Doctoral Degrees (Agricultural Economics)

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Open Access
Analysis and quantification of the South African red meat value chain
(University of the Free State, 2011-05) Spies, David Cornelius; Jooste, A.; Taljaard, P. R.
Given the natural resource base of South Africa, livestock production is one of the most important farming practices in the country. Of the approximately 80 % of the land surface being utilised for agriculture, almost 70 % is mainly suitable for raising livestock. The South African red meat sector contributed 14.8 % to the total gross value of agricultural production during the 2008/2009 season with cattle being the main contributor at 10.1 % while sheep contributed 2.5 % during the same period (DAFF 2010). The long-term average contribution of the red meat industry to the total gross value of agriculture production (from 1996/1997 to 2008/2009) accounted for 13.2 % and that of beef 9.4 % and sheep 2.4 % during the same period (DAFF 2010). The South African primary red meat sub-sector is unique due to the dualistic nature of the country’s agricultural situation. There is a clear distinction between the commercial (formal) sector of the industry and the non-commercial (informal) sector. Within the ambit of the above the South African red meat sector also has to compete at a global level. For the South African red meat industry to be on par and potentially become a leader (at least in the Southern African region) it is necessary to understand the red meat value chain in detail in a holistic manner to (i) guide decision making in the public and private sector domains, (ii) identify challenges that the industry faces that impedes on its efficient functioning and (iii) create a foundation for the better understanding of the dynamic forces within the industry to allow stakeholders to internalise it in order for them to position themselves so that they can increase their performance at each segment of the industry to the benefit of the entire industry. Merely providing a descriptive profile of a particular industry is not sufficient any more within a deregulated and liberalised environment. In order to make any normative judgments regarding the performance of an industry, an in depth value chain analysis is needed. This is what this study is set out to achieve for the large (cattle/beef) and small stock (sheep/mutton-lamb) subsectors. The broader industry was investigated through interviews with different stakeholders in the red meat value chain. The analysis on the value chain in general shows that the South African cattle and sheep industries have been growing in nominal terms when considering their contribution towards the total gross value of agricultural production. However, the percentage contribution towards total gross value of agricultural production in South Africa of these two sectors has remained relatively constant during the short term (cattle at 10 % and sheep at 2 %). Critical variables that affect the performance in the feedlot industry are weaner and feed prices, as well as the price they receive in the market. The performance at primary processor level is directly linked to the price of offal, which is highly variable on a geographical level as well as seasonal. The performance of the retail sector is highly dependent on their ability to cater for specific consumers in specific geographical areas, while seasonal demand also determines purchasing and pricing patterns. This variability in prices as well as the transmission thereof through the red meat value chain is a big concern in the industry. Price transmission was therefore investigated using time series data on primary producer- and derived retailer prices data from September 1999 to December 2008. The following methodological approaches were applied, namely the Engle and Granger cointegration test as well as threshold autoregressive models. The Granger causality test was applied to analyse causality. Asymmetry in price transmission (APT) was found in both the beef and lamb value chains, indicating inefficiencies within the chain. Causality in the case of beef ran both ways i.e. from producer level to retail level and vice versa depending on supply conditions while in the case of lamb a change in price at producer level “causes” changes at retail level. APT is not uncommon, especially in agricultural markets and a number of reasons can cause APT in a value chain, however, in the case of the South African red meat industry a few contributors to APT was identified namely; asymmetry in information flow, menu cost and inventory cost. The red meat value chain in the Free State province was investigated by using a value chain methodology that was derived from different approaches to value chain analysis. Primary data was captured by means of personal interviews. A total of 143 commercial producers were surveyed (i.e. 19 % of the total of 745 producers that made up the original producer database used). The analysis revealed the following important aspects, namely (i) 60 % of total income generated by commercial farmers is from livestock activities, (ii) productivity is high in the commercial sector with calving- and lambing percentages averaging 80 % and 93 % for the cattle and sheep sub-sectors respectively, while the smallholder sector only averaged 30 % and 13 % for cattle and sheep respectively, (iii) older animals within the commercial beef sub-sector are mainly marketed to primary processors while younger animals are marketed to the feedlot industry while the majority of animals in the sheep sub-sector are marketed to the primary processing industry, (iv) market access in the smallholder sector is still limited to regional auctions, the informal market and to lesser extent direct sales to abattoirs, and (v) the main constraining factors in the smallholder sector is the lack of proper infrastructure which makes managing practices difficult. One major concern within the industry is animal losses, i.e. 44 % of sheep losses in the FS was due to predation. The processor industry in the FS province is highly integrated, especially in terms of primary processors/abattoirs and butcheries. Abattoirs are an important marketing alternative, especially in the rural parts of the FS province. All the role-players in the FS cattle and sheep value chains identified the variability in live animal/meat prices as their main constraint. Increasing the productivity of the producers in the smallholder sector should be a major industry objective. This objective should start with the improvement of infrastructure, education of extension officers and simplified and easier access to credit. Given the methodology developed, and the results of the study, it is strongly suggested that the methodology be applied to the value chains of the remaining red meat producing regions in South Africa. This will provide a benchmarking platform for the red meat value chain in the country. This methodology should also be re-applied regularly (every 2 to 3 years) to keep the information up to date and to provide the means by which the industry can measure change in the industry. This will be critical from a private and public sector point of view.
Open Access
Capacity building strategies for sustainability farming SMMEs in South Africa
(University of the Free State, 2009-11) Mmbengwa, Victor Mbulaheni; Groenewald, J. A.; Van Schalkwyk, H. D.
English: South Africa’s land reform programme is faced with many challenges associated with its sustainability. It is widely believed that one of the major causes of the collapse/failure of farming SMMEs is lack of capacity in many aspects of running farming as a business. Critical success factors for these SMMEs are capacity, market accessibility, business management skills, effective extension services, adequate support programmes as well as adequate financial injection. Therefore, any entrepreneur in this business must have skills in both marketing and management, coupled with adequate support systems. To address the above-mentioned problems, a comprehensive study of farming small, micro, medium enterprises (SMMEs), pre- and post-settlement support, the involvement of youth and women, accessibility of markets, linkages, small, micro, medium enterprises (SMMEs’) institutional structures and other support services, was carried out. An intensive desktop study which included amongst others reports from government, consulting agencies, development and training institutions was used. Workshops with experts, farming stakeholders, agricultural economics departments from universities, government officials and farming small, micro, medium enterprises (SMMEs) were conducted. Participatory action research methodologies were employed during workshop sessions. Empirical evidences were drawn from eighteen case studies and surveys conducted by both Land Bank and National Department of Agriculture. Various tools of analysis were used to analyse different data sets used in this study. For instance, case studies used narrative coupled with strength, success, weakness, failure, opportunities and threats (SSWFOT) and ridge regression (RR). The data set from the Land Bank survey was analysed using GENMOD, MEAN, frequency (FREQ) and multiple logistic regression models. The data set from National Department of agriculture was analysed using frequency (FREQ) and multiple regression analysis. Case studies revealed that micro and small scale farming enterprise severely lack important key success indicators such as sustainable markets, input supply; increased income, sustainable production, skills development and professional business operation. On the contrary, it was found that medium sized enterprises have adequate levels of important key success factors that are lacking in micro and small scale farming enterprise, but also shows a need to improve on sustainable markets and input supply. These cases also revealed that financial capacity depends on marketing capacity. Consequently unit increases in marketing capacity have a corresponding increase in financial returns. The Land Bank survey revealed that perceptions of emerging farmers portray a lack of capacity and exposure. It also showed that skills, financial support, and infrastructure are important requisites for sustainable farming small, micro, medium enterprises (SMMEs). Extension support and sustainable production were found to be crucial for farming success in the emerging farming sector. It was also found that lack of understanding of the importance of formal markets; benefit of training and extension support may be the main contributors to the unsustainable nature of the emerging farming sector in South Africa. Therefore, this sector requires access to formal markets, extension support services and training in order to be profitable. The National Department of Agriculture data set revealed that there are many more micro enterprises compared to their small and medium counterparts. In addition, women are most beneficiaries for agrarian development; their involvement surpasses that of men, youths and disabled people. The results also indicate the training received to be insufficient, with much of the training being inappropriate for farming. There is a need to devise strategies to convert micro enterprises into small and medium enterprises with since a high conversion rate to small and medium levels can help to reduce poverty, unemployment and above all increase women’s empowerment and thereby improving the socio-economic impact of these farming enterprises. The results have good implications for the present and future owners of small, micro, medium farming enterprises. The study has formulated comprehensive and sustainable strategies as a guideline for agribusiness entrepreneurs, with the overall objective of eradicating poverty in rural areas and commonages through increased agricultural production.
