W. L. Nieuwoudt

EFFICIENCY OF LAND USE

Abstract In the communal agricultural sectors three reasons for market failure were advanced (a) free access to communal grazing which is a problem if the group is larger than the immediate family (b) lack of incentive to invest in improved pastures and fodder production due to the free rider situation and (c) opportunity cost of land differs from what market forces will determine. Commercial land expropriated should be resettled on a private individual tenure basis by small scale farmers and not on a communal basis. Under a communal system the return (rent) on grazing land is zero while the return on arable land is low due to lack in permanent tenure. This explains idle arable land in KwaZulu in spite of population pressure. The rental value is the cost to the farmer for non usage of land if it can make a positive contribution. The market mechanism penalizes the commercial farmer for the non usage of commercial land. A land tax does not increase this cost and will thus not bring unproductive land into pr...

The value of water in the South African economy: Some implications

Abstract The South African Water Research Commission (WRC) initiated a number of research projects aimed at determining the value of water in different sectors of the economy and in different parts of the country. This research is reviewed. Water values were found to differ significantly between sectors, between geographic areas and within geographic areas. As agriculture is a large consumer of water several studies along different rivers were undertaken, including studies on water quality. Average ratios indicate that agriculture is an inefficient user of water in terms of gross income generated per unit of water and also in terms of jobs created per unit of water. Irrigation farming is, however, an important employer of labour while it contributes 30% to the value of farm output. A marginal approach and water demand elasticities also indicate that non-agriculture generally places a high value on water assurance but little value on more than what it already uses. This may indicate that although water is expected to transfer out of agriculture in the longer run, in the short run agriculture may be its best use. Water efficiency could be significantly enhanced if transfers within and between river reaches are promoted, as water shadow prices differ. Inputs from the Department of Water Affairs and Forestry (DWAF) are important in water allocation due to socio-economic and environmental externalities of water allocation.

TAXING AGRICULTURAL LAND

ABSTRACT Desirable features of a tax on agricultural land are that it is not a disincentive to effort, it does not distort resource allocation, it does not increase food prices and evasion is not possible. A land tax on these grounds is superior to an income tax. The tax, however, must be acceptable to the community. The administration of a land tax is costly as all properties need to be appraised individually and regularly. The rise in expenses and function of government has made such a tax inadequate to finance national government expenditure and land taxes are usually used to finance local government expenditure. Currently agriculture is heavily subsidised in developed countries which means that tax money is rechannelled into agriculture, after a portion of it is wasted (lost) in the administration of tax and subsidy schemes. More attention needs to be given to eliminating subsidies that do not meet efficiency and equity goals rather than embarking on new forms of taxation. In this context a subsidy on...

An economic evaluation of a crop insurance programme for small-scale commercial farmers in South Africa

Hail insurance is provided by the private sector in South Africa but crop insurance (drought insurance) programmes, after a promising start, failed to attract customers. A crop insurance programme (drought) for small-scale commercial farmers, who are not yet paying tax, has been recommended to government. The purpose in this research is to study the economic viability of such a programme drawing on the US experience. The US programme is well developed but heavily subsidised. During 1998 US growers paid

Water markets in the Lower Orange River catchment of South Africa

900 million in premiums while during 1995–98 the US government spent

PRICE DISTORTIONS IN THE SOUTH AFRICAN MAIZE ECONOMY: A COMPARATIVE POLITICAL ANALYSIS

1.2 billion per year on subsidies. An area insurance plan (farmers are insured as a group) is shown to be more appropriate for small farmers growing dryland field crops such as maize because risk is systemic (drought related) while adverse selection, moral hazard etc are overcome. Individual crop insurance will not be viable due to the cost of farm visits (verification of claims) and the non-availability of information. As a large part of the cost to government goes to administration of crop insurance it is recommended that an Income Equalisation Deposit (IED) scheme for small growers receive serious consideration with the government making a contribution as for example in Canada.

Demand equations for selected South African agricultural commodities.

