. Satisfying this need involved the use of static and dynamic linear programming techniques. Different agricultural regions in South Africa were identified for data gathering and subsequent inclusion in the analysis. Specific case studies were chosen and are situated in the Mpumalanga area, the Great Karoo area, the Olifants River irrigation scheme, Potchefstroom area, Bloemfontein area and the Kwazulu-Natal area. Various scenarios were constructed and the effect of the land tax at different rates, different land tax bases and different deductibility rates from income tax were tested. With these results at hand it was possible to provide some guidelines in terms of the effect of a land tax regarding different implementation strategies. If a land tax is introduced on South African agricultural land, market values for farmland would decrease, which implies lower solvency ratios. A land tax will furthermore increase overhead costs, lead to higher financial risk, and result in the production of high-income products (but also higher risk products). The demand for short-term credit will also increase. Levying a land tax simultaneously with a capital gains tax, will lead to a decline in the repayment ability of farms as well as decreases in the security value of the concerned land. The combination of these taxes will increase the risk involved in agriculture.
Open Access
The economic effects of poor and fluctuating irrigation water salinity levels in the lower Vaal and Riet Rivers
(University of the Free State, 2002-05) Armour, Robert Jack; Viljoen, M. F.
English: In the Lower Vaal and Riet Rivers, changing irrigation water quality has raised concern about the long-term sustainability of irrigation due to reduced yields of certain crops and the withdrawal of some very profitable crops. The main aim of this study is to develop and apply models to determine the long-term financial and economic viability of irrigation farming in the Lower Vaal and Riet Rivers, with specific aims to: evaluate the relationship between changing water quality, soil conditions and crop production; determine the impact on yield, crop choice, agronomic and water management practises, expected income and costs; develop models for typical farms in different river reaches, and apply these models to test the outcome of alternative scenarios regarding internal water quality management practises and external policy measures. Five case study farmers were selected, one from each of the different sub-areas of the OVIB study area. The case study farmers were representative of their sub-areas with regards to the hectares of irrigation water rights held, and jointly, also sufficiently representative of the OVIB region. With the contradicting aims of improved water use efficiency and increased leaching for salinity management, the importance of a financial optimisation model was evident to solve the apparent paradox between saving water due to it’s scarcity value and “wasting” water to leach out salts that build up in soils through the process of irrigation. SALMOD was constructed using GAMS and consists of a simulation and optimisation section that calculate the optimal crop enterprise, management and resource use combination that maximises farm returns under different water quality, management and policy scenarios. The management options built into SALMOD are the appropriate leaching fraction to implement and crop yield to accept for the optimal crop / resource combination calculated. The fixed capital management options included in SALMOD are the installation of artificial drainage, the change of irrigation system and the building of on-farm storage / evaporation dams for return-flow management. The % reduction in TGMASC from the long-term average ECiw (74 mS/m) to the worst expected Vaal River ECiw as predicted by Du Preez et al, (2000) for 2020 (159 mS/m), is 84% and 58% for the small farmers from Bucklands and Atherton respectively, between 13% and 16% for the Olierivier farmer, depending on whether the Vaal River of the Riet River has the major impact, 1% for the large and financially strong Vaallus farmer and 3% for the small yet resource strong New Bucklands farmer (see Table 5.38). These results clearly show that the small and resource poor farmers will be the most affected by irrigation water salinity deterioration. Scenario results from SALMOD further show that: - Leaching is financially viable for all case study farmers - Accepting lower yields on soils with insufficient leaching capacity is also financially viable - For farmers with limited area of well drained soils it can be financially viable to install artificial drainage - The option of building on-farm storage dams when returnflows are constrained to 100 mm per hectare water rights held, is financially infeasible for all case-study farms and for all scenarios - It is not financially viable for farmers to replace their current irrigation systems with more efficient water saving systems, but in some instances to replace them with systems that can apply a greater leaching fraction - At the worst-case scenario salinity conditions, farmers with below 60 ha water rights, and who don’t grow cotton, will go out of production. SALMOD has proved to be a valuable farm level salinity management tool. SALMOD is also potentially useful at regional and national level for determining the farm level financial impacts of various water quality and quantity scenarios where the farmers are affected by irrigation water salinity.
Open Access
Rabbit production and consumption in South Africa
(University of the Free State, 2002-11) Bashi, Molao John; Balyamujura, H. N.; Van Schalkwyk, H. D.