Open Access
Credit scoring model: incorporating entrepreneurial characteristics
(University of the Free State, 2016-01) Henning, J. I. F.; Jordaan, H.; Van Zyl, J. H.
The main objective of the research was to develop a theoretical credit model that incorporates entrepreneurial competencies of farmers as variables in order to determine the repayment ability of the farmer. The research was conducted by using a financial organisation as case to test the application of a statistical credit-scoring model that incorporates entrepreneurial competencies. Entrepreneurial competencies have been found to have an influence on the competitiveness, and, by extension the financial performance of a business. Farms are no different from other businesses, where the aim of the farming business is to ensure profits, and decisions are made accordingly. Individuals that possess higher levels of entrepreneurial competencies are therefore expected to perform better in terms of management and coordination in the business environment, which improves financial performance and repayment ability. The theoretical credit model includes a neural network identified from literature and applied to accurately predict the high-risk loans which are liable to be rejected. The variables and characteristics used in the credit process were investigated from the credit provider’s viewpoint. Most research on credit tends to report on the variables and characteristics from the borrower’s side, which can result in variables that are important when the lender considers the loan applicant’s ability to repay being omitted. Results indicated that many of the variables used in the decision-making process are based on subjective measures, especially the variables that are associated with managerial and entrepreneurial abilities. The use of human judgement in the credit process is associated with several disadvantages that can influence the decision-making process, specifically consistency in the decision-making. Recommendations are therefore to investigate extending credit models by including entrepreneurial competencies that are measured with the use of an instrument that can provide a consistent reporting method for different applications. Further research is also needed to investigate the implementation of an objective, statistical credit-scoring model in determining the repayment ability of farmers. The entrepreneurial competencies of the farmers were measured and examined to gain a better understanding and insight into the specific competencies of farmers in South Africa. The entrepreneurial competencies of farmers can be measured with the use of an objective instrument that provides a score for each competency. The entrepreneurial competencies included the following: opportunity; relationship; conceptual; organising; strategic; commitment; learning; and personal strength competencies. Farmers were found to have higher scores in the commitment and relationship competencies, while opportunity competencies had the lowest score for the farmers included in the research. The scores determined for the farmers also provide a consistent measuring instrument that can be used to measure the entrepreneurial and managerial competencies as variables for inclusion in credit-granting decisions. The entrepreneurial scores were included with other decision-making variables in a statistical credit-scoring model. A back propagation neural network was trained with the use of known input–output combinations, tested and then applied to agricultural credit applications. The entrepreneurial competencies were found to contribute in the decision-making of the network, where the generalised weights compared with age and experience and other scale variables also included in the network. Entrepreneurial competencies can, therefore, also be included in determining the repayment abilities of credit applicants. The use of the studied neural networks in agricultural credit applications require further research, as neural networks are known for exhibiting difficulty in interpreting the results, indicating that providing reasons for a decision can be difficult. The method can, however, be used as a supplementary tool for current methods that may assist in assuring consistency in decision-making, as the neural networks are unable to accommodate additional variables that were not part of the training process. The main conclusion drawn from the research is that entrepreneurial competencies of farmers can be included with the use of a measuring instrument in a neural network credit model. The model can provide consistency in the decision-making procedure for agricultural loan applications; however, further research is necessary to provide a method that can accommodate the dynamic nature of the agricultural sector where conditions may necessitate the inclusion of additional variables in the decision-making process.
Open Access
Die gebruikswaarde van besluitnemingsondersteuningsmodelle vir trekkervervanging in die Vrystaat
(University of the Free State, 2000-11) Coetzee, Koos; Viljoen, M. F.; Heyns, A.
English: The replacement of farm tractors and availability of decision support models for assisting farmers in taking replacement decisions were studied. A literature survey, postal survey of farmers and interviews with various persons were used to gain information on the available replacement models, replacement policies, information availability and farmers' decision making processes. This information was used to model the replacement decision and develop different decision support systems. Different replacement optimising techniques were studied. Minimum-cost models are unpractical for modelling replacement decisions. An extended version of the minimum discounted cost model can be used as a decision support model for advising farmers. A simulation model for establishing replacement strategies was also developed and used to determine optimal replacement strategies. Both models indicate an economic life for tractors in excess of 10 years. An increase in the tax rate results in replacement at an earlier life than with lower tax rates.
Open Access
Economic analysis of land use: the case of East Hararghe administrative zone in Ethiopia
(University of the Free State, 2004-02) Worseme, Hassen Ibrahim; Viljoen, M. F.; Groenewald, J. A.
This study aimed at developing and applying a methodology for land use analysis through looking for a form of land use that provides sufficient and rising incomes to the agricultural population of East Hararghe Administrative Zone, and at the same time maintains the productive capacity as well as other environmental services of the land resources of the zone. The study starts with the elaboration of the problem statement, objectives, hypothesis and significance of the study. This is followed by the explanation of the approaches pursued in conducting the present study. The study area is also thoroughly described. The problem statement and the objectives of the study indicate that there exists a huge gap between zonal crop production and the population growth despite a substantial expansion of eropland in the zone. This implies the existence of numerous set backs in the land use system of the zone and necessitated a close investigation of the land use systems of the farming community of the study area in order to come up with an improved and efficient land use pattern that will overcome the acute land shortages as compared to the everincreasing population of East Hararghe Administrative Zone. The most important findings and results of this study are based on the literature study; the development of the research methodology; the description of the surveyed data that is obtained through questionnaire survey; and the analysis of the land use model of the study area. Land resource and land use was assessed from a global point of view. The problems that are associated with the use of the land resource in the developing countries were investigated. An extensive study was also carried out to introduce the agricultural sector of Ethiopia. The agricultural sector in Ethiopia is almost entirely dominated by small-scale, resource-poor farmers who produce 90 to 95 percent of all agricultural outputs. The role of economics within land use analysis is also reviewed. This role is elaborated through the discussion of a skeletal model of the agricultural sector; the concepts of regional agricultural planning, land evaluation and farming system analysis; the concepts of resource economics and land economics; and the issues of property rights and sustainable development. A linear programming model for the economic appraisal of the land use in the study area was presented following the description of the conceptual framework of the model. The different parts of the zonal linear programming model were discussed under the headings of objectives, variables and constraints. This was followed by the general formulation of the land use model of the zone called EASTHAR. The matrix of the model includes three sub-matrices each representing a different farm type. The farm types are distinguished on the basis of agro-ecological classification of the surveyed districts and peasant associations. The EASTHAR model was analyzed by using the GAMS software after it was extensively written in the GAMS programming language. Three land use scenarios are analysed to assess the effects of changes in factors that influence land use decisions and whether incomes of farms (fan increase through an improved land use. The results of the base scenario indicated that the incomes of farms can increase with improved land use pattern as the value of the objective function, or the economic surplus, is positive for the entire zone and for the different farm types. The model showed, how land has to be assigned to the different crops at zonal level and at each farm types level for maximizing farm incomes under proper and improved resource use. The most important staple food crops of the population of the zone are all incorporated in the optimum land use and the potential for specialization that can exist among the different farm types of the zone has also been indicated. A comparison of the results of the base scenario with the results of an opportunity cost scenario represented an important outcome of the model. The zonal economic surplus in the opportunity cost scenario is 33% lower than the base scenario. The valuation of the on-farm household labour thus has a negative effect on the incomes of the farm households. However, land use as well as labour, current input and draft power uses did not change from that of the base scenario. This shows that the mere valuation of the onfarm household labour will not automatically disturb land use decisions. An interesting outcome was observed when comparing the results of the base scenario with the results of a scenario of an assumed drought condition. The drought case scenario analyzes the consequences for land use in case drought occurs in the study area. Drought is a recurring problem of Ethiopians especially the rural population. The results of the analysis indicated that almost every land use defining variable was subject to change when drought occurs. According to these results, in a subsistence agriculture which is solely rain fed, a decline in the annual rainfall will undoubtedly lead to large reductions in the income of the farming population. Based on the results of the study important policy recommendations were outlined. The implementation of the envisaged improved land use patterns can have important impact in altering the poor income earning capacity of the farm households in the zone and have a better environmental impact. For farmers to produce the amount of grains required for home consumption and ensure their food security, there is a need to subsidize them to the amount of their lost gross margins during drought periods. Farmers must also be encouraged to save and have financial reserves for unforeseen adverse production conditions through the establishment of appropriate saving institutions to limit the subsidy. It may also be necessary for the government to approach donors to contribute to the subsidy, as this contribution will hopefully be lower than the cost of food aid in monetary terms. However, the dependence on food aid cannot be a preferable alternative and to supply enough food to the growing population of the region more food needs to be produced by the zone itself. This is because although other zones can produce food cheaply, for subsistence farmers who are producing crops mainly for home consumption (and not for the market) it is extremely hard (if not impossible) to engage in trade and rely on outputs produced in other zones.