Abstract Irrigation farmers in the Lower Orange River were surveyed during October 2003 in order to study whether water marketing has promoted efficiency and to identify factors that affect future investment in irrigation farming. Econometric procedures (principal component and logit model) indicate that purchasers of water rights produce lucrative export grapes and horticultural crops with relatively less raisin, wine or juice grapes and less field crops; are more specialised in production; have more livestock (probably liquidity factor) and have a less negative view of the five-year review period. The water market has facilitated a transfer of water use from relatively lower value crops to relatively higher value crops, and also promoted the use of more advanced irrigation. An investment model using Ridge Regression indicates that the following variables are associated with future investment in irrigation farming; expected profitability, risk perception and risk aversion (Arrow/Pratt). Results confirm that farmers who are more risk averse invest less in the future as can be expected from theory. Policies that increase risk in agriculture will have a significant negative effect on future investment in irrigation. What is significant from the results is that irrigation farmers are highly risk averse (down side). Results also show that farmers who feel that water licenses are not secure expect to invest less in the future. The latter effect is thus amplified as farmers appear to be highly risk averse. This has important policy implications, and measures should be taken to improve the perceived security of water licenses. This could be achieved by keeping farmers more informed about the practical implications of the National Water Act (NWA) and specifically water licenses.

The rate of return on R&D in the South African Sugar Industry, 1925-2001

Abstract The effects of government intervention in the South African Maize Industry are evaluated using a partial equilibrium framework. Large monetary transfers have resulted from government policy with a bias towards more powerful producer interest groups. Transfers significantly exceed the welfare gains to producers. However, the per capita gain for producers is greater than the per capita loss for consumers creating an incentive for producers to continue lobbying for the current South African maize policy. Intervention results from market failure followed by political failure where interest groups manipulate government for their own benefit. As long as vested interests remain, policy reform seems remote. A new political dispensation may shift vested interests towards consumers away from producers. Policy reform is discussed along with conditions to facilitate this process of reform.

FACTORS INFLUENCING CROP INSURANCE PARTICIPATION IN MAIZE FARMING

ABSTRACT A set of demand equations for 18 South African agricultural products, representing three demand systems (red meats, fruits and vegetables), were estimated from monthly data for the period December 1982 to February 1988. Data were deflated with a commodity price index and natural logarithmic partial adjustment equations were estimated with two-stage least squares to determine demand parameters for each product. Theoretically expected results were obtained and, owing to variability in seasonal data, results were generally highly significant. Beef is confirmed as the dominant commodity in the red meat market, having cross-price flexibilities with mutton and pork of 0,30 and 0,20, respectively. All goods other than pumpkins are shown to be normal and fruits and vegetables (having many substitutes) are shown to be demand elastic. All products are normal goods, with the exception of pumpkins (income flexibility of −0,74), which are inferior. Apples and pineapples were found to be the dominant fruits an...

THE DEMAND FOR LIVESTOCK PRODUCTS IN SOUTH AFRICA FOR 2000, 2010 AND 2020: PART I / SAMEVATTING: DIE VRAAG NA LEWENDEHAWEPRODUKTE IN SUID-AFRIKA VIR 2000, 2010 EN 2020

Abstract The rate of return (ROR) on R&D in the South African Sugar Industry is estimated from a Ridge Regression of a production function of time series data for the period 1925 to 2001. The Industry has kept records on R&D expenditure, yields, rainfall and related factors over a 75-year period. Sugar cane yield was measured in tons sucrose to account for quality improvement. In this function, R&D expenditure lagged three years was significant (t = 6.5) in explaining increased sucrose production per ha. Other highly significant variables in this model were rainfall (t = 5.2) and real cost of production (t = 8.4). A dummy interaction with R&D was significant (t = 2.9) implying a greater impact for R&D technology during the period 1959 to 1975 than either before or after this period. The standardised regression model indicated that the R&D variable was one of the most important variables in explaining yield. Using the elasticity of production estimate for the R&D variable of the un-standardised model, a Benefit/Cost ratio for this variable of 1.41 was estimated, if benefit of millers is excluded and 1.59, if the gain to millers is included. In the latter estimates, the exports realisation price of sugar was used as the appropriate shadow price. A real internal rate of return was estimated at 17%. A unique feature of the South African Sugar Industry is that research is privately funded by the industry, which implies that the distortionary impact of taxes need not be accounted for, as is the case with public funded research.