Henry Jordaan

Measuring the Price Volatility of Certain Field Crops in South Africa using the ARCH/GARCH Approach

Abstract The conditional volatility in the daily spot prices of the crops traded on the South African Futures Exchange (yellow maize, white maize, wheat, sunflower seed and soybeans) is determined. The volatility in the prices of white maize, yellow maize and sunflower seed have been found to vary over time, suggesting the use of the GARCH approach in these cases. Using the GARCH approach, the conditional standard deviation is the measure of volatility, and distinguishes between the predictable and unpredictable elements in the price process. This leaves only the stochastic component and is hence a more accurate measure of the actual risk associated with the price of the crop. The volatility in the prices of wheat and soybeans was found to be constant over time; hence the standard error of the ARIMA process was used as the measure of volatility in the prices of these two crops. When comparing the medians of the conditional standard deviations in the prices of white maize, yellow maize and sunflower seed to the constant volatilities of wheat and soybeans, the price of white maize was found to be the most volatile, followed by yellow maize, sunflower seed, soybeans, and wheat respectively. These results suggest that the more risk-averse farmers will more likely produce wheat, sunflower seed and to a lesser extent soybeans, while maize producers are expected to utilise forward pricing methods, especially put options, at a high level to manage the higher volatility.

Transaction costs and cattle farmers’ choice of marketing channel in North-Central Namibia

Abstract About 70 per cent of the Namibian population depends on agricultural activities for their livelihood. Moreover, agriculture remains an important sector in Namibia owing to the fact that its national economy is widely dependent on agricultural production. Cattle producers in the Northern Communal Areas (NCAs) have an option to market their cattle via the formal or informal market. Efforts have been made to encourage producers to market their cattle through the formal market; however, these proved to be futile as the strategy yielded limited improvements. In this study, a number of variables have been analysed to determine factors that influence cattle marketing decisions. Factors influencing the marketing decision on whether to sell or not sell through the formal market have been analyzed using the Probit model. Factors influencing the amount of cattle sold through the formal market, assuming that a producer uses the formal market to sell cattle, were analysed using the Truncated model. Testing the Tobit model against the alternative of a two-part model was done using Craggs model. Results from empirical research suggest that problems with transportation to MeatCo, marketing experience and the age of cattle producers are some of the factors that significantly influence the decision whether or not sell through the formal market. The accessibility of marketingrelated information, accessibility of new information technology, the age of respondents and a lack of improved productivity are some of the factors that influence the proportional number of cattle sold through the formal market. The results suggest that substantially more information is obtained by modelling cattle marketing behaviour as a dual decision-making framework instead of a single decision-making framework.

Conceptual framework for value chain analysis for poverty alleviation among smallholder farmers

ABSTRACT Despite volumes of research and substantial investments by government, the financial performance of smallholder farmers in South Africa remains poor. The past decade saw little change in the general behaviour of smallholder farmers, and the stumbling blocks faced by smallholder farmers who want to participate in commercial agri-food chains. A possible reason may be that researchers tend to focus on the current behaviour and performance of the farmers while neglecting the influence of the incentive structure on their behaviour. The aim of this paper is to develop a conceptual framework that allows for a more holistic analysis of farmers and their value chains to better understand the reasons underlying current behaviour, and to identify potential solutions to change the behaviour of the farmers and relevant role-players to better match the requirements for successfully participating in competitive agri-food chains. The integrated value chain, New Institutional Economics – Structure-Conduct-Performance framework, does allow for a comprehensive analysis of the incentive structure embedded in the social, physical and institutional environment within which the farmers operate. Special attention is also awarded to the relationship between the farmers and their buyers to identify the appropriate coordination strategy that will minimise transaction costs.

Exploring social capital of emerging farmers from Eksteenskuil, South Africa

The objective of this paper was to quantify the levels of social capital of emerging raisin producers from Eksteenskuil, and to explore the relationship between the socio-economic characteristics of the farmers and their social capital levels. The respondents prove to have high levels of social capital. Interestingly, they tend to trust and get along with each other more than they actively participate in organised group activities in the community. Their social capital thus can be said to be more cognitive than structural. Higher levels of social capital were also found to be associated with higher age, experience and education levels of the respondents. Ultimately it was concluded that the complexity of social capital makes it difficult to implement initiatives that will contribute to developing the social capital levels of these farmers. Efforts to stimulate collective action and farmer-to-farmer skills transfer should take cognisance of the role of social dynamics in the behaviour of emerging farmers.

Factors affecting the price volatility of July futures contracts for white maize in South Africa

Abstract Price volatility in agriculture is important because of the part it plays in the overall variability in profits. South African farmers have to contend with low profit margins, and price volatility therefore affects agricultural producers in South Africa to a considerable degree. The autoregressive conditional heteroscedasticity/generalised autoregressive conditional heteroscedasticity (ARCH/GARCH) approach is used to quantify the volatility in the price of the July white maize futures contracts that trade on the South African Futures Exchange (SAFEX). Volatility tends to increase from December through the early part of May, which makes the timing of marketing decisions important. As a second sub-objective, linear regression is used to identify the factors that cause changes in volatility over time. The release of new information on local and international growing conditions is found to increase the level of volatility in the price of the July white maize contract. Maize producers should therefore take the release of important information into account when developing their marketing plans for the coming marketing season. The usefulness of put options as a price risk management tool is highlighted by the results of this research.

