Economic implications of trade liberalisation on the South African red meat industry

Abstract

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.

Afrikaans: Suksesvolle handelsverhoudinge het tot 'n groot mate 'n funksie geword van hoe goed lande die moontlike impak van verdere handelsliberalisering kan bepaal. Verskeie studies wêreldwyd het probeer om die impak van landbouhandelsliberalisering op produksie, verbruik, handel en pryse deur middel van wiskundige programmeringsmodelle te bepaal. Gegewe die belangrikheid van die rooivleissektor in Suid-Afrika is dit van uiterste belang dat hierdie bedryf die implikasies en gevolge van handelsliberalisering verstaan. Dit sal die bedryf in staat stelom proaktief insette aan die regering oor die moontlike impak van handelsliberalisering op die plaaslike rooivleisbedryf te lewer. Dit kan dan weer gebruik word in multi- of bilaterale onderhandelinge met betrekking tot handel. Die bedryf salook in 'n posisie wees om gevare en geleenthede te indentifiseer en daarvolgens die nodige strategiese besluite te kan neem. Daar is reeds baie navorsing gedoen oor verskillende aspekte van ekonomiese relevansie vir die rooivleisbedryf in Suid-Afrika. Nie een van hierdie studies het gepoog om die impak van handelsliberalisering binne die raamwerk van wiskundige programmering te bepaal nie. Hierdie studie maak gebruik van 'n gedeeltelike ruimtelike ewewigsmodel wat ondervang word deur die wiskundige programmerings raamwerk om die moontlike effek van 'n verlaging in tariewe, verhogings in die wêreldprys van rooivleis, veranderinge in die wisselkoers, die uitfasering van die Lomé Konvensie en veranderinge in die grootte van die bevolking, te bepaal. Die model bestaan uit twee ruimtelike onderskeibare markte vir rooivleisprodukte in Suid-Afrika wat ondervang word deur gedragsparameters om die impak van eksogene veranderinge wat verband hou met handelsliberalisering te bepaal. lndien alle tariewe op die invoere van rooivleis verwyder word, sal die impak op pryse substansieël wees. Produsentepryse vir beeste, skape en varke sal onderskeidelik met 21.11 persent, 13.90 persent en 11.99 persent daal. Die pryse van bees-, skaap- en varkvleis sal onderskeidelik met 27.88 persent, 28.56 persent en 13.16 persent daal. Die vraag na hierdie produkte sal egter substansieël toeneem. Uit 'n welvaart oogpunt sal verbruikers 'n verhoging in welvaart ervaar, terwyl die welvaart van produsente sal afneem. In monetêre terme is die verhoging in welvaart van verbruikers groter as die verlies aan welvaart deur produsente, wat 'n netto styging in welvaart vir die gemeenskap impliseer. Daar moet ook besin word oor toegewings aan derde lande ) wanneer dit kom by vryehandelsooreenkomste, omrede dit maklik kan lei tot 'n verlaging in die marginale tariefkoers, wat weer sal lei tot verlagings in pryse van rooivleis op die plaaslike mark. In die geval van wêreldpryse vir bees-, skaap- en varkvleis wat met onderskeidelik 10 persent, 18 persent en 6 persent styg, sal geen rooivleis meer ingevoer word nie. Die verlies aan welvaart vir verbruikers is groter as die verhoging in welvaart vir produsente. Die impak van 'n 40 persent depresiasie van die wisselkoers sal 'n soortgelyke situasie tot gevolg hê, soos die geval wanneer aangeneem word dat wêreldpryse styg. Die uitfasering van Lomé sal 'n minimale impak op die beesvleisbedryf in Suid-Afrika hê. Laastens, indien die impak van 'n styging in die grootte van die bevolking gekombineer word met 'n styging in wêreldpryse, sal dit slegs gedeeltelik die effek van 'n totale uitfasering van tariewe teenwerk. Verder sal verhoogde vraag as gevolg van laer pryse grootliks deur invoere aangevul word.