English: The needs, perceptions and attitudes of potential consumers and producers with regard to consumption and production of rabbit products in Moqhaka, Ngwathe and Matjhabeng local municipalities are analysed in this study. The consumers in aforementioned local municipalities consume common livestock meats such as chicken, mutton, beef and pork. The consumers prefer lean meat. Pork is the most disliked meat by the majority of the surveyed consumers due to stomach problem that it causes when consumed. Pension and casual forms of employment are common sources of income among the African households surveyed. The African and Coloured communities showed more interest in the consumption of rabbit products than the White communily. The main attribute that will encourage the African and Coloured communities to consume rabbit products is its lean meat that is suitable for heart disease patients and people who are over weight. The members of the White population will use rabbit products mainly in the form of rabbit fur apparels and manure. The 'White community showed to have more knowledge about the potential attributes of rabbit products such as meat rich in protein, low on fat, manure suitable for vegetable growing as well as the ability of rabbit fur to make clothes. Rabbit meat was subjected to sensory taste analysis in a bid to determine consumer preference and taste with regard to meat consumption. Rabbit meat was compared to chicken, mutton and beef. Mutton was the most preferred meat by the panelists. However, the differences in the rank sums were all not statistically significant to justify preference of one meat over the other. This could be attributed to the tasting panel which was selected from a broad socioeconomic background and was familiar with at least seventy five percent of the tested meat types. Some members of the tasting panel were familiar with all the meat types. The small-scale farmers in Moqhaka, Ngwathe and Matjhabeng local municipalities are currently involved in both Ianning and non-farming activities which they depend upon for survival. The farming activities include livestock and vegetable production while the non-farming activities include sewing, selling of fat cakes and so forth. The majority of producers and consumers have superficial knowledge about the potential of rabbit production and its products. The surveyed producers are faced with a number of problems such as lack of financial resources, lack of storage facilities and reliable form of transport in order to run their activities efficiently. This condition necessitates the formulation of a well co-ordinated support programme. The formulated programme would determine what form of production credit would be best suited for the rabbit producers in the different production areas. The enterprise budgets formulated indicate that the rabbit enterprise is not only a cost-effective enterprise but also profitable. This is shown by the low cost production ratio and high returns to investment when compared to other enterprises. An investigation of the international market. shows Europe as the most attractive and largest market for rabbit products.
Open Access
Optimal allocation of water resource in irrigated farming at the Ramah Canal Vanderkloof Dam
(University of the Free State, 2002-12) Mahlaha, Jacinta Mamaleke; Nwonwu, F. O. C.; Viljoen, M. F.
The flood plain in the Orange River at Vanderkloof Dam is classified as semi-arid. Natural rainfall in the area is very low and cannot support crop production. Therefore, the feasible way of producing crops is through irrigation. Agriculture must be prepared to respond to limited water by becoming efficient in water use. Increase in efficiency requires that the demand and supply management by individual water users be optimised and the value of water derived as measures to achieve efficiency in water use. The first part of the study involved a survey conducted at the Ramah Canal to ascertain the current farming situation and to determine whether economies of size existed in the area. Irrigated farms in the area were classified based on irrigation water rights into three average farm sizes of 75, 180 and 240 ha. Income and balance sheet statements were compiled to determine the financial situation of the three farm groups. From the statements, different financial ratios including solvency, liquidity, profitability and efficiency were calculated. The financial analysis showed that 180 ha farm group had the best solvency, liquidity, profitability and efficiency ratios. In the second position was 240 ha farm group. The analysis indicated that economies of size exists between farm groups with 180 ha farm being the optimal farm size to operate and 75 ha being the least efficient farm group. In the second part of the study, optimal cropping mixes at the Ramah Canal were determined under constrained and unconstrained irrigation water supply. Five crop mixes were formulated for each farm group. Crops under investigation were maize, wheat, lucerne, groundnuts, cotton and potatoes. A Linear Programming (LP) model was developed to determine optimal cropping mix that gives maximum returns under unconstrained water supply (100 percent). The objective function of the model was to maximise total gross margin subject to the following constraints: total available water and land during summer and winter seasons, maximum area under each crop, labour and tractor power required by the crop mixes. From the LP results, the total value product (IVP) functions presented as linear segments showing gross margin as a function of water applied were developed for each crop mix. The TVP functions indicated the sequence by which crops would be irrigated based on their contribution in maximising gross margin. Results showed that in summer season, potatoes would be irrigated first because of high profitability relative to other crops. As irrigation water becomes abundant, groundnuts, cotton, lucerne and maize will be irrigated in that order. Wheat was the only winter crop dealt with. From the TVP functions, Marginal Value Product (MVP) for water was derived. The MVPs were RO.09, RO.18, RO.25, RO.38, RO.39 and R3.64 for maize, lucerne, cotton, groundnuts, wheat and potatoes, respectively. Sensitivity analysis was carried out by reducing the full water application level to 75, 50 and 25 per cent water availability to determine the response of different crop mixes under restricted irrigation water supply. Results showed that in summer season, maize is the first to be affected by water limitations. Next is lucerne, then cotton, and groundnuts. Potatoes are the last to be affected by water restrictions. Furthermore, under severe water restrictions, farmers could lose more than half of their potential income. Water" management strategies which farmers would follow in future when irrigation water is limited were determined. Farmers in 75 and 180 ha groups indicated that they would completely change crop mix under severe water restrictions. Farmers in the 240 ha group with lots of farm investments, are very sensitive to reductions in water supply and are prepared to quit farming if water limitation persists. In conclusion, the study provided information and guidelines for choosing the best cropping strategies based on available irrigation water and other production resources. It is recommended that the study be done for a reasonable period of time since production is a continuous process. Furthermore, the potential of the area in producing high value crops should be investigated.
