The comparative advantage of long-term crops in Lesotho

Abstract

This study is one of several investigations undertaken over the years to determine the Comparative Economic Advantage of agricultural production in selected Southern African countries. The specific purpose of the Lesotho study was to generate information required to guide decision-makers in agriculture towards productive allocation of resources and identify feasible infrastructure investment options to take advantage of available trade opportunities within and beyond the region. It was also required to analyse the factors involved in the structure and development of inter- and intra-industrial trade (Gini and IIT) for the SACU region of which Lesotho is a part. The inter-industry analysis shows that there is concentration in the market of apples, asparagus, cherries and peaches. On the other hand, the intra-industry analysis with respect to apples, asparagus, cherries and peaches suggests that the SACU countries exported more than they imported during the period 1994-1998. The study also evaluated the comparative economic advantage of irrigated longterm crops in the four agro-ecological zones of Lesotho based on analyses of profitability coefficients and domestic resource costs. For these, the analysis was carried out using the net present value (NPV) approach. Further, economic efficiency and policy distortions were examined by the use of such a measure as the nominal protection ratio (NPR), effective policy ratio (EPR), and net policy effect (NPE). The CEA analysis based on the NPV approach yielded higher private returns relative to economic returns for the measures of economic efficiency and policy distortions in the Lowlands, Foothills, the Senqu River Valley and the Mountains of Lesotho for all the crops examined. It was revealed that apples were dominant and were more profitable in all zones. These results suggest that in the presence of government intervention, Lesotho could exploit comparative advantage in contracting production of apples and peaches in the Lowlands and Foothills so that other activities can expand. In the Mountains, the protection policies have raised the price of apples by 61 per cent above the social price for importing the commodity, i.e. Mountain farmers received 61 per cent more than the export parity prices. In the Senqu River Valley and Mountains, only apples could be contracted. Thus, should economic values of inputs prevail; farmers would receive lower returns, meaning that they may not compete effectively in the world market. The results of DRC based on the returns to land when NPV was employed, indicate that apples, asparagus, cherries and peaches for the Lowlands have comparative economic advantage, with asparagus production being the highest followed by peaches. However, in the Foothills apples are more efficient than peaches although the dominance is weak. However as the majority of farmers lack easy access to land in Lesotho, it is doubtful if results based on the prevailing land prices can have much predictive value. The absence of a clear policy and law enforcement also leads to lack of land price market, which in turn affects the impact of capital gains and losses. In this case, it may be necessary to conduct detailed studies to determine the economic prices of land in Lesotho on the basis of which reliable CEA analysis can be conducted. The study concludes that in the short-term, the commodities examined could contribute to the attainment of food security in Lesotho. For the future, Lesotho producers would benefit to a greater extent from expanding production for the international markets. It must be noted however that the coefficients of the CEA analyses do not provide sufficient information to guide future decisions for investment. For more long-term investment decisions, it is recommended that detailed cost-benefit analyses be carried out for each agro-ecological zone and location identified for any future project aimed at expanding the production of longterm crops in Lesotho.