Project topics and materials
Get Complete Project Material File(s) Now! »
Policy Environment
South African agriculture has undergone major policy changes since the early 1980s. A complete summary of these changes is extensively discussed in Kirsten et al., (1994), Van Zyl et al., (2001), Viljoen (2004); Vink (1999); Vink and Kirsten (2003a); Vink and Van Rooyen, 2009 and World Bank (1994). Currently, the complete deregulation of agricultural markets, the dualistic nature of the sector and the attempt to deracialise the sector mark the three main economic features of the agricultural sector in South Africa (Vink and Kirsten, 2003b). This has also been stressed by the common vision stipulated in the Agricultural Strategic Plan, whose core strategies are promoting equitable access and participation by providing support to emergent farmers, strengthening global competitiveness and profitability and establishing institutions for a sustainable use of resources (DAFF, 2001).
Thus, the following sectoral and economic policies, among others, have been designed to attain the outlined objectives and to redress the injustice of past policies (Kirsten and Vink, 2002; Van Zyl et al., 2001; Viljoen, 2004; and Vink and Van Rooyen, 2009):
• Trade policy: South Africa has joined the multilateral trade agreement of the WTO by lowering tariffs, adopting tariffication for non-tariff barriers and by complying with sanitary and phytosanitary standards. Moreover, the country is engaged with various bilateral and regional trade arrangements that aim to increase market access.
• Marketing policy: A complete deregulation of the agricultural markets was effected by the Marketing of Agricultural Products Act (Act 47 of 1996) by establishing the National Agricultural Marketing Council (NAMC) whose main purpose is to expand market access and to bring market efficiency.
• Water policy: Under the promulgation of the new water act, priority for water usage is given to human and environmental use. Among others, the subsidisation of water price is terminated, an integrated catchments management system is implemented and the riparian principle of water rights is culminated.
• Labour market policy: Farm workers’ legal rights and employment conditions, which had been largely excluded from various labour acts applied in other sectors, have now been incorporated. Among others, these are embraced in the Labour Relations Act (1997), the Skills Development Act (1998) and the Employment Equity Act (1998).
• Redressing land ownership: This policy attempts to redress the historical legacy of land ownership in the country through land reform that comprises land redistribution, land restitution and tenure reform. Though the implementation began in 1994, the pace has been very slow (Lyne and Darroch, 2003). Currently, it aims to distribute 30% of the land to previously disadvantageous communities by 2014 (Strategic Plan, 2009). Similarly, sectoral Broad-based Black Economic Empowerment (AgriBEE) has been introduced to facilitate the wider participation of blacks in all levels of agricultural activities and enterprises, which includes ownership, skill development, management control and enterprise development.
• Agricultural and rural finance: In an attempt to extend access of financial services to smallholder farmers, the government established MAFISA (Micro Agricultural Financial Institutions of South Africa) which assists farmers a loan up to R100 000.
• Agricultural extension: By integrating the previous extension services that were segregated to the commercial and smallholder farmers, the extension services has expanded the scope to assist the emerging farmers’ needs in various initiatives including marketing, finance and institutional development.
• Agricultural research: In order to enhance agricultural research, the Agricultural Research Council (ARC) has been established in 1992, which mainly focused in addressing the issues and needs of smallholder farmers. Moreover, the National Agricultural Research and Development Strategy have been adopted in 2007 to guide and coordinate research in the agricultural sector.
• Biofuels: The Biofuels Draft Strategy aims to achieve a biofuels average market penetration of 4.5% of liquid road transport fuels (petrol and diesel) by 2013, which will achieve 75 % to the national renewable energy target.
The estimates of the South African Producer Support Equivalent (PSE), (often used to measure the intervention of government in the agricultural output market) showed that South Africa’s average PSE in 2007 was 3% (OECD, 2009a). The PSE value is low compared to the 2007 average value of OECD countries (22%) and it is similar to Brazil’s (5%) and Australia’s (6%) (OECD, 2009b). However, variability is observed across agricultural commodities. The PSE for South African agricultural products concentrates mainly on sugarcane and mutton, which receive between 10% and 20% of gross farm receipts of each commodity (OECD, 2009a). However, the general low aggregate value of PSE shows that South African government policies are less distortive on the functions of agricultural output market.