Open Access
An economic analysis of salinity management with evolutionary algorithms in Vaalharts
(University of the Free State, 2017-01) Haile, Berhane Okubay; Grové, Bennie; Barnard, Johan; Matthews, Nicolette
The main objective of this research was to develop a bio-economic salinity management model to evaluate the stochastic efficiency, water-use efficiencies and environmental impact of optimal irrigation-scheduling practices while taking cognisance of irrigation-water quality, soil conditions, irrigation-technology constraints, crops and stochastic weather. A bio-economic salinity management simulation model was developed in MATLAB through the integration of the Soil WAter Management Program (SWAMP), by combining electricity-cost calculations with enterprise budgets to evaluate the impact of current irrigation schedules used by irrigators. The resulting SWAMP-ECON model was linked to an evolutionary algorithm to determine the benefits of following an optimised irrigation-scheduling strategy for each field crop. The model was also extended to model inter-seasonal allocation of water between two consecutive crops grown on the same field, to evaluate changes in the irrigation schedule of the first crop to manage the impact of soil salinity on the second crop. Risk was included in the analyses through the use of a state-general characterisation, where decisions are made without any knowledge of which state will occur. The models were applied to a case study farm in Vaalharts Irrigation Scheme with a 30.1 ha centre-pivot irrigation-system. The farm is characterised by Bainsvlei soil type and a shallow water table close to or below the root zone. The scenarios considered to run the model were two water qualities (low and high), two irrigation-system delivery capacities (10 mm day-1 and 12 mm day-1), and three field crops (maize, wheat, and peas) with different salinity-tolerance levels. The field crops constitute the crops grown for intra-seasonal and one-year inter-seasonal applications. Stochastic efficiency, low water-use efficiencies and environmental-impact indicators were calculated to interpret results of irrigation-management options for achieving economic and environmental sustainability. The results show that the farmer's existing irrigation schedules for the field crops in the study were over-irrigation strategies characterised by low water-use efficiencies, which are the direct result of farmers ignoring the contribution of the shallow water table to crop water-use. Over-irrigation resulted in large amounts of drainage water releasing between 11 000 and 26 600 kg ha-1 of salt into the environment. Decreasing water quality increases the risk of failing to reach potential production levels of the more salt-sensitive crops (maize and peas), however, the impact on expected margin above specified costs was low. Peas is the most profitable enterprise, followed by maize, and then wheat. On average, the expected margin above specified costs for peas, maize, and wheat, respectively, is ZAR 448 370, ZAR 321 909 and ZAR 245 885. The conclusion is that the current irrigation strategy is inefficient, has a large impact on the environment and presents the opportunity to improve profitability through better irrigation-scheduling practices that acknowledge the contribution of the shallow water table. Results of the optimised irrigation schedules show significant increases in expected margin above specified costs, associated risk exposure, water-use efficiencies and water productivity, as well as decreases in environmental impact due to a reduction in the amount of salt leached (SL). The main contributing factor to the results is the fact that the amount of irrigation water could be reduced because the shallow water table contributed 40% to 62% to crop water-use evapotranspiration, depending on crop type, water quality, and irrigation-system delivery capacity scenario selected. The largest benefits were observed for the highly salt-tolerant crop (wheat), because no leaching was necessary to manage salt levels. Consequently, a large salt build-up in the soil was observed. Decreasing water quality, compared to good quality water, impacted more negatively on MAS, risk exposure and the extent of drainage losses by the more salt-sensitive crops. Irrigation-system delivery capacity did not affect water-application rates significantly, but the results show that it is easier to manage electricity costs with the larger capacity by using a time-of-use electricity tariff. The conclusion is that the benefit of an optimised irrigation strategy is considerable, though careful consideration should be given to the trade-off between decreasing water applications and increasing salinity levels in the soil. Results of the inter-seasonal optimised irrigation-scheduling strategy water-use show that the leaching needs to increase during the production of the first crop to reduce the starting soil-salinity level when the follow-up crop is planted, especially when the second crop is sensitive to high salinity levels. Low WUE, WP and profitability are the consequences, taking the follow-up crop into account. In conclusion, a risk-neutral farmer should only consider increasing the water applied to the first crop (e.g. maize) if the plan is to plant a salt-sensitive crop (e.g. peas) in the second season. In both the intra-seasonal and the inter-seasonal applications, a risk-averse decision-maker will use more irrigation water to reduce the variability of outcome. The main recommendation from this research is that alternative institutional arrangements should be considered to ensure that irrigators do not lose their water-use entitlements if the water that is not used is deemed a non-productive use. A scheme-level hydrology analysis is necessary to determine the impact on the water table if all water-users start mining the water table. Future research should focus on extending the model to include the long-term problem of salinity and enhancing the model to deal with state-specific applications of water to crops as new information becomes available to farmers about a state of nature.
Open Access
Economic growth and development through agriculture: the case of the North West Province of South Africa
(University of the Free State, 2010-05) Cloete, Philippus Christoffel; Van Schalkwyk, H. D.; Taljaard, P. R.
The overall objective of the study was two-folded, firstly to improve the success of rural agricultural development in the North West Province (NWP) through the development of an institutional framework and secondly, to quantify the impact of the proposed institutional changes on the different agricultural sectors in the province. The development of an institutional framework contributes towards the existing mechanisms available to role-players and decision makers involved with rural agricultural development. The ability to quantify and simulate the impact of changes in the institutional framework addresses the concerns of researchers that theory is outstripping empirical research to an excessive extent in the field of institutional economics. Furthermore, by simulating the impact of the proposed institutional framework, indepth knowledge on the economic impact of rural agricultural development in the NWP was gained. In order to reach the first objective, a review/study was undertaken of the principles of the New Institutional Economics theory and how it relates to agricultural development in the NWP. This was followed by a SWOT-analysis to identify the main agricultural opportunities and factors inhibiting rural agricultural development in the province. From this, an institutional framework was developed to create an enabling environment for rural agricultural development in the NWP. The proposed institutional arrangements/improvements include amongst others: the establishment of public-private partnerships between government, private sector and communities, the introduction of rural finance systems, equity sharing schemes, integrated research-training programmes and market access solutions. A strategic framework for the implementation of the proposed institutions and institutional arrangements was also developed. The second objective was achieved through the application of two methodological approaches. In the first approach, the economic impact of the proposed institutional framework was estimated through a partial macro-economic equilibrium model, calibrated to a Social Accounting Matrix for the NWP. Different scenarios were simulated, with the land reform programme that served as a proxy for calculating the impact of the proposed institutional changes. From this, the baseline scenario assumed 30% of agricultural land being redistributed with a 20% success rate. This scenario closely mimics reality in the province. The second scenario assumed a success rate of 35%, with the success rate in the third scenario being 50%. The main results from this analysis include the quantitative impact of the land reform policy on the different agricultural sectors of the province as well as the impact of the proposed institutional framework thereon. The simulated results proved that development policies (i.e. land redistribution) yield different economy-wide impacts within the various agricultural sub-sectors of the province. Results from the baseline scenario show that the grain and oil-seed sectors of the province have the most significant impact on the economy, reducing provincial GDP by 6.19% compared to the 4.19% of the livestock sector. Moreover, under the assumptions of the baseline scenario, the grain and oilseeds sub-sector will reduce employment opportunities with 25 307, and government income with an estimated R 160 million. The rest of the scenarios confirm that the creation of an enabling environment for rural agricultural development through the introduction of the proposed institutional framework will significantly reduce the impacts of development policies. For example, in scenario 3 the grain and oilseed sector reported a 3.19% decline in the contribution to GDP compared to the 6.19% under the assumptions of the baseline scenario. The impact on employment opportunities is also likely to decrease by 3% for every 15% increase in the success rate. The second methodological approach entails the calculation of three sets of economic multipliers (production, value added and labour). The calculated multipliers were used to determine the economy-wide impact of the proposed institutional framework. Despite numerous shortcomings of economic multipliers, this analysis was performed to quantify the direct, indirect and induced economy-wide impacts resulting from the proposed institutional changes. Results from the multiplier analysis confirm the positive impact that the creation of an enabling environment might have on the proposed land reform policies. The main conclusion of the study is that the lack of proper and functional institutions could be seen as the main reason for the high rate of rural agricultural development failure in the NWP. Thus, should government fail to address the identified institutional shortcomings, the success rate of rural agricultural development will remain a mere 20%, which will have severe consequences for the economy and the rural people in the province. It therefore calls for the creation of an enabling environment that will support rural agricultural development. This could be achieved through the implementation of the proposed institutional framework; however, commitment from all role-players involved in rural agricultural development will be a prerequisite for success in this regard.