Open Access
Econometric estimation of the demand for meat in South Africa
(University of the Free State, 2003-05) Taljaard, Pieter R.; Van Schalkwyk, Herman
In this study the demand relations for meat in South Africa are estimated and interpreted. Two demand model specifications, namely the Rotterdam and Linearized Almost Ideal Demand System (LA/AIDS), were estimated and tested in order to determine which model provide the best fit for South African meat data. Tests for separability included an F and Likelihood ratio version. Both tests rejected the null hypothesis of weak separability between meat, eggs and milk as protein sources, indicating that the demand model for meat products should be estimated separately from eggs and milk. Consequently, separability tests between the four meat products fail to reject the null hypothesis, confirming that the four meat products should be modelled together. According to the Hausman exogeneity test, the expenditure term is exogenous. As a result, a Restricted Seemingly Unrelated Regression (RSUR) was used to estimate both models. Annual time series data from 1970 to 2000 were used. Both models were estimated in first differenced format, whereafter the estimated parameters were used to calculate compensated, uncompensated and expenditure elasticities. In a non-nested test, the Saragan’s and Vuong’s likelihood criterion, selected the LA/AIDS model. In terms of expected sign and statistical significance of the elasticities, the LA/AIDS also proved to be more suitable for South African meat data. Although the magnitudes of most own price and cross-price elasticities were significantly lower than previous estimates of demand relations for meat in South Africa, several reasons, including estimation techniques and time gaps, were offered as explanations for these differences. The uncompensated own price elasticity for beef (-0.7504) is the largest in absolute terms, followed by mutton (-0.4678), pork (-0.36972) and chicken (-0.3502). In terms of the compensated own price elasticities, which contain only the pure price effect, pork (-0.30592) was the most elastic, followed by mutton (-0.27713), chicken (-0.1939) and beef (-0.16111). The expenditure elasticities of beef (1.243) and mutton (1.181) are greater than one, indicating that beef and mutton are luxury goods in South Africa. The expenditure elasticity for beef is the most elastic; indicating that South African consumers as a whole, will increase their beef consumption as the total expenditure on meat products increase.
Open Access
Demand relations of oilseed products in South Africa
(University of the Free State, 2003-07) Van Schalkwyk, Hendrik P.; Van Schalkwyk, Herman
English: In this study demand relations for primary oilseeds in South Africa is estimated and interpreted with the use of econometric models. Two different models, namely the Linear Approximate Almost Ideal Demand System (LA/AIDS) and the two-step Error Correction Model (ECM), were applied to annual oilseed data for the years 1971-2002. The F ratio test for separability failed to reject the null hyp othesis of weak separability in most cases, indicating that sunflower seed, soybeans, groundnuts and cotton could be included in the same system and modeled together. The Hausman test for exogeneity was conducted and proved that the expenditure variable included in the estimated equations is indeed exogenous. The exogeneity of the expenditure variable provides assurance that the Restricted Seemingly Unrelated Regression (RSUR) method of estimation will provide efficient parameter estimates. Both the short run models are estimated in differenced form, from where the parameter estimates obtained were used to calculate compensated, uncompensated and expenditure elasticities of demand. The compensated own price elasticity of soybeans is the largest in absolute terms, with coefficients ranging from -0.579 in the LA/AIDS to -0.666 in the ECM. Seed cotton has the second largest compensated own price elasticity with -0.399 and -0.542 respectively in the two models. The compensated cross product elasticities indicate a predominantly substituting relationship between these oilseeds, even though not all of them are significant. According to the calculated uncompensated own price elasticities, seed cotton is the most price responsive i.e. (-0.745) in the ECM and soybeans (-0.617), in the LA/AIDS. According to the expenditure elasticities sunflower seed (1.105) and cotton (1.064) can be regarded as luxury oilseeds in South Africa. Soybeans, with expenditure elasticities of between 0.454 and 0.493 in the two respective models, can be regarded as a normal good. Groundnuts can also be regarded as a luxury commodity even though it has an expenditure elasticity of just below one. The fact that the compensated own price elasticity of groundnuts is smaller in absolute terms than the expenditure elasticity is also an indication of a luxury product, as proved by Hicks and Juréen (1962).
