The macro economy and irrigation agriculture in the Northern Cape Province of South Africa

English: The overall objective of this study was to develop a model capable of quantifying the economywide impacts of market risk and other exogenous factors, with specific reference to efficient irrigation water use along the banks of the middle and lower Orange River in the Northern Cape Province (NCP). The study is based on the second of two parts of a larger Water Research Commission (WRC) funded project, titled: “Market risk, water management and the multiplier effects of irrigation agriculture with reference to the NCP”. One of the sub-objectives was to simulate the effects of selected market change(s), i.e. a change in the world price of fruit, on the provincial economy as well as to quantify the economy-wide impact of selected regional shocks and structural changes. A second sub-objective includes recommendations on institutional responses that will increase effective water management for regions where irrigation agriculture makes a major contribution to the economy such as the NCP. The ability to quantify and/or simulate the economic-wide effects of different exogenous shocks or risk factors influencing agriculture and specifically irrigation agriculture therefore contributes to the group of already existing decision support systems available to role-players and decision makers in South Africa. In order to reach the first specific sub-objective, two sets of economic linkages between the micro and macro economic models were applied, i.e. one bottom-up or micro-to-macro and the other a top-down or macro-to-micro. The top-down linkage, utilizes the simulated results from a static Computable General Equilibrium (CGE) model, calibrated to a Social Accounting Martix (SAM), as inputs into a Dynamic Linear Programming (DLP) model on farm and irrigation regional level. A 20% reduction in the world price of fruits was used as simulation in the CGE model, with the main linkage between the macro and micro economic models being the changes in the local prices of fruits. Some of the key results from the micro analysis include amongst others the level of structural adjustments and other influencing factors, including the impact on farm and regional level profitability for example. With the bottom-up linkages, simulated results (i.e. the changes in the objective function values) from the regional DLP model was multiplied by three sets of economic multipliers (production, value added and labour) in order to quantify the economy-wide impacts thereof. Despite numerous shortcomings of economic multipliers, this analysis was performed to quantify in broad terms the direct, indirect and induced economy-wide impacts resulting from amongst others a 20% decrease in the local price of table grapes under various water trade and crop deviation allowances specified in the DLP model. As hypothesised, the simulated results explained above proved that significant economy-wide impacts can result from market risks or other exogenous factors influencing local irrigation agriculture, especially in a region where irrigation agriculture plays such an important role as in the NCP. It is believed that the current South African water law is comprehensive and wellwritten compared to international standards and benchmarks. The implementation thereof, in many aspects however remains a challenge. Recommendations on required institutional responses to improve the effectiveness of irrigation water utilization were made to reach the second specific sub-objective. The main conclusion from this study is that South Africa is relatively under-developed in the management of water supply and demand. In this regard, innovative technological development combined with cutting edge research in this field, is the only way in which effective water use will ultimately advance and thereby optimise the net benefit of society as a whole. It therefore calls for an integrated water resource management approach, with commitment from all role players involved. Government should provide an enabling environment, within which all levels from the private sector and communities can participate in the form of Public-Private-Partnerships (PPP) to enhance prosperous economic growth and development.