Open Access
Economic implications of trade liberalisation on the South African red meat industry
(University of the Free State, 2001-05) Jooste, André; Van Schalkwyk, Herman; Von Lampe, Martin
English: Successful agricultural trade relations have to a large extent become a function of how well countries are able to measure the possible impact of increased trade liberalisation. Many studies worldwide have attempted to gauge the impact of agricultural trade liberalisation on world production, consumption, trade and prices by means of mathematical programming models. Given the importance of the red meat sector in South Africa's agricultural economy, it is of the utmost importance that the red meat industry understands the implications and consequences of trade liberalisation. Such knowledge would enable this industry to pro-actively provide input to Government on the possible 'effects of trade liberalisation on the domestic red meat industry, that could be used in multi- or bilateral trade agreements. Furthermore, the industry would be in a position to identify threats and opportunities and make the necessary strategic decisions. In South Africa many studies have investigated various different issues of economic importance pertaining to the red meat industry. None of them have attempted to investigate the impact of trade liberalisation within the mathematical programming framework. This study employs a spatial partial equilibrium model embedded in the mathematical programming framework to analyse the possible effects of a reduction of tariffs, increases in world prices of red meat, changes in the exchange rate, the abolishment of the Lomé Convention and changes in population size. The model includes two-stage spatially separated markets for red meat products in South Africa that encompass behavioural parameters to gauge the impact of exogenous changes related to trade liberalisation. In the case where all tariffs on red meat imports are abolished, changes in prices of red meat products will be substantial. Producer prices for cattle, sheep and pigs will decline by 21.11 per cent, 13.90 per cent and 11.99 per cent, respectively. Beef, sheep meat and pork prices will, on average, decline by 27.88 per cent, 28.56 per cent and 13.16 per cent, respectively. Demand will increase substantially for all three meat types. From a welfare point of view consumers will experience welfare increases. Producers, on the other hand, will experience a drop in welfare. In monetary terms the welfare gains by consumers are greater than the welfare losses by producers, which constitutes a net welfare gain to society. Furthermore, the red meat industry in South Africa should carefully consider preferential access granted to third countries under FTA's. Preferential access could easily lead to a reduction in the marginal tariff rate which, in turn, would result in lower domestic prices of red meat. In the case where the world price increases more than 10 per cent for beef, 18 per cent for mutton and 6 per cent for pork, zero imports would result. The losses in welfare to consumers are greater than the gains in welfare by producers. The impact of a 40 per cent depreciation in the exchange rate is very similar to the situation when world prices are assumed to increase, whilst the effect of a possible abolishment of Lomé on the South African beef market would be minimal. Finally, an increase in the population size combined with an increase in world prices will only partly offset the impact of a total reduction in tariffs. Also, increases in demand due to lower prices will largely be met by higher imports.
Open Access
The economics of climate change adaptation strategies in the Ceres Region, Western Cape
(University of the Free State, 2013-07) Ogundeji, Abiodun Akintunde; Groenewald, J. A.; Jordaan, H.
The Western Cape (WC) region of South Africa, with its Mediterranean-type climate and predominantly winter rainfall, has been identified as highly vulnerable to projected climate change within both global and national contexts. The province will experience increasing temperatures and reductions in water supply in the future and these have to be adequately prepared for in order to mitigate these impacts. The aim of this study is to develop and apply an integrated approach to quantify the economic impact of climate change on the agriculture and water resource sectors of Ceres, in Western Cape, South Africa. Although researchers have been able, to model, to a certain extent, the impact of climate change on the farm sector using integrated methodology, they have not yet included the impact of future change in crop water requirements as well as the impact of accumulated chill units. So currently, we do not have empirical knowledge of how the current and future change in crop water requirements and accumulated chill units will affect the farm structure. Thus in order to accurately quantify the impacts of different adaptation strategies at farm level, the existing models need to be adjusted and methodology developed to incorporate the impact of temperature. SAPWAT was used to estimate crop water requirements for the base climate (1971-1990) and for the future climate (2046-2065). Results show that crop water requirements will increase as a result of projected climate change using the A2 climate change scenario. The water requirements for drip are less than that of Sprinkler, because of efficiency differences in the irrigation systems. The drip irrigation system is said to be a more efficient irrigation technology. It was also confirmed that future crop water requirements for drip irrigation system is still lower than the current water requirement under sprinkler. Accordingly, despite substantial increase in water requirements, under drip system, the total water requirement will be less under drip system compared to sprinkler system. The Utah model (Richardson) and Daily positive Utah (Infruitec) chill unit accumulation model are used to test the hypothesis that winter chill will in Ceres reduce with climate change. Results from both models confirmed that climate change will result in reduction of future accumulation of chill units. The impact of climate change (projected temperature increase) on chill unit accumulation is more pronounced using Richardson model compared to Infruitec model. The result shows that it might be difficult to produce some fruit crops in the future in the Ceres region owing to insufficient chill that would be accumulated in the future. This will likely require growers’ transition to different species or cultivars or develop management practices (planting density, pruning practices and irrigation regime) that can help overcome shortages in winter chill. Results from crop water and chill unit models were incorporated into other models to develop the Ceres Dynamic Integrated Model. The model was used to simulate various climate change scenarios, and the results correspond with what can be expected from the prediction of impact on agriculture. The impact of climate change has resulted in changes in area, water use and welfare of the farmers in the future climate. Three different sets of adaptation strategies were evaluated using the developed integrated model. These three adaptation strategies include; availability of farm dam and water right; improving water use efficiency; and increase in water tariffs. Farm dam capacity and winter water allocation seems to be the best adaptation strategy based on the results from this research. Giving farmers farm dam capacity alone, however will not improve the situation of the farmers, they also need water rights. Caution should be taken when considering such an adaptation option. Farm dam is a capital intensive infrastructure and if the farm dams don’t fill up, it may worsen the situation of farmers since the high capital cost and resulting high unit cost of farm dam water will increase their financial vulnerability. Thus, giving farmers farm dam capacity and winter water right could be a good adaptation strategy but other issues surrounding its suitability should be considered. Increasing water use efficiency as an adaptation option according to analysis done in this study is also a good adaptation option for the Ceres farmers. Improved water management practices that increase the efficiency of irrigation water use may provide a significant adaptation potential under future climate change. Using water more efficiently improves the welfare of the farmers and also saves water for optimal irrigation usage. The model results indicate that increasing water tariffs as an adaptation strategy to climate change is less effective in the agricultural sector and can even result in a negative impact since farmers grow deciduous fruit crops which often use even more water irrespective of the tariff regime. Again, the price elasticity of demand for agricultural water is very inelastic since they cannot simply stop irrigating or change to deficit irrigation. Therefore, using water more efficiently will be the best adaptation option based on the analysis done in this thesis to help the Ceres farmers cope with the future projected impact of climate change. Overall, a change in the farm profile in Ceres can be expected as a result of climate change and adaptation thereto.