Open Access
The effect of the South African trade policy regime on the beef and maize sub-sectors
(University of the Free State, 2004-07) Bahta, Sirak Teclemariam; Jooste, A.
Trade policies form the main economic “buffer” between one national economy and another, i.e. the general and specific elements of each nation’s trade policy interact directly or indirectly with those of other nations in all economic transactions across international borders. A nation’s trade policy involves specific actions to encourage and promote or discourage foreign trade through the legal, financial and institutional environment within which foreign transactions occur. This study evaluates the trade policy applicable to the beef and maize sub-sectors in South Africa. Issues that are investigated include whether trade policy provides more or less protection than needed, whether it creates more openness for trade and the revealed comparative advantage of beef and maize. According to the RCA and RCA# the beef sub-sector in South Africa shows a revealed comparative disadvantage for 17 out of the 22 years since 1980. The maize sub-sector, on the other hand, shows a revealed comparative advantage for 18 out of the 22 years since 1980. It appears as if both the beef and maize sub-sectors have adjusted favourably since the implementation of the Marrakesh Agreement and subsequent deregulation of the domestic market. Favourably in this context means that both sub-sectors appear to have discounted the changing trade and regulatory environments into their respective supply chains. It is however important to take note that the results do not show the real state of competitiveness that exists in these sub-sectors. The reason for this is that the RCA measures should not be used to make definite conclusions whether an industry, sector or sub-sector in a country is competitive nor whether it uses scare resources in an efficient manner. The RCA measures explain in more accurate ways, relative to a simple analysis of export trends, how a country features in the context of word trade. Hence, one possible application of RCA measures is to deduct the impact of changes in trade policies on an industry, sector or sub-sector. Cognisance should also be taken that the RCA measures fail to distinguish between a region’s factor endowments. The study also shows that the ERP calculation is lower than the NRP for beef and higher for maize. This means that the protection for inputs is higher than that of the output in the case of the beef sub-sector and vice versa in case of the maize sub-sector. The results from the ERP calculations show that the beef sub-sector is taxed, whilst the maize sub-sector are subsidized. Furthermore, this study recommends the market niche should be exploited more. However it is necessary to give attention to: (i) Small scale farmers (ii) Increased efficiency and (iii) Considering issues such as food safety.
Open Access
An analysis of the production and marketing practices of the wool industry in Lesotho
(University of the Free State, 2004-11) Jordaan, Andries Johannes; Van Schalkwyk, H. D.
English: Lesotho is a small country with, apart from abundant water, very few significant natural resources. The countries' economy is mainly based on limited agriculture and manufacturing. Most of the labour force depends on subsistence agriculture, yet this sector only contributes 15% to the Gross Domestic Product (GDP). Wool is one of Lesotho's largest export commodities and (together with mohair) is the only agricultural earner of foreign capital. The continuous decline in national wool production during the past three decades, coupled with a drastic deterioration in the quality of the rangelands, has become a serious predicament for the Lesotho government. The competitiveness of the wool industry in Lesotho is in question, and wool farmers remain poor despite the export earnings of wool. The Lesotho government is also under pressure to privatise the shearing shed system, and it is seeking alternative solutions to substitute or increase the efficiency cif the present system. These factors and remedial actions to increase competitiveness have necessitated an analysis of the wool production system. This study forms part of a larger study focussing on the wool and mohair industries in Lesotho. The main objective of the study is to analyse the wool system in Lesotho, including the production, trade, and marketing processes of the industry and to recommend the necessary remedial actions. The problem conceptualisation method was used to analyse the research problem. Both deductive logic and inductive reasoning were used to analyse the data and to form conclusions. The study relies heavily on a comprehensive literature study for the gathering of secondary data. The Rapid Rural Appraisal (RRA) technique was used to obtain the necessary primary data, and the basic principles of action research were applied during the research. The study highlighted the lack of proper feeding, low reproduction rates, high mortality, and stock losses as the major reasons for low yields. Emphasis is placed on the importance to improve the quality of rangelands and to introduce efficient production systems. Also highlighted in the study is the crucial role of the shearing shed system and the need to privatise the shearing sheds through the establishment of producer-owned cooperatives. Computerisation and streamlining of the administration process during marketing should coincide with the privatisation process. The development of micro-cooperatives at the shearing sheds can also serve as a structure to bring services such as the availability of inputs closer to the producer. The development of a rural banking system supported by microcooperatives as a basis should also be exploited. The present trade and marketing system through the South African marketing structures should be treasured. The system of licensed traders, though, should be liberalised because of its monopolistic nature and the lack of law enforcement and proper policing of the system. An empirical estimation by means of a policy analysis matrix indicates that the wool system in Lesotho is not competitive and efficient at all. It shows that the economy is losing foreign exchange from local production because the opportunity cost of its domestic resources is more than the foreign exchange it gains. This is in total contrast to what the industry and government believe since they regard wool production as the flagship of all the agricultural systems in the country. The study, however, shows that an increase of 15% in wool production output is sufficient enough to ensure competitiveness. The study therefore concluded that the wool system, as a vital supplier of income at household level in the rural areas, should increase productivity at the production level to increase its competitiveness.