Transaction cost analysis of raisins marketing by emerging farmers from Eksteenskuil, South Africa

ABSTRACT Despite the existing vertically coordinated (specifications contracting) relationship between the raisin producers from Eksteenskuil and their buyer, the farmers still face relatively high transaction costs. High transaction costs may cause the farmers to lose their share in the highly profitable fair-trade market for raisins and consequently decrease the contribution of raisin production to the livelihoods of the farmers from Eksteenskuil. The aim of this paper is to investigate whether a higher degree of vertical coordination will be more appropriate to economise the transaction costs faced by the farmers in order to allow them to continue benefitting from the fair-trade initiative. Based on the application of the frameworks of Mahoney (1992) and Peterson et al. (2001), a higher degree of vertical coordination in the form of a relation-based strategic alliance will be more appropriate than specifications contracting. The complementarity between the farmers and their buyer, created by the fair- trade initiative, contribute to the viability of a more vertically coordinated strategy. Similar incentives for private sector-buyers to procure from emerging farmers may create a similar degree of complementarity, and hence an incentive for such buyers to enter into vertically coordinated relationships with emerging farmers.

Investigating potential financial gains from using production inputs more efficiently

ABSTRACT The aim of this paper is to extend existing research that analyses technical and allocative efficiency and its determinants by quantifying and comparing the potential financial gains from improving technical and allocative (cost) efficiency levels of emerging raisin producers from Eksteenskuil in the Northern Cape Province of South Africa. Results show that, at whole farm level, the average financial gains in margin above variable costs from improving technical and cost efficiency amount to R21 335 and R21 581, respectively. Importantly, the gains represent potential increases of 246% and 249%, respectively, in margins above variable costs. Improving the levels of efficiency with which the farmers use their inputs thus may contribute substantially to increase the contribution of raisin production to the livelihoods of raisin farmers from Eksteenskuil. The close comparison of the potential gains suggests that the current emphasis of extension services on maximising output levels should be extended to also promote the use of inputs in cost minimising combinations. Farmer-to-farmer skills transfer has a major role to play in supporting the farmers to use their inputs in a technically efficient manner. Extension officers and other support services should pay more attention to developing the skills of the farmers to be able to select the least cost combination of inputs.

INVESTIGATING VOLATILITY IN COFFEE PRICES ALONG THE ETHIOPIAN COFFEE VALUE CHAIN

Abstract The coffee sub-sector is a major contributor to the Ethiopian economy. In addition to accounting for approximately 40 per cent on average of total export earnings, coffee production provides a livelihood for a large proportion of the Ethiopian population in the form of jobs for farmers, local traders, transporters and exporters. Volatility in the price of coffee thus influences a large proportion of the population all along the coffee commodity chain within Ethiopia. This study uses the Autoregressive Conditional Heteroscedasticity/Generalized Autoregressive Conditional Heteroscedasticity (ARCH)/(GARCH) approach to quantify the volatility in the price of coffee. A distinction is made between producer, wholesale and export prices in order to compare the price risk as faced by the respective participants in the coffee chain. The volatility in coffee prices within Ethiopia is also compared to the volatility levels in Brazilian coffee prices, since Brazil is a major coffee producing country in the world. Coffee prices within Ethiopia were found to be more volatile than in Brazil. Producer prices were found to be the most volatile, followed by wholesale prices and export prices respectively. The high level of volatility in producer prices emphasises the need for efficient price risk management tools that should be available to coffee producers in Ethiopia.

Economics of climate change adaptation: a case study of Ceres – South Africa

Climate change and its impact on already scarce water resources are important issues being publicly debated in the world today. Water resources are of more concern because changes in the water supply will affect the water availability for household use, agricultural practices, and for the vast industrial water demand. With the view of helping famers to adapt to climate change, the Ceres Dynamic Integrated Model was developed to simulate the impacts and evaluate different adaptation strategies thereof. The results show that a substantial change can be expected in the profile of the farming community. However, with adaptation the welfare of the farmers can be improved. Depending on the availability of funds to make farm dams available for farmers, access to farm dam capacity and winter water allocations as well as increasing water use efficiency are potential adaptation options for the farmers. Improved water management practices that increase the productivity of irrigation water use may provide a significant adaptation potential under future climate. Therefore, farmers must be equipped with a collection of management or adaptation tools to overcome slight climatic differences.

The influence of animal traits on feedlot profitability of Santa Gertrudis cattle in South Africa

ABSTRACT Approximately 75 per cent of South Africa’s beef is finished by feedlots. The profitability of the beef industry remains under pressure due to various external factors. Previous research has shown that many factors influence feedlot performance and profitability. It is, however, very difficult to judge an animal’s inherit feedlot performance before it enters the feedlot. The aim of this study was to explore the relationship between the animal traits of Santa Gertrudis bulls and the feedlot profitability of these bulls. Analysed traits included the sheath score, capacity score and build score as high scores for these traits are believed to be associated with better feedlot performance. The data for this study was collected from 48 Santa Gertrudis bull calves. The profitability of feeding cattle was expressed as the Total Margin (TM) and Feed Margin (FM). Given the nature of the dependant variables, Ordinary Least Squared regressions were used for the analyses with TM and FM as dependent variables. Results show that although both models were significant, the sheath score was the only individual trait that proved to be significantly correlated with both TM and FM. Sheath score proved to be negatively correlated with TM and FM while it was expected, through popular belief, to be positively correlated. This implies that animals with lower sheath scores, thus with sheaths closer to their bodies, perform better in the feedlot and may affect the TM and FM positively. The magnitude of this trait still remains under question and further research is required.