Open Access
Effect of farm size on technical efficiency: a case study of the Moretna-Jirru district in Central Ethiopia
(University of the Free State, 2003-05) Bekele, Abate; Viljoen, M. F.; Ayele, Gezahegn
English: The main objective of the study is to analyze the effect of farm size on farm efficiency at household level in cereal based farming systems and to suggest policy recommendations. The survey was conducted in the Moretna-Jirru district of Ethiopia during the 2000/2001 cropping season. The district was selected for this study on the basis of the relatively longer experience of farmers to use new technology, the number of crop growers and the high potential for crop production. As part of the methodology, a structured questionnaire was developed and used during personal interviews with farmers. The collected data was analyzed using statistical package SPSS Version 10.1. The empirical model used for the estimation of technical efficiency of smallholders in this study was the stochastic production function. The stochastic frontier model results revealed that land area and seed application rate contributed the most to growth in wheat yield whereas increase in land size and application of urea led to statistically significant increases in tef yield. In view of the research objectives the major results/findings of the study were: • The stochastic frontier model analysis revealed that large farms were technically more efficient than small farms regarding both wheat and tef production; • The mean technical efficiency of wheat was calculated to be 0.83 for large farms and 0.79 for small farms (P= .001). The mean technical efficiency of tef for large and small farms was calculated to be 0.74 and 0.68, respectively (P= .001); • The average technical efficiencies of wheat and tef were calculated to be 80.85 % and 70.72 %, respectively. Under the current technology, farmers can thus increase the actual output levels of wheat and tef by about 19.1% and 29.3%, respectively, to become 100% efficient. The challenge remains to decrease technical inefficiency factors and to raise the production level towards the frontier production level. According to the model analysis, land size remains a key variable explaining differentiation in output, especially in keeping farmers near to or on the production frontier. Reduction in farm size and land fragmentation have contributed to technical inefficiencies. From the disaggregated data by size of holding, the conclusion is that larger size holdings perform better with regard to technical efficiency, food production and income generation than smaller size holdings, irrespective of the extension program. The results that emerged from the technical efficiency differentials between small and large farm groups in the Moretna-Jirru district of central Ethiopia have policy implications. A number of policy interventions need to be made by government if smallscale farmers are to improve technical efficiency. These include, among others, that policies on land size and land distribution must be revisited and that further studies are needed to determine the minimum farm size to support farm households. Frequent redistribution and allocation of land has resulted in fragmentation, tenure insecurity, and in too small farms to support livelihood. This in turn contributed to decrease in farm productivity and efficiency. It is important to note that small farms can make a difference in food self-sufficiency schemes, but they will never be big providers of food and fiber for the fast growing population. Small farm producers will fill niche consumer markets. Providing solutions for the root causes of rural poverty and changing the gloomy situation of Ethiopian farmers requires multiple strategies. Therefore, future work in this area should begin by posing questions differently. For example, What is the best path to sustainable agricultural development? What characteristics must a farm possess for it to be sustainable, socially responsible, environmentally sound and economically viable? What is the optimal farm size and how could size be measured in the sustainable era? Such questions do not have easy answers. They do, however, reveal some of the shortcomings of this analysis and can guide further work in this area.
Open Access
Effects of customs union tariffs on domestic rice competitiveness: the case of irrigated rice in Niger
(2010-08) Abdourahmane, Touré Ali; Grové, B.; Groenewald, J.
Niger’s irrigated rice production system was evaluated within the context of the country’s common external tariff regime. The effects of the common external tariff (CET) on the performance of the irrigated rice production system were evaluated at various comparison points where local rice enters into competition with imported rice and by considering the main rice marketing systems (retail and wholesale markets). These comparisons were made taking into account the various brands of imported rice that are commercialised in the country. The results of the policy analysis matrix (PAM) base scenario for the irrigated rice system under the CET show that the system is generally competitive (positive private profitability) and has potential for growth (positive economic profitability). These results are disaggregated by type of rice quality, type of rice market (retail or wholesale) and by two points of comparison (Niamey and Tillabery). At both points of comparison, the PAM indicators show positive financial profitability, indicating that the system is generally competitive and that operators are making some financial gains. Moreover, the irrigated rice production enterprise reveals positive economic profitability for both retailers and wholesalers. Therefore, as an economic activity, it generates net positive income for the national economy per unit of land devoted to this activity. It can be maintained that despite the fact that the inputs used in irrigated rice production are affected by the various common external tariff (CET) measures, the activity still performs to a level that permits the various actors to earn some positive income and sustain their businesses. Despite its competitiveness and efficiency, however, irrigated rice production still performs below potential because it lacks certain additional incentives. To investigate this issue, various sensitivity analyses were performed, using single factors as well as simultaneous changes in several factors. These sensitivity analyses were performed in order to diagnose the effects of possible policy changes on elements such as financial and social profitability, production incentives, and protection coefficients. The sensitivity analyses show that private and social profits, ceteris paribus, are sensitive to improvements in technological factors such as farm-level productivity and post-harvest techniques that enhance the milling conversion rate of paddy into milled rice. The incentives and protection coefficients are also found to be sensitive to possible policy changes. Furthermore, private and social profits, including incentives and protection coefficients, are sensitive to changes in economic factors relating to the reduction of import duties on inputs, as well as to increases in import duties on imported rice and changes in exchange rates. Niger’s irrigated rice system generally performs well under the CET regime, but because certain resources are diverted away from it, the system is in fact being taxed. There is a need to provide greater incentives to everyone active in the system, in the form of technological improvements (farm-level productivity improvement and post-harvest quality enhancement). Greater incentives should also be given in terms of improving marketing channels, especially retail marketing, where a great number of women rice traders are active. More research needs to be conducted on this aspect.
Open Access
Die effek van verskillende graanopbergmetodes op die aanwending van kapitaal in 'n mielieboerdery in die Noordwes Provinsie
(University of the Free State, 2014-07-18) Van der Merwe, Charl David; Willemse, Johan; Lubbe, Anton
English: According to Liversage (2003: 1) maize was marketed through the one channel marketing system between 1944 and 1994. According to this system the Maize Board and its agents (the former agriculture co-operatives) were responsible for the buying and storing of maize in South Africa (Maize Board 1987: 134-147). After the closing of the Maize Board, a free market system was implemented and currently any person or organization can store maize (Murray, 2011: personal communication) in South Africa. Due to the above mentioned changes, 1.85 million tons of storage capacity was erected on farms in South Africa since 1996 (SIQ, 2011). Apart from storing maize at the silos of commercial storage companies, maize can also be stored on the farm by using zinc silos, silo bags and grain dams according to Genis (2012). If storage takes place on the farm it will need the erection of storage structures. Dhyuvetter (2007: 4-6) showed that additional capital is needed to erect new storage structures on the farm. According to Steitz & Ehmke (2005) any capital expenditure, influences the farm over a long period and need careful planning (Boehlje & Ehmke (2005: 1). According to Louw (1996: 20) models for complete farm planning can be used to evaluate the effect of capital spending on the farm. According to Koch (1992: 20) these models take the soil, farm operations, market plans and capital resources into account when different options is evaluated by developing varies scenarios. There is currently no farm planing model available in South Africa witch can be used to evaluate the effect of different storage methods on the use of capital resources of the farm. In this study ‘n holistic farm planning model is developed to be use in evaluating the effect of different storage methods on the use of capital on a maize farm. The effect of the use of commercial silos and the use of zinc silos, silo bags, plastic dams and zinc dams is evaluated in the study. The effect of certain variables like the size of the farm, the distance of the farm from the commercial silo and the marketing strategy are evaluated in the model by using different scenarios. According to the results of the study, the highest margin after specified cost was realized by using zinc silos. The Net present value was used to evaluate the application of capital on the Farm. The use of commercial silos realized the highest Net Present Value. Based on the results of the study the size of the farm, the marketing strategy, the distance between the farm and the commercial silo and the method of transport between the farm and commercial silo, can influence the choice of storage method if the calculation of net present value is used as a tool of measurement. According to the results of the study it is important to take the effect of the fixed and variable costs into account when evaluating the different storage options on a Farm. It is even more important if the size of the harvest varies.