Unknown
The comparative advantage of long-term crops in Lesotho
(University of the Free State, 2005-06) Makosholo, Malefu L.; Jooste, A.; Van Schalkwyk, H. D.
This study is one of several investigations undertaken over the years to determine the Comparative Economic Advantage of agricultural production in selected Southern African countries. The specific purpose of the Lesotho study was to generate information required to guide decision-makers in agriculture towards productive allocation of resources and identify feasible infrastructure investment options to take advantage of available trade opportunities within and beyond the region. It was also required to analyse the factors involved in the structure and development of inter- and intra-industrial trade (Gini and IIT) for the SACU region of which Lesotho is a part. The inter-industry analysis shows that there is concentration in the market of apples, asparagus, cherries and peaches. On the other hand, the intra-industry analysis with respect to apples, asparagus, cherries and peaches suggests that the SACU countries exported more than they imported during the period 1994-1998. The study also evaluated the comparative economic advantage of irrigated longterm crops in the four agro-ecological zones of Lesotho based on analyses of profitability coefficients and domestic resource costs. For these, the analysis was carried out using the net present value (NPV) approach. Further, economic efficiency and policy distortions were examined by the use of such a measure as the nominal protection ratio (NPR), effective policy ratio (EPR), and net policy effect (NPE). The CEA analysis based on the NPV approach yielded higher private returns relative to economic returns for the measures of economic efficiency and policy distortions in the Lowlands, Foothills, the Senqu River Valley and the Mountains of Lesotho for all the crops examined. It was revealed that apples were dominant and were more profitable in all zones. These results suggest that in the presence of government intervention, Lesotho could exploit comparative advantage in contracting production of apples and peaches in the Lowlands and Foothills so that other activities can expand. In the Mountains, the protection policies have raised the price of apples by 61 per cent above the social price for importing the commodity, i.e. Mountain farmers received 61 per cent more than the export parity prices. In the Senqu River Valley and Mountains, only apples could be contracted. Thus, should economic values of inputs prevail; farmers would receive lower returns, meaning that they may not compete effectively in the world market. The results of DRC based on the returns to land when NPV was employed, indicate that apples, asparagus, cherries and peaches for the Lowlands have comparative economic advantage, with asparagus production being the highest followed by peaches. However, in the Foothills apples are more efficient than peaches although the dominance is weak. However as the majority of farmers lack easy access to land in Lesotho, it is doubtful if results based on the prevailing land prices can have much predictive value. The absence of a clear policy and law enforcement also leads to lack of land price market, which in turn affects the impact of capital gains and losses. In this case, it may be necessary to conduct detailed studies to determine the economic prices of land in Lesotho on the basis of which reliable CEA analysis can be conducted. The study concludes that in the short-term, the commodities examined could contribute to the attainment of food security in Lesotho. For the future, Lesotho producers would benefit to a greater extent from expanding production for the international markets. It must be noted however that the coefficients of the CEA analyses do not provide sufficient information to guide future decisions for investment. For more long-term investment decisions, it is recommended that detailed cost-benefit analyses be carried out for each agro-ecological zone and location identified for any future project aimed at expanding the production of longterm crops in Lesotho.
Unknown
The comparative advantage of long-term crops in Lesotho
(University of the Free State, 2005-06) Makosholo, Malefu L.; Jooste, André; Van Schalkwyk, H. D.
