H D van Schalkwyk

ENTREPRENEURSHIP AND THE BOTTOM LINE: HOW MUCH OF AGRICULTURE'S PROFITS IS DUE TO CHANGES IN PRICE, HOW MUCH TO PRODUCTIVITY?

Abstract Conventional financial analysis shows that profit comes from the difference behveen revenues and costs. A sector can generate profit growth through productivity growth or price over-recovery, or both. The course that is taken, however, has important implications for its longer-term competitive positioning. The South African agricultural sector showed a steady decline in its performance since 1973. The decline is attributed to the cost-price squeeze; incrcases in productivity did not compensate for decreases in price recovery. The decline reached its lowest in 1983 when the growth in productivity overtook the negative effect of the terms of trade.

REGIONAL ANALYSES OF SOUTH AFRICAN AGRICULTURAL RESOURCE USE AND PRODUCTIVITY

Cobb Douglas type production functions were fitted in order to evaluate agricultural productivity. The country was divided into five fairly homogeneous regions for this purpose. Agricultural productivity tended to improve between 1976 and 1988, but serious malallocations persist. Overmechanization has occurred in all but one region. Labour is underutilized and underpaid. The Karoo is overstocked with livestock.

Agricultural land price and quality

Land quality can be expected to have important implications for productivity and so also for policy. Land quality is a factor influencing the price of land. Factors influencing land prices were therefore disaggregated on a regional basis. Land quality indices were constructed by considering only those factors directly affecting quality, and with significant statistical coefficients. Statistical regions were used as units of observation. Land quality was found to vary considerably. In some South African regions, land quality is comparable to that in the most arid regions of the world. The quality in certain small areas compares with above‐average land qualities in the world, but not with the best.

'n SUID-AFRIKAANSE HULPBRONKWALITEIT INDEKS

Measurement of natural resource quality is useful for objectives such as macro production analysis, decisions regarding goverment capital expenditure and agricultural aid programs. Land prices can serve as indicator. Land prices are however influenced by external factors as well as quality of the land. The role of external factors, such as the use or expected use of land for non-agricultural purposes, goverment aid programs and monetary conditions must thus be eliminated so that land prices can be used as barometer of resource quality. A similar study was done in the USA with states as observation units. International indexes with countries as observation units were calculated in another study. In this paper a South African resource quality index with statistical regions as observation units is presented. Good statistical fits were obtained. The following factors contributed significantly to the determination of resource quality indexes: stability of rainfall, irrigation and percentage of land under natural pasture. Change occurs over time. The indexes obtained vary between 53 (Namaqualand) and 239 (Western province fruit region).

An estimate of aggregate supply response in South African agriculture

Agricultural supply has traditionally been assumed to be relatively inelastic. Time series estimates have generally supported this hypothesis. Estimates based on cross‐sectional observations have generally yielded higher elasticities. It has been argued that cross‐sectional analyses are more appropriate than time series analyses for estimating long‐run elasticities. A cross‐sectional analysis was done on South African data. Quantity supplied was shown to be a function of output/input price ratios, land quality, average rainfall and time. The long‐run supply elasticity appears to be approximately 0,92. This has important implications for agricultural price policy. Policies based on the assumption of very low supply elasticities are likely to distort markets and production.

THE EFFECT OF THE EXCHANGE RATE AND INTERNATIONAL FACTORS ON THE COMPETITIVE POSITION OF SOUTH AFRICAN WHEAT PRODUCERS / DIE EFFEK VAN DIE WISSELKOERS EN INTERNASIONALE FAKTORE OP DIE MEDEDINGENDHEIDSPOSISIE VAN SUID-AFRIKAANSE KORINGPRODUSENTE

The principle for local producers is to be competitive if the playing field is level. In the medium to longer term, it is in the consumers interest to protect local producers against imports, since locally produced wheat will probably be Competitive with imported wheat in the long run in view of the expected trends in world prices and exchange rates.

DIVERSIFICATION AS A RISK STRATEGY IN TIMES OF CHANGE: A STUDY IN THE EASTERN ORANGE FREE STATE

Abstract Data from 100 commercial farmers in the Aberfeldy pedosystem (situated in the Northeastern Orange Free Sate) were used to analyse diversification as a risk alleviating strategy. In theory, diversification reduces risk, but when the ability with respect to management or entrepreneurship is ignored, diversification may increase risk. Results show that any excessive attitude towards risk is undesirable. Both risk averters and risk seekers showed a greater probability of finacial deterioration or failure. Risk neutrality seems to be the optimal strategy.

IS SOUTH AFRICAN AGRICULTURAL LAND OVERVALUED? COMMON MISCONCEPTIONS

The gap between the average market and agricultural value of South African land showed a steady decline since 1984. The decline is attributable to the withdrawal of some of the major policy support services to the farming community and inflationary conditions, which had a negative influence on both sellers and buyers. The negative effect of the terms of trade was, however, partially countered by an annual growth in productivity of 4,63% since 1983. This had a positive effect on agricultural values, thus closing the gap between the market and agricultural value of land.

THE IMPACT OF DIFFERENT TRADE SCENARIOS ON SELECTED AGRICULTURAL COMMODITIES IN SOUTH AFRICA

Tariffs have become the main tool through which government can control the openness of the agricultural playing field. It is for this reason, given the current and future interaction between South Africa and the rest of the Southern African region, that the possible affects of tariff changes should be thoroughly investigated. A model was, therefore, developed to provide quantitative estimates of the likely effects of various changes in the policy regime on selected agricultural commodities. The model shows how linear interpolations and extrapolations could easily lead to erroneous conclusions. if tariffs are removed totally the trade balance will suffer badly and tariff revenues will drop to zero. In aggregate South Africa will be worse of when all tariffs are removed if the international playing field for agricultural producers is not level.

POSSIBLE EFFECTS OF AN AGRICULTURAL LAND TAX IN SOUTH AFRICA

The introduction of land tax as an instrument for redistributing wealth and land is frequently proposed. The possible effects of such a land tax should be taken into account before a decision on this matter is reached. A land tax may decline land values which will affect, the security value of financial institutions, the land market and the managerial incentives of farmers. Though it might be a sensible route for provincial governments to tax agricultural land as a source of revenue while it may contribute to land redistribution these effects should be discounted when decisions are made.