Open Access
Farm-level resource use and output supply response: a Free State case study
(University of the Free State, 2006-11) Olubode-Awosola, Olukunle Olufemi; Van Schalkwyk, H. D.; Jooste, A.
Abstract not available
Open Access
Governance, natural resources and local development in Mozambique
(University of the Free State, 2008-12) Massuanganhe, Israel Jacob; Van Schalkwyk, Herman; Groenewald, Jan
The role that agriculture should play in economic development has been recognised for years. In recent years, concern has been expressed over rising agricultural and food prices. The world market prices for major food commodities have risen sharply to historic highs of more than 60 percent above levels just two years ago. Many factors have contributed to the rise in food commodity prices. Some factors reflect trends of slower growth in production and more rapid growth in demand that have contributed to a tightening of world balances of grains and oilseeds over the last decade. Other factors that have added to global food commodity price inflation include the declining value of the US dollar, rising energy prices, increasing agricultural costs of production, growing foreign exchange holdings by major food-importing countries, and policies adopted recently by some exporting and importing countries to mitigate their own food price inflation (Trostle, 2008). Mozambique has a vast extension of land and diversity of natural resources. Resources are inadequately used, the rural income continues to fall, and poverty is increasing. The rural standard of living has been deteriorating year by year. To date, estimations reveal that between 60 and 80 percent of cultivated land in all the provinces is concentrated in areas between 0.2 and 1 ha. For a sample of 192 farmers, using a translog stochastic production frontier like that of Bravo-Ureta and Pinheiro (1993), who estimated a Cobb-Douglas total value product frontier for analysis purposes, the study found that the average economic efficiency (EE), technical efficiency (TE) and allocative efficiency (AE) for the sample were 11.6%, 83.0% and 13.7% respectively. These results suggest that there is considerable room to maximise resource usage and increase agricultural output without additional input and given the existing technology. The adoption of new technologies designed to enhance farm output and income has received particular attention as a means to accelerate economic development. However, output growth is not only determined by technological innovations, but also by the efficiency with which available technologies are used in the absence of inefficiency factors. As Bravo-Ureta and Pinheiro (1993) noted, the evidence presented in this study suggests that there is much room for improving the efficiency of natural resource management in general. The results based on frontier methodology are generally consistent with the notion that local actors play an important role in the management of local resources; consequently, public investments designed to enhance human and social capital at local level can be expected to generate additional skills and output even in the absence of new technologies. The participation of citizens in all stages is crucial. It is recognised that qualitative variables have influence and potential importance in efficiency. Governance is considered within the framework of power, process and practice and how these have shaped peasant access to and control and use of natural resources. Over the years, state visions of appropriate agriculture development have largely been extended to the peasant sector through a centrally directed structure and process. Pioneering efforts at decentralising entrustments over the use and management of resources to the peasant communities have largely resulted in recentralisation at the district level, where such efforts are still practised in the trickle-down mode. This is in part because the policy thrust seeking to empower the peasant communities is supply-led, and thus defined according to the terms and processes of external agents, including funders and central governments. The research found that by improving institutions’, citizens’ and communities’ capacity to address local governance and decision-making through prominent, decentralised natural resources management policies, they could participate more effectively in local development, gain experience in democratic processes, and hold local officials responsible for their decisions. The study concluded that natural resources play a strategic role in rural economies both as a potential source of long-term development and as the essential contributor to sustained food security. Access by the poor to natural resources (land, forests, water, fisheries, pastures, etc.) is essential for sustainable poverty reduction. Many rural communities are dependent on natural resources in one way or another. Decentralising natural resource management and using local decision-making power is critical to improve the revenue generation of citizens and local authorities. Local representative bodies need power over the resources that affect rural sustainable livelihoods in order to become legitimate actors around which civic organisations and citizens rally for justice, sustainable livelihoods and economic improvement. Decentralising natural resource management (NRM) can give local governments allocative powers over lucrative opportunities, both of which can help build local government legitimacy. In short, local development can emerge.
Open Access
The impact of climate change and the European Union GSP-scheme on East Africa’s horticultural trade
(University of the Free State, 2014-11) Lubinga, Moses Herbert; Jordaan, H.; Ogundeji, A. A.
With the aim of generating reliable information upon which appropriate decisions can be based to benefit the various stakeholders, this research at one hand aims at developing a set of meteorological indices, which are used as proxies to evaluate the impact of climate change on horticultural trade flows to the European Union (EU) market. On the other hand, the study examines the role of European Union's Generalised System of Preferences (EU-GSP scheme) in boosting agricultural imports into the EU. Furthermore, the study assesses the export competitiveness of various horticultural commodities of East African states within the EU market, as well as exploring East Africa's trade potential and performance of the selected commodities within the EU. Various techniques were used to attain the above objectives. Such techniques include; Balassa's Revealed Comparative Advantage (RCA) approach, the out-of sample technique, the relative difference and absolute difference methods. To estimate the various gravity models specified, a set of the extended Poisson models, viz: Zero Inflated Poisson (ZIP) and Negative Binomial Regression (NBR) techniques for panel data estimations were employed so as to deal with the excess zeros and over dispersion problems associated with highly disaggregated data. Time series data for a period of 23 years (1988-2011) for 15 EU member states and 3 East African states (Kenya, Tanzania and Uganda) were used for the analysis. Data was obtained from various sources such as the TRAINS database, World Bank Development Indicators, African Growth and Development Policy Modeling Consortium (AGRODEP) database, Food and Agriculture Organisation (FAO) database, and TYN CY 1.11 database provided by the Tyndall Centre for Climate Change Research. Some of the key empirical findings decomposed at country level reveal that: - Kenya has export competitiveness in Asparagus, Mushrooms and truffles. Uganda exhibits competitiveness in exporting pepper, bananas and eggplants while for Tanzania, vegetables were the most competitive. Therefore, each of these countries should put much emphasis on producing and exporting commodities over which she has comparative advantage. Climate change generally has both positive and negative effects on horticultural trade flows into the EU-Market, depending on the kind of proxy being put into consideration. Within the EU market, anomalies in precipitation enhance horticultural imports from East Africa while temperature anomalies tend to hinder trade. Anomalies in temperature in exporting countries boost horticultural trade flows from Tanzania and Uganda while the contrary is true for Kenya. Precipitation anomalies in exporting countries favor horticultural trade flows from Kenya while they curtail trade flows from Tanzania and Uganda. Thus, results imply that the use of anomalies as proxies for climate change in agrarian based economies provides a more reliable measure of the effects of climate change in trade than using the generalized Kyoto Protocol policies. - The EU-GSP scheme selectively favors importation of certain horticultural commodities into the EU-market, depending on the country of origin. It promotes importation of bananas, beans and peppers from Uganda and beans from Tanzania. On the contrary, it deters asparagus and bean imports from Kenya. Given that the findings concur with findings of other scholars, it is imperative to argue that the use of preference margin, based on all policy instruments (tariff rates, MFN, specific duties and Tariff Rate Quotas) embedded within the EU-GSP scheme provides apt commodity specific inferences regarding the effect of the EU-GSP scheme on horticultural imports into the EU-market. - Kenya and Uganda exhibit existence of un realised trade potential within the EU market. For Kenya, asparagus has room for further market expansion across all EU-member states while Uganda's beans and pepper can further be imported many EU member states like France, Germany, Luxembourg, Portugal and Greece, among others. A similar scenario applies to beans from Tanzania. This implies there is still have room to expand East Africa's horticultural trade within the EU-market. - The three East African states evidently exhibit poor trade performance within the EUmarket in the various commodities. This suggests that there exists some barriers to trade which limit the proliferation of East Africa's horticultural imports into the EU. Thus, it is incumbent upon East African states to foster cooperation in horticultural trade with the EU member states.. Conclusively, it is commendable that anomalies in temperature and precipitation may be used as climate change proxies, particularly when evaluating the impact of climate change on international trade skewed towards agricultural commodities rather than using other based on Kyoto Protocol policies. It is also recommended that assessment of the influence of nonreciprocal preferential trade agreement(s) granted to developing countries, based on preference margins should always take into account all the policy instruments embedded within the agreement.
