Cecilia Punt

General equilibrium modelling in South Africa: What the future holds

Abstract This paper provides an overview of the main research contributions of the past decade using general equilibrium models to analyse agricultural issues in South Africa. The methodological developments since the change to democracy ten years ago are viewed in the context of developments in this area of research carried out internationally. It will be shown in this paper that the modelling and computing techniques have vastly improved during the past decade, both in an ongoing attempt to refine existing models, and in an attempt to extend the modelling framework to make provision for issues that cannot be sufficiently captured in the standard comparative static models. These extensions include dynamic modelling, global modelling, environmental modelling and micro simulation. The paper highlights the non-trivial data requirements of this type of modelling. The national statistical agency, Statistics South Africa, supports general equilibrium modellers by their development of input-output tables, social accounting matrices and, more recently, supply and use tables. This decade has therefore witnessed an improvement in the data for the construction of national level social accounting matrices. Requirements for provincial level data have however not been met sufficiently, posing huge challenges for provincial and regional modelling. The lack of primary data has however stimulated development of advanced data estimation techniques that can be applied to overcome this data challenge. Application of general equilibrium techniques to analyse agricultural issues in South Africa still remains limited and substantial support and training of researcher is still needed to expand domestic capacity in this field of research.

Costs and benefits of higher tariffs on wheat imports to South Africa

Abstract Low international wheat prices, caused by tariffs and subsidies in developed countries, have been blamed for causing financial difficulty to South African farmers. While indignation at unfair trade practices may be valid, it does not necessarily follow that protection of the local industry is the best response. This study uses a static general equilibrium model to describe and quantify the effects of increased tariffs (by up to 25 percentage points) on the local wheat industry, other affected industries—particularly downstream industries—and the economy at large. The effects on factors, households and the government are also analysed. The results show that the benefits to the wheat industry are highly concentrated and smaller than the loss of income caused in other sectors. Welfare is negatively affected, especially for low-income households, for whom the effects are exacerbated by increases in relative food prices.

Agricultural efficiency and welfare in South Africa

Agricultural and food commodity price declines associated with domestic and international agricultural efficiency gains can have important welfare effects for a country. While food price reductions benefit low-income consumers in particular, they may also cause declines in agricultural employment, leading to some resistance to technological change as a policy goal. The simulations reported here use a South African Computable General Equilibrium model with highly disaggregated food and agricultural sectors to illustrate the various effects of such agricultural efficiency gains. The results suggest that technological advances in agriculture should not be resisted because of their negative impact on agricultural employment; the welfare gains from declining prices are too important, while employment gains in other (growing) sectors are likely to outweigh the loss of agricultural employment. In the face of increasing international efficiency South African agriculture should be encouraged to respond by also increasing its efficiency, despite the negative consequences for employment in the industry, as a failure to do so may be even more detrimental to the poor in terms of overall employment.

The potential impact of the Doha Development Agenda on the South African economy: liberalising OECD agriculture and food trade

Abstract This article reports the results of a static computable general equilibrium (CGE) model on the possible liberalisation of agriculture and food trade in the OECD countries. Liberalisation of trade was simulated assuming a reduction in import tariffs, the tax rate on factor use and export subsidies in four steps of 25% points each. Such simulations were run in the GLOBE model then adjusted and used as a policy shock to the PROVIDE model. The results show that the weighed average world price (adjusted) changes will range between −19.6 to +3.8% for imports and between −3.0 and +29.7% for exports at 75% liberalisation. The results from the single country CGE model show that the South African economy would respond positively to the world price changes, with government and macro variables showing minimal but positive responses. Household consumption expenditures generally show positive changes, implying increased factor incomes. Not all sectors will be positively affected even though the overall effect is positive.