Agricultural Outputs
The real gross value or income of the agricultural sector is derived from the sub-sectors of field crops, horticulture and animal production. Gross value refers to the part of agricultural production marketed at basic prices and includes the production for own consumption valued at the same prices (DAFF, 2004). As shown in Figure 2.1, real gross income of agricultural products showed an upward trend during the 1970s and reached its peak in 1981. The average annual growth rate during 1970-1981 was 5%. This period was characterised by high real producer prices and benign state support in the form of subsidies. Furthermore, as the aim of agricultural policy during the period was to attain food self-sufficiency, it largely focused on increasing output, regardless of cost (Vink, 1999). The middle of the 1980s, however, showed the start of deregulation of the markets and the fall in real prices of major commodities. Moreover, the regional droughts that occurred in 1983, 1984 and 1986 and the Land Conversion Scheme, which subsidised the withdrawal of crop land and the establishment of perennial pastures, dampened agricultural production (World Bank, 1994). Hence, real gross value during this period (1981-1992) fell at an annual average rate of 3% and reached its lowest point in 1992.
The trend, however, reversed after 1992, though fluctuations are observed due to the vagaries of the weather. Real gross income has significantly increased during the past three years as a result of record world agricultural commodity prices.
The average real gross value of the sub-sectors of the agricultural sector is depicted in Table 2.1. Real gross income from horticulture is the only sub-sector that has displayed a consistently increasing trend. The income from field crops, which was the largest in 1970s as a result of higher domestic prices, showed a declining trend when the deregulation of markets started in the early 1980s. The trend reversed, however, after the mid-1990s. The average real gross income from animal production, on the other hand, stagnated in the late 1980s and showed a fall in the early 1990s following the decline of field crops, which is its main source of inputs. Similar to field crops, the trend of the real income for animal production reversed after the mid-1990s.
CHAPTER ONE INTRODUCTION
1.1 BACKGROUND
1.2 PROBLEM STATEMENT
1.3 OBJECTIVES
1.4 HYPOTHESES
1.5 METHODOLOGY AND DATA
1.6 OUTLINE OF THE STUDY
CHAPTER TWO ECONOMIC REVIEW OF THE SOUTH AFRICAN AGRICULTURAL SECTOR
2.1 INTRODUCTION
2.2 POLICY ENVIRONMENT
2.3 AGRICULTURAL OUTPUTS
2.4 AGRICULTURAL INPUTS IN SOUTH AFRICA
2.5 AGRICULTURAL SECTOR GROWTH
2.6 PROFITABILITY OF THE AGRICULTURAL SECTOR
2.7 SUMMARY
CHAPTER THREE AGRICULTURAL INPUTS IN PARTIAL EQUILIBRIUM MODELS
3.1 INTRODUCTION
3.2 PARTIAL EQUILIBRIUM MODELS
3.3 NET FARMING INCOME MODELS
3.4 BASIC THEORY OF INPUT DEMAND
3.5 ESTIMATING INPUT DEMAND MODELS
3.6 TREATMENT OF INPUTS IN PARTIAL EQUILIBRIUM MODELS
3.7 STUDIES ON SOUTH AFRICAN AGRICULTURAL INPUTS
3.8 SUMMARY
CHAPTER FOUR MODEL SPECIFICATION AND ESTIMATION PROCEDURE
4.1 INTRODUCTION
4.2 SCHEMATIC VIEW OF THE MODEL
4.3 LIST OF VARIABLES
4.4 MODEL SPECIFICATION
4.5 ESTIMATION TECHNIQUES
4.6 SUMMARY
CHAPTER FIVE ESTIMATION RESULTS OF INDIVIDUAL EQUATIONS
5.1 INTRODUCTION
5.2 STATISTICAL PROPERTIES OF THE VARIABLES
5.3 INTERMEDIATE INPUT EXPENDITURE
5.4 REAL OWN CONSTRUCTION
5.5 REAL GROSS CAPITAL FORMATION IN FIXED IMPROVEMENT
5.6 REAL GROSS CAPITAL FORMATION IN MACHINERY TRACTORS AND IMPLEMENTS
5.7 REAL RENT PAID
5.8 REAL INTEREST PAID
5.9 REAL TOTAL DEBT
5.10 FARM EMPLOYMENT
5.11 SUMMARY
CHAPTER SIX MODEL EVALUATION
6.1 INTRODUCTION
6.2 GRAPHICAL EVALUATION OF THE MODEL
6.3 STATISTICAL EVALUATION OF THE MODEL
6.4 SUMMARY
CHAPTER SEVEN BASELINE PROJECTIONS, MODEL COMPARISION AND SCENARIO ANALYSIS
7.1 INTRODUCTION
7.2 BASELINE PROJECTION OF THE AGRICULTURAL SECTOR
7.4 APPLYING THE RECURSIVELY LINKED MODEL FOR ANALYSING THE IMPACT OF EXCHANGE RATE DEPRECIATION ON THE AGRICULTURAL SECTOR
7.5 SUMMARY
CHAPTER EIGHT SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
8.1 SUMMARY
8.2 CONCLUSIONS
8.3 LIMITATIONS OF THE STUDY AND AREAS OF FURTHER RESEARCH
References