This study is one of several investigations undertaken over the years to determine the Comparative Economic Advantage of agricultural production in selected Southern African countries. The specific purpose of the Lesotho study was to generate information required to guide decision-makers in agriculture towards productive allocation of resources and identify feasible infrastructure investment options to take advantage of available trade opportunities within and beyond the region. It was also required to analyse the factors involved in the structure and development of inter- and intra-industrial trade (Gini and IIT) for the SACU region of which Lesotho is a part. The inter-industry analysis shows that there is concentration in the market of apples, asparagus, cherries and peaches. On the other hand, the intra-industry analysis with respect to apples, asparagus, cherries and peaches suggests that the SACU countries exported more than they imported during the period 1994-1998. The study also evaluated the comparative economic advantage of irrigated longterm crops in the four agro-ecological zones of Lesotho based on analyses of profitability coefficients and domestic resource costs. For these, the analysis was carried out using the net present value (NPV) approach. Further, economic efficiency and policy distortions were examined by the use of such a measure as the nominal protection ratio (NPR), effective policy ratio (EPR), and net policy effect (NPE). The CEA analysis based on the NPV approach yielded higher private returns relative to economic returns for the measures of economic efficiency and policy distortions in the Lowlands, Foothills, the Senqu River Valley and the Mountains of Lesotho for all the crops examined. It was revealed that apples were dominant and were more profitable in all zones. These results suggest that in the presence of government intervention, Lesotho could exploit comparative advantage in contracting production of apples and peaches in the Lowlands and Foothills so that other activities can expand. In the Mountains, the protection policies have raised the price of apples by 61 per cent above the social price for importing the commodity, i.e. Mountain farmers received 61 per cent more than the export parity prices. In the Senqu River Valley and Mountains, only apples could be contracted. Thus, should economic values of inputs prevail; farmers would receive lower returns, meaning that they may not compete effectively in the world market. The results of DRC based on the returns to land when NPV was employed, indicate that apples, asparagus, cherries and peaches for the Lowlands have comparative economic advantage, with asparagus production being the highest followed by peaches. However, in the Foothills apples are more efficient than peaches although the dominance is weak. However as the majority of farmers lack easy access to land in Lesotho, it is doubtful if results based on the prevailing land prices can have much predictive value. The absence of a clear policy and law enforcement also leads to lack of land price market, which in turn affects the impact of capital gains and losses. In this case, it may be necessary to conduct detailed studies to determine the economic prices of land in Lesotho on the basis of which reliable CEA analysis can be conducted. The study concludes that in the short-term, the commodities examined could contribute to the attainment of food security in Lesotho. For the future, Lesotho producers would benefit to a greater extent from expanding production for the international markets. It must be noted however that the coefficients of the CEA analyses do not provide sufficient information to guide future decisions for investment. For more long-term investment decisions, it is recommended that detailed cost-benefit analyses be carried out for each agro-ecological zone and location identified for any future project aimed at expanding the production of longterm crops in Lesotho.
Open Access
Modeling tariff rate quotas in the South African livestock industry
(University of the Free State, 2005-11) Oyewumi, Olubukola Ayodeji; Jooste, A.; Van Schalkwyk, H. D.
English: The Uruguay Round of trade negotiations resulted in three main areas of trade liberalization in agriculture, namely market access, domestic support, and export subsidies. In terms of market access, the introduction of tariff rate quotas (TRQs) was one of the main tools to facilitate greater market access. After the liberalization of the agricultural sector and phasing out of past protection mechanisms South Africa introduced a process of tariff reform in compliance with WTO regulations. Furthermore, a system of TRQs was introduced in compliance with WTO regulations. Literature on South African agricultural trade shows that very little research has been conducted on the impacts of TRQs. In this study the impacts of further TRQ liberalization on the South African livestock industry were investigated using four TRQ liberalization scenarios, namely: 33 per cent expansion of import quotas, 33 per cent reduction in ad valorem MFN tariffs, a combination of the first two scenarios and a complete removal of tariffs. The approach followed in this study is spatial partial equilibrium in nature and consists of the primary (beef cattle, broilers, pigs, and sheep) and secondary (beef, poultry, pork and sheep meat) sub-sectors. The model delineates South Africa into its nine provinces, as well as neighbouring important meat producers – Namibia and Botswana. For the four secondary products (beef, poultry, pork and sheep meat) the border prices declined by between 0.89 and 2.39 per cent for scenario one, 2.35 and 7.96 per cent for scenario two, 2.96 and 9.97 per cent for scenario three and 8.25 and 25.19 per cent for scenario four. The largest decline in beef and sheep meat prices due to liberalization was recorded in the Eastern Cape and KwaZulu-Natal Provinces. Cattle and sheep numbers owned by emerging producers are more than those of the established commercial farmers in these two provinces. The implication is that the development efforts by government aimed at commercializing emerging commercial stock farming in order to address equity and poverty may be slowed down considerably with further trade liberalization. The study used the consumer and producers surplus concepts, as well as the equivalent variation concept to measure the impact on welfare of potential trade policy changes mentioned. Welfare as measured by consumer surplus increases by R230.8 million in scenario 1 to R1 880.8 million in scenario 4. Producer surplus decreases by R77.6 million in scenario 1 to R656.89 million in scenario 4. Welfare as measured by equivalent variation increased by R60.6 million in scenario 1 to R468.2 million in scenario 4. The equivalent variation concept revealed much more moderate changes to consumer well being. The reason for this is that consumer and producer surplus estimations assume linearity of the demand and supply curves, whereas the model used in this study accounts for the non-linearity of demand and supply curves. Consumer and producers surplus estimates nevertheless provide useful insight into the relative impact of trade policy changes. Should further TRQ liberalization be considered in the South African livestock industry, consideration should first be given to expanding the existing quota rather than reducing tariffs. Further research on the following aspects is recommended, (i) products differentiated by place of origin based on the Armington assumption, (ii) expansion of current modelling framework to include additional products and (iii) explicit modelling of TRQs such as the creation of rents and its distribution.
