Ferdinand Meyer

Model closure and price formation under switching grain market regimes in South Africa

Abstract This paper develops the structure and closure of an econometric regime-switching model within a partial equilibrium framework that has the ability to generate reliable estimates and projections of endogenous variables under market switching regimes. Models used in policy evaluation usually either ignore the possibility of regime switching using just a single method of price determination based on average effects, or incorporate highly stylised components that may not reflect the complexities of a particular market. This paper proposes an approach that the authors believe allows the incorporation of features of regime switching in a multisector commodity level model that capture salient features of the South African market and therefore are able to produce more reliable projections of the evolution of the sector under alternative shocks.

Modelling the impacts of the industrial biofuels strategy on the South African agricultural and biofuel subsectors

Abstract The potential impact of the current South African industrial biofuels strategy on the economic feasibility of biofuel production in South Africa is analysed and discussed. The analysis is then taken a step further by means of a scenario to analyse the potential impacts of higher global prices on the feasibility of a local biofuel industry. The BFAP sector model, a partial equilibrium model, is used to simulate the various impacts over the period 2009 to 2017. This study shows that the incentives and commitments, as presented through the strategy, are not sufficient to get a local biofuel industry up and running and make it sustainable in the long term.

Modelling the impacts of macro-economic variables on the South African biofuels industry

Abstract The production of biofuels from agricultural commodities has received much attention in recent years. Apart from a few private initiatives, biofuels have not seen a large scale, commercial production in South Africa to date. This article sketches a basic picture of the economic feasibility of biofuel production in South Africa, without any form of government support, at 2006 prices. It then takes the analysis a step further and with the aid of a set of scenarios, different potential outcomes, due to a range of possible policy implementation measures, are discussed and the results documented. The Bureau for Food and Agricultural Policys (BFAP) sector model is used to simulate the impact of various options on the potential biofuels industry and other related industries during the course of the 2007 to 2015 period. This study shows that a lack of government support for the local biofuels industry could seriously affect its economic viability, especially in the early stages of the industrys development. Additional issues, such as the impact on food and feed prices, also need to be taken into consideration.

MODELLING THE WHEAT SECTOR IN SOUTH AFRICA

Abstract In this study, the structure of the South African wheat market is analysed using economic theory and econometric modelling techniques. The model is used to make baseline projections regarding the supply and use of wheat in South Africa and to analyse the impacts of various policy alternatives on the wheat sector for the period 2004–2008. Results indicate that the area harvested in the summer as well as winter region will decrease over time. Domestic consumption will marginally increase over time, which will result in higher levels of imports. The ability of the model to simulate policy shocks is illustrated by means of simulating the impact of the elimination of the wheat import tariff on the wheat sector.

The impact of agricultural innovation system interventions on rural livelihoods in Malawi

This study, conducted in central Malawi, assessed the way a research intervention using an agricultural innovation system affected rural livelihoods. Propensity score matching was used to establish one village as a control, against which the impact of the intervention on two study villages [0]could be measured. Using the Enabling Rural Innovation intervention as a case study, it was established that rural livelihood outcomes pertaining to crop and livestock production, household income, asset ownership and fertiliser use were significantly improved by this intervention. In-depth analysis, however, demonstrated that although the participating households had more robust livelihoods during the intervention, when the research programme was phased out the effect was reduced. The authors recommend that local agricultural extension officers should receive more capacity building and budgetary support to ensure proper understanding of agricultural innovation systems concepts and correct application so as to sustain their positive effects.

FORECASTING THE MARKET OUTLOOK FOR THE SOUTH AFRICAN MAIZE AND SORGHUM SECTOR USING ECONOMETRIC MODELLING

In this study, an econometric model of the South African maize and sorghum sector is estimated. Using the developed model, a market outlook for the two major grain sectors -maize and sorghum -for 1999/00 to 2006/07, is generated under the specified assumptions. Results indicate that for both maize and sorghum, consumption will gradually increase over time. In spite of varying areas of maize and sorghum being harvested, total production will also gradually increase over time due to increases in particularly yields.

Facilitating decision-making in agriculture by using a system of models

Abstract This article presents a deterministic farm-level model developed to link to an existing partial equilibrium sector-level model of the grain and livestock sectors of South Africa. The objective is to create a linked system of models consisting of a sector- and farm-level model with the capability to analyse the likely effects of changes in policies and markets at both the sector and representative farm level in South Africa. A representative farm in the Free State Province is used to validate the farm-level model. The farm-level model is used to simulate a baseline as well as two scenarios of the representative farm for the period 2003 to 2010. Results indicate that the farm-level model simulates the representative farm rather accurately compared to historical data. The baseline and scenario results indicate that the linked system of models can be useful for policy and business decision-makers to analyse the impact of change in policies and markets at both the sector- and farm level.

Modelling Long-Term Commodities: The Development Of A Simulation Model For The South African Wine Industry Within A Partial Equilibrium Framework

Econometric demand and supply models of agricultural commodities and crops have been around for a long time with extensive research and adaptations being made in the grain and livestock sectors. This much attention has, however, not been afforded to long term commodities. This paper presents a partial equilibrium framework for modeling long term commodities using the South African wine industry as an example. The model structure is presented and two different approaches to closing the model are compared. The usefulness of the model is tested in the form of baseline projections and the analysis of a typical “what if” question. (JEL Classification: D5, L66, Q11)

Price formation and competitiveness of the South African broiler industry in the global context

ABSTRACT In light of its recent classification by the Department of Trade and Industry as an industry in distress, this paper undertakes a comprehensive evaluation of the competitiveness of South African broiler production in the global context. A qualitative review of industry structure revealed a great deal of similarity to market leaders globally. Price formation within broiler production contracts in South Africa utilizes the same tournament pricing used successfully in the USA, resulting in high levels of technical efficiency, however economic efficiency is lacking. Univariate time series analysis confirmed that the domestic price of chicken is more elastic to changes in the import parity price than changes in feed costs. Feed remains crucial to economic efficiency and while declining protein meal prices in the future is plausible given recent investment into the industry, marketing strategies that optimize the returns from an entire carcass could aid effective competition with imported products.

Evaluating the effect of proposed tariff protection for the South African broiler industry

ABSTRACT Following the application in March 2013 by the South African Poultry Association for increased tariffs to ensure the sustainability of South African broiler production, this article critically evaluates the effect of increased tariffs on broiler producers and chicken meat consumers in South Africa. Arguing beyond the level of tariffs, it highlights some of the deeper underlying drivers of competitiveness in the industry. From a self-sufficiency perspective, the need to support broiler producers is clear, yet the cost to consumers as well as the segment of the population that would have to bear the cost of higher tariffs is questioned. The proposed tariffs as well as two other possible scenarios are simulated within a partial equilibrium framework in order to determine the effect on the fundamentals of the South African broiler industry. Simulations highlight the difference in outcomes when imports originating from the EU are also included in the general tariff increase. Under the basic scenario that simulates the impact of the current tariff application by SAPA, consumer prices for whole frozen chicken will increase by 2.6% while producers will enjoy an increase in producer prices of approximately 5%. On average, local production will increase by 16 000 tons per annum in the long run. Although 5% is a significant margin on the bottom line for broiler producers and a 2% increase in the average consumer price seems to be digestible, one has to take a step back and ask the question why our chicken producers cannot compete against imported chicken.