Open Access
The impacts of multilateral and bilateral trade agreements on agriculture trade in SACU
(University of the Free State, 2011-12) Mokoena, Madime Reuben; Jooste, A.; Alemu, Z. G.
International markets for agricultural products were characterised by,. amongst others, quantitative restrictions, tariff-based protection, border protection, non-tariff barriers, ete before 1995. Likewise, agricultural sector in South Africa (SA) was also faced by similar trade distorting measures during the post-apartheid era. In response to globalisation challenges, SA committed to move from protective to liberal trade regime in the agricultural sector, as witnessed by its trade diplomacy engagements with the international community in the context of multilateral, bilateral and/or regional approaches. At the multilateral level, SA has successfully implemented its commitments as negotiated in terms of the Agreement on Agriculture (AoA) during the Uruguay Round (UR) of General Agreement on Tariffs and Trade (GATT) negotiations that gave birth to the World Trade Organization (WTO). At the bilateral level SA 'has signed a Preferential Trade Agreement (PTA) with the European Union (EU) called the Trade, Development and Co-operation Agreement (TDCA) (better known as the EU-SA TDCA and includes a Free Trade Agreement). At the regional level, the Southern African Customs Union (SACU) member states including SA have signed a Protocol on Trade or a Regional Trade Agreement (RTA) with the non-SACU countries of the Southern African Development Community (SADC). The main objective of the study was to measure the impact of trade agreements on the agricultural trade between SA and its trading partners. A gravity model using panel data was employed to analyze the ex-post impacts of the implementation of the trade treatments, i.e. WTO AaA, EU-SA TDCA and SADC Trade Protocol on agricultural trade flows between SA and its agricultural trading partners. Various statistical tests were undertaken to select the suitable models for the datasets of total agricultural and selected agricultural products trade flows between SA and its agricultural trading partners. After the statistical tests were undertaken, 189 feasible models in total were selected, of which . 161 were dynamic models and 28 were static models. Furthermore, 152 Fixed Effects (FE), 2 Random Effects (RE) and 7 pooled Ordinary Least Squares (OLS) estimators were found to be efficient and suitable for the dynamic models; and 14 FE and 14 RE estimators were found to be efficient and suitable for the static models. The highest number of selected dynamic models suggested that passed trade is the predictor for current trade. The per capita ODPs of SA and of its trading partners, the real effective exchange rates and distance have also played a significant and expected role in influencing agricultural trade flows between SA and its agricultural trading partners. The results of the study have indicated that agricultural trade flows between SA and its agricultural trade partners have responded positively to the implementation of WTO AaA. The implementation of EU-SA TDCA and SADC Trade Protocol during the first five years (for the period 2000 - 2004) have not delivered the expected results, as the majority of agricultural trade flows between SA and EU countries as well as between SA and SADC countries were not affected and some of the agricultural trade flows between SA and EU countries as well as between SA and SADC countries were negatively affected. While the majority of agricultural trade flows between SA and EU countries as well as between SA and SADC countries were still not affected during the second five-year term (for the period 2005 - 2009), there were some improvements due to the significant positive effects of the EU-SA TDCA implementation on three agricultural trade flows (i.e. total agricultural trade, total cut flowers trade and total preserved fruits and nuts trade) as well as the significant positive effects of the SADC Trade Protocol implementation on four agricultural trade flows (i.e. total agricultural exports, total agricultural trade, total cut flowers trade and total fruits and vegetable juices trade). However, the number of agricultural trade flows between SA and ROW countries that have improved significantly for both periods were more than those of the EU and SADC countries, even though ROW countries did not have a trade agreement with SA. The implementation of the EU-SA TDCA and SADC Trade Protocol have created room for potential increases of all the agricultural trade flows between SA and EU countries as well as between SA and SADC countries for both periods. However, some of these potential increases for the period 2000 - 2004 were diverted to the other markets. On average, during the implementation of the EU-SA TDCA for the period 2000 - 2004, about 0.44% of agricultural exports, 0.96% of cut flowers exports and 0.77% of wine exports from SA destined for EU were diverted to other markets Furthermore, about 2.01% of SA's wine imports that were supposed to have been soureed from the EU countries came from SA's other wine trading partners; as well as the diversion of about 0.73% of total wine trade from the SA and EU market to either SA and other wine trading partner market or EU and other wine trading partner market. Similarly, the implementation of the SADC Trade Protocol led to diversion of agricultural exports (about 0.43%), cut flowers exports (about 0.93%), total cut flowers trade (about 0.92%), wine exports (about 0.73%), wine imports (about 1.45%) and total wine trade (about 0.35%) during the same period. \ With regard to the implementation of the EU-SA TDCA and SADC Trade Protocol during the period 2005 - 2009, there was no proof of trade diversion for all agricultural trade flows, except that the was a trade creation for some of the agricultural trade flows between SA and EU countries as well as between SA and SADC countries. In the case of the EU-SA TDCA, there was trade creation on total agricultural exports, total agricultural trade, total preserved fruits and nuts trade and total wine trade. In the case of the SADC Trade Protocol, there was trade creation on total agricultural trade, cut flowers exports and preserved fruits and nuts exports. In conclusion, these findings have clearly shown that tariff reductions alone are not panacea to improve agricultural trade between SA and its major trading partners given the fact that EU-SA TDCA and SADC Trade Protocol were mainly characterized by tariff phase down schedules.
Open Access
Implications of trade liberalisation and economic growth for South African agricultural industries
(University of the Free State, 2009-12) Teweldemedhin, Mogos Yakob; Van Schalkwyk, H. D.;
The main aim of this study is to examine the impact of trade liberalisation on agriculture’s ability to contribute to economic growth and poverty reduction in South Africa. Several secondary objectives were examined that address: (i) the impact of trade liberalisation on the South African agricultural international trade performance; (ii) the relationship between trade liberalisation and poverty alleviation; (iii) the impact of trade liberalisation on Total Factor Productivity (TFP) in agricultural industries, and (iv) the short-term source of agricultural adjustments. Different methodologies were applied to achieve the specified sub-objectives, including calculation of the Intra-Industrial Trade (IIT) coefficients’ (with its key determinants) Gravity model, the Error Correction Vector Model and the Exact Maximum Likelihood method. The Gini coefficient of exports and imports was calculated as 0.55 and 0.62, respectively. The aggregate, with respect to the South African agricultural IIT, was higher than the average attributed to advanced countries. This shows that South Africa needs to reinforce the position of a bilateral agreement, which should be accompanied by regional or even multilateral liberalisation. The econometric analysis conducted on determinants of high IIT, gives a more magnified effect of the coefficients of export to import ratios and the TIMB (trade balance). If the South African industries implement and increase trade liberalisation on the diversified level of industrial specialisation, the IIT level would remain high, and significant economic gain might be achieved. The gravity model finding shows that all variables were significant at one percent, and carried the expected sign. Only the EU dummy variable had an inverse relationship, implying that the EU trade agreement creates a negative impact on export capacity for South African farmers. Essentially, South African farmers are not in a position to compete with the subsidised farmers of the development involved. These results have several important policy implications for South Africa. Firstly, trade agreements, whether implemented unilaterally or bilaterally, will enhance potential trade flows between South Africa and other countries or regions. Secondly, from an export promotion standpoint, the distance variable in the model’s results shows that importing countries’ per capita income is elastic and significant in determining export. Therefore, it is important for South Africa to maintain trade links and, in order to realise export potential, to extend these to high per capita income countries or regions. On the other hand, to avoid vulnerability and potential crises in EU regions or countries where the largest proportion of South Africa’s export is directed, it is important that South Africa continues to concentrate its export promotion efforts in other regions of the world. The study has also tested the impact of trade liberalisation using both the cross-sectional and time series approach, covering nine agricultural commodities; the cross-sectional approach covered the period of 1995-2007, and the time-series covered the period of 1970- 2007. Both approaches validate the above proposition with a high degree of statistical reliability. Finally, the study identified the main sources of agricultural economic growth by categorising the variables into five main areas: cyclical reversion, structural policies and institutions, stabilisation policies, cyclical volatility and external conditions. The components of the structural policies and institutions category were found to be statistically significant, and were positive at the specified significance level (only RDGDP was related negatively). This implies that the growth was achieved with improved education, financial depth and trade openness. However, the negative relationship of RDGDP shows that the sector is suffering from debt crisis. Subsequently, farmers need to follow an effective debt management system.