Open Access
Factors affecting participation in mainstream cattle markets by small-scale cattle farmers in South Africa
(University of the Free State, 2006-05) Montshwe, Bolokang Derrick; Jooste, A.; Alemu, Z. G.
Even though livestock farming has been identified in the Integrated Sustainable Rural Development Strategy as the agricultural sub-sector with the most likely chance of improving household food security and addressing poverty alleviation in the small-scale farming areas of South Africa, the reality is that the small-scale cattle sector has not achieved its full potential despite many efforts through research and development programmes. Previous studies have mainly identified factors impeding participation of small-scale farmers in both informal and mainstream markets and the extent or degree at which participation is affected. The purpose of this study was to investigate the probability of small-scale cattle farmers participating in mainstream markets and measure the impact of change of selected variable on the probability to participate. This is a departure from previous research in that the study attempts to identify those factors that have the greatest probability to increase participation in mainstream markets by smallscale farmers. The study was conducted in three different areas, namely Hammanskraal, Ganyesa and Sterkspruit. The sampling technique used in Hammanskraal is the stratified random sampling technique. In Ganyesa all the identified farmers were interviewed. Since the number of small-scale farmers was unknown in the Sterkspruit area the snowball sampling technique was used. The total sample size is 150 small-scale cattle farmers. A logit model is used in this study. Since multicollinearity in the data was identified principle component (PC) analysis was used to deal with this problem. After PC’s were calculated and PCs with the smallest eigenvalues were eliminated, principle component regressions (PCR) were fitted using the standardized variables to improve the estimation power of the logistic regression model. Partial effects of the significant continuous variables (i.e. herd size, desired market distance, household size, lobola, dependents, theft, household assistance and mortality) on the probability to use mainstream markets are relatively small. However, partial effects for the significant discrete variables (i.e. market information, remittances, training and farming systems) are more significant. The increase in the probability to participate in mainstream markets if the initial conditions are addressed range between 0.3 and 0.6. Simulations with regard to a base group of households revealed training and access to information will have the largest positive impact on the probability of small-scale cattle farmers to market their cattle through mainstream cattle markets if initial conditions improve. Although desired distance to markets, herd size and household size have the potential to increase off-take to mainstream markets, its potential impact is less that training and access to information. The impact of remittances and lobola on the small-scale cattle sub-sector, risk behaviour and the informal market are areas that need further research.
Open Access
Chain management and marketing performance of the banana industry in Eritrea
(University of the Free State, 2006-06-17) Zereyesus, Yacob Abrehe; Jooste, André
English: The current marketing of agricultural products in general, and of bananas in particular, poses special problems for Eritrean farmers. Poor climatic conditions coupled with crude and inefficient agricultural technologies render agricultural output sub-optimal. The major production problems include shortage of capital and scarcity of land; shortage of farming materials; spoilage of bananas during harvesting due to inappropriate harvesting techniques and facilities and lack of technical know how. In addition, the main marketing problems comprise transport problems to stores; general storage problems; lack of information and spoilage during transport. Taking the above into account it should be noted that current trends towards the increased globalization of markets, trade liberalization, advances in information technology, consumer preferences and improved logistics means that the competitiveness of fruit industries in various regions and countries, as affected by the performance of their supply chains, is becoming increasingly important and will be even more important in the future. Cognisance should also be taken of the fact that much confusion exists regarding the exact meaning of the term competitiveness. Comparative advantage and competitiveness are related, but are often mistakenly exchanged for one another. Comparative advantage explains how trade benefits nations through more efficient use of their resource base when trade is totally unrestricted. Competitive advantage defines trade patterns as they exist in the real world, including all the barriers to free trade ignored by comparative advantage (Worley, 1996). Vitally important is to take cognizance of the fact that the establishment of a competitive supply chain is a prerequisite for an industry’s competitiveness and success. Based on this analysis, this study proposes what should be done to achieve a workable SCM for the banana industry in Eritrea. In its broader sense, the proposed structure of the SCM involves the introduction of horizontal strategic alliances between existing banana producers and the marketing group and a vertical relationship along the supply chain. Given that bananas comprise a considerable portion of the international trade makes it significant to this study. Bananas are also symbolic of the wide range of injustices present in international trade today. The Lomé Convention, which placed certain Latin American banana exporting countries at a disadvantage, was the root cause of trade disputes, and the eventual replacement of this Convention will have an impact on the future banana export prospects of ACP countries. Eritrean producers, like those of other ACP countries, therefore have little time to adjust and become competitive against “dollar” bananas on the European market, which at this point enjoy a production cost and quality advantage
Open Access
Measuring market integration for apples on the South African fresh produce market : a threshold error correction model
(University of the Free State, 2007-08-31) Uchezuba, David Ifeanyi; Alemu, Z. G.; Jooste, A.
English: Apples constitute the bulk of deciduous fruit produced in South Africa, i.e. in 2000, apples made up the largest percentage of the deciduous fruit crop (43%). From 1991/92 to 2002/03 production averaged 574 850 tons per annum with a standard deviation of 43 922 tons. The average distribution of the apple crop between the local market, exports and processing is more or less even. Because of its potential lucrative nature much emphasis in the apple industry is afforded to exports, but relatively little is known about how price transmission takes place on the domestic fresh produce markets (FPMs). Moreover, it is increasingly recognized that the formulation of market-enhancing policies to increase the performance of the local market requires a better understanding of how the market functions. Aggregate market performance is better understood by studying the level of market integration that exists, which in turn is affected by transaction costs in the value chain. Hence, the primary objective of this study was to measure market integration for apples on the South African FPMs to determine the existence of long-run price relationships and spatial market linkages. Specific issues addressed in this study include, (i) determination of the effect of deregulation of the marketing of agricultural products in 1997 on average real market prices, price spread and volatility (risk), (ii) determination of how FPMs where apples are sold are linked and how prices are transmitted across these markets, (iii) determination of the threshold prices beyond which markets adjust and return to equilibrium, and (iv) establish the response of the FPMs to price shocks and how long it takes for shocks to be eliminated. The FPMs included in this study are Johannesburg, Cape Town, Tswhane, Bloemfontein, Port Elizabeth, Durban, Kimberley and Pietermaritzburg. The criteria for selecting the FPMs were based on net market positions (surplus or deficit area), geographical distribution, the volume of trade and the importance of the market to the national apple trade flow. The investigation revealed a statistically significant decline in real prices in six of the eight markets investigated, a statistically significant relation in prices (price spread) between the Johannesburg FPM and five other FPMs, as well as that the price spreads between these markets declined after deregulation, and that the variation in real apple prices declined for five of the eight markets after deregulation. Standard autoregressive (AR) and threshold autoregressive (TAR) error correction models were compared to determine whether transaction cost has significant effects in measuring market integration. Larger adjustment coefficients were found in the TAR model. This is an indication that price adjustments are faster in threshold autoregressive TAR models than in AR models. Also half-life deviations in the TAR model are much smaller than in the AR model. The TAR model requires less time for one-half of the deviation from equilibrium to be eliminated than the standard AR model. Therefore, it is better to use TAR models than AR models because TAR models give a more reliable result. In addition, the parameter estimates of the threshold vector error correction model were analyzed. The results show that bidirectional and unidirectional causality exist between Johannesburg FPM prices and other markets. Regime switching estimates to investigate market integration in the selected markets show that no persistent deviation from equilibrium existed for all but one market pair and no clear evidence was found to support improved market integration after market deregulation in 1997. A nonlinear impulse response function to investigate the impact of positive and negative price shocks in the Johannesburg FPM on other FPMs revealed that it takes about six to twelve months for positive and negative shocks to be completely eliminated in all the markets. Generally, the results obtained confirmed strong market integration in terms of apples for selected FPMs.