Open Access
Integrated modelling for sustainable management of salinity in the lower Vaal and Riet River irrigation areas
(University of the Free State, 2007-05) Armour, Robert Jack; Viljoen, M. F.; Easter, K. W.
English: Salinisation of irrigation schemes has become a problem in various schemes in South Africa. One such area that experiences salinisation problems selected for this research is the Lower Vaal and Lower Riet irrigation areas, upstream from where these two rivers converge and flow into the Orange River. By understanding the dynamics and interactions between irrigation water quality and the soil salinity status on crop yield over time, mistakes made in the past by choosing unsustainable irrigation sites and practices can be prevented in the future. Furthermore the impact of various natural or artificial (e.g. policy mechanism) scenarios on existing schemes can be more accurately modelled, leading to increased economic efficiency and sustainability of the irrigation industry, together with its primary and secondary linkages, as a whole. Aims: The overall aim of the WRC study on which this thesis is based was to develop and integrate multi-dimensional models for sustainable management of water quantity and quality in the Orange-Vaal-Riet (OVR) convergence system. More specifically the following sub-objectives had to be addressed: 1. To better understand the polluting chemical processes and interactions in and in-between the plant and surface-, vadose zone-and ground-water, to achieve efficient and sustainable water quality management 2. To develop new economic models at both, a. Micro level, namely dynamic long term simulation models, and at b. Macro level, using a regional dynamic Input / Output model1 3. To integrate these new economic models with models from the other disciplines of: a. Hydrology2 (incorporating a salt mass balance and flow), and b. Agronomy (crop growth in the presence of salinity model) 4. To determine and prioritise best management practices at: a. Micro level, (i.e. per hectare and irrigation block level) and at b. Regional level. 5. Through a better understanding of the multi-dimensional interactions, to enhance water use efficiency as the quantity and quality of water available for agriculture inevitably decreases 6. To develop policy guidelines to ensure social, environmental and economic sustainability 7. To achieve all these aims based on using the complex OVR convergence system as a study area, but developing a method and models that can be applied elsewhere with relative ease. This thesis however only covers the micro-economic aspect of the WRC project conducted by the author, and how it is driven by the hydrological and bio-physical processes and how it links and translates to the macroeconomic (regional) impact. Model: The economic base model of the integrated model uses hydrology and biophysical data and algorithms as input into the monthly time-step, per hectare Crop Enterprise Budget based, MSExcel simulation model (SMsim) to generate the base data. The resulting stochastic and spatially differentiated data set of per hectare total gross margin above specified costs data is then converted to sub-WUA, WUA, combined WUA and regional area level data for comparison and interpretation at these various levels and for input into the macro-economic regional level model (ISIM) and the index for socio-economic welfare (ISEW) for sustainability evaluation between alternative scenarios. Results: The results of this thesis inter alia show that the installation of irrigation drainage to facilitate leaching is a far better option than planting more salt tolerant crops. In the WRC project on which this thesis is based the results of a macro-economic analysis based on the micro-economic results from this thesis show that although at sub- WUA level it may not be financially feasible to install drainage in some sub-WUA areas, the secondary and regional socio-economic and environmental impacts justify the spending of government grants for drainage installation as the secondary benefits on the regional economy exceed the costs of the drains.
Open Access
Investigation of key aspects for the successful marketing of cowpeas in Senegal
(University of the Free State, 2004-08) Faye, Mbene Dieye; Jooste, A.; Fulton, J.
Due to the lack of information on the factors that affect the marketing of cowpeas in Senegal, this study investigates key aspects for the successful marketing of cowpeas in Senegal. The contribution this study makes lies in the information it generates to empower role-players in the cowpea value chain to better understand (i) the demand relations of cowpeas in Senegal, (ii) the information needs of role-players and the extent to which markets are integrated, and (iii) for which characteristics of cowpea consumers are willing to pay premiums. An Almost Ideal Demand System (AIDS) model is applied to one period cross sectional data to estimate demand relations of cowpea’s in Senegal. The own price elasticity of cowpea is -1.23 while its expenditure elasticity is 0.97 showing that cowpea is a normal necessity. A sample of 443 respondents was taken to determine the information needs of different role-players in the cowpea supply chain. Availability of price information on local and export markets are deemed vitally important by all role players. Information pertaining to quantities supplied and demanded, and buyers’ preferences are not regarded by all role-players as equally important. The most appropriate mode to dissemination cowpea related information should depend on the accessibility of a particular mode by role-players. Bivariate correlation coefficients, co-integration tests, Granger Causality tests and Ravallion’s model are used to investigate level of market integration. The results show that cowpea markets as a whole are not integrated. This is not a surprising result since it can be linked to the general lack of market information. The influence of cowpea characteristics on cowpea prices is analyzed with a hedonic pricing model. The results show that large grain size and sugar contents are characteristics for which consumers are willing to pay premiums in all markets. The implication of the results of this study has several dimensions, i.e. (i) role-players in the cowpea supply chain now has information to guide pricing strategies, (ii) changes in expenditures on cowpeas can be properly discounted in marketing strategies, (iii) interventions can be designed to address the needs of information users and to address the non-integrated nature of cowpeas markets, and (iv) research programs and role-players should focus their research and marketing activities on those characteristics for which consumers are willing to pay premiums.
Open Access
Investigation of key aspects for the successful marketing of cowpeas in Senegal
(University of the Free State, 2005-04) Faye, Mbene Dieye; Jooste, André; Fulton, Joan
Due to the lack of information on the factors that affect the marketing of cowpeas in Senegal, this study investigates key aspects for the successful marketing of cowpeas in Senegal. The contribution this study makes lies in the information it generates to empower role-players in the cowpea value chain to better understand (i) the demand relations of cowpeas in Senegal, (ii) the information needs of role-players and the extent to which markets are integrated, and (iii) for which characteristics of cowpea consumers are willing to pay premiums. An Almost Ideal Demand System (AIDS) model is applied to one period cross sectional data to estimate demand relations of cowpea's in Senegal. The own price elasticity of cowpea is -1.23 while its expenditure elasticity is 0.97 showing that cowpea is a normal necessity. A sample of 443 respondents was taken to determine the information needs of different role-players in the cowpea supply chain. Availability of price information on local and export markets are deemed vitally important by all role players. Information pertaining to quantities supplied and demanded, and buyers' preferences are not regarded by all role-players as equally important. The most appropriate mode to dissemination cowpea related information should depend on the accessibility of a particular mode by role-players. Bivariate correlation coefficients, co-integration tests, Granger Causality tests and Ravallion's model are used to investigate level of market integration. The results show that cowpea markets as a whole are not integrated. This is not a surprising result since it can be linked to the general lack of market information. The influence of cowpea characteristics on cowpea prices is analyzed with a hedonic pricing model. The results show that large grain size and sugar contents are characteristics for which consumers are willing to pay premiums in all markets. The implication of the results of this study has several dimensions, i.e. (i) roleplayers in the cowpea supply chain now has information to guide pricing strategies, (ii) changes in expenditures on cowpeas can be properly discounted in marketing strategies, (iii) interventions can be designed to address the needs of information users and to address the non-integrated nature of cowpeas markets, and (iv) research programs and role-players should focus their research and marketing activities on those characteristics for which consumers are willing to pay premiums.