Showing papers in "Agrekon in 2008"

Determinants of off-farm participation decision of farm households in Ethiopia

Abstract: This study analyses the determinants of off-farm work participation decisions of farm households in Ethiopia. A bivariate probit model is applied to account for the simultaneity of participation decisions of both male and female members of farm households. The results of the analysis show that human capital variables such as health and training on non-farm activities have a positive effect on the off-farm participation decisions of male members of farm households. The education status of the head has no significant impact on the participation decisions of the members of the family as most of the off-farm activities do not require formal education. The availability of credit and transfer income is the other factors that have a positive impact on the decisions of male members to participate in off-farm activities. The effects of family and farm characteristics are also analysed. Finally, policies that aim to increase the off-farm work participation decisions of family members should take into consideration the difference in responses to the various factors that affect the off-farm work decisions of male and female members of farm households.

Factors enhancing market participation by small-scale cotton farmers

Abstract: This paper uses data collected from 177 small-scale farming households in Mpumalanga in an effort to identify factors that significantly influence the degree of commercialisation or market participation. A logistic regression model was applied within the transaction costs framework. Results support the hypothesis that transactions costs rank among the main determinants of commercialisation. The following variables were statistically significant: age, ability to speak/understand English, region, ownership of transport, access to market information, distance to market, dependency ratio, trust, land size and ownership of livestock. Increases in the latter four have negative effects on commercialisation. The negative relationship between land size and commercialisation probably indicates that increased market participation is also afunction of input (land) productivity.

Alternative marketing options for small-scale farmers in the wake of changing agri-food supply chains in South Africa

Abstract: With South Africa’s urban population approaching 60%, supermarkets and fast food chains have become important players in the South African food system. These large players in the food sector have systematically modified their procurement practices especially with regard to fresh fruit and vegetables and are now circumventing spot markets in favour of sourcing via in-house sourcing companies who mainly procure from preferred supplier producers. This paper draws extensively from a global research programme which seeks to highlight the market changes that potentially contribute to continued exclusion of the small producers from mass consumer markets. This paper illustrates, through a series of case studies, how integration of small-scale farmers into the urban retail market can be facilitated and how the challenges posed by the changing food system could possibly be overcome. The case studies illustrate various initiatives through which small-scale farmers and agribusinesses can be integrated into mainstream agri-food systems and may be used as models for an innovative approach to include small-scale farmers while still maintaining profitable business operations. They highlight the need for a multi actor approach for the successful participation of smallholder farmers in order to allow them to join the supply chain at any point within the channel.

Logistic modelling of smallholder livestock farmers' adoption of tree-based fodder technology in Zimbabwe

Abstract: Based on field data collected from 131 small scale dairy farmers that were randomly selected from four agro-ecological zones, this study assessed the potential of adoption of fodder bank technology as a means for improving livestock production and income generation for smallholder farmers in Zimbabwe. Using a logit modelling approach, it also identified the drivers of adoption of the technology by analysing the influence of household characteristics and ecological factors on farmers' decision to adopt the technology. The model correctly predicted 75% of observed adoption and non-adoption by farmers. Results reveal that dairy herd size, land holding size, membership of dairy association and agro-ecological potential are the key factors influencing farmers' adoption of fodder bank. Age, sex, household size and educational level of farmers play lesser role. Male and female farmers were equally likely to take up and practice fodder bank if they are given equal access to information and incentives. Th...

Producer price and price transmission in a deregulated Ethiopian coffee market

Abstract: Coffee producers in Ethiopia have historically received a very small share of the export price of green coffee. Reasons that are often mentioned are heavy government intervention and high marketing and processing costs. Prior to 1992, government regulation of the domestic coffee market in the form of fixed producer prices and the monopoly power of the Ethiopian Coffee Marketing Corporation put a substantial wedge between the producer price and the world price of coffee by imposing an implicit tax on producers. The domestic coffee marketing system in Ethiopia was liberalised after 1992, which was envisaged to have a positive effect on producer prices and price transmission signals from world markets to producers. This paper, with the help of Cointegration and Error-Correction Model (ECM), attempts to analyse its impact. As findings indicate, the reforms induced stronger long-run relationships among grower, wholesaler and exporter prices. The estimation of the ECM shows that the short-run transmission of price signals from world to domestic markets has improved, but has remained weak in both auction-to-world and producer-to-auction markets. This might be explained by the weak institutional arrangement coordinating the domestic coffee system and contract enforcement. In general, the domestic price adjusts more rapidly to world price changes today than it did prior to the reforms. However, there is an indication that negative price changes transmit much faster than positive ones.

South Africa's new Cooperatives Act: A missed opportunity for small farmers and land reform beneficiaries

Abstract: Agricultural cooperatives are often viewed as appropriate vehicles to facilitate vertical coordination with, or horizontal integration between, small farmers who would otherwise be excluded from value-adding opportunities and discerning markets. In South Africa, renewed interest in development-oriented cooperatives saw the introduction of a new Cooperatives Act in 2005, along with support measures dedicated to ‘emerging’ cooperatives. This paper contends that the architects of the new Act discounted important trends in international legislation that would have made development-oriented cooperatives more versatile and given their members better access to capital and expertise through equity partnerships with private agribusiness firms. It is concluded that the new Act should be amended to admit non-patron investors as members, and to allow for non-redeemable and hence appreciable and tradable shares. Such innovations are emerging internationally, usually with a cap on non-patron voting power.

Contracting arrangements in agribusiness procurement practices in South Africa

Abstract: This paper presents an overview of contracting arrangements in agribusiness procurement practices in South Africa. The objective of this paper is to contribute to a better understanding of the structures and issues of raw commodity procurement in South African agribusiness supply chains. The results suggest that a wide range of institutions are employed to procure raw commodities for the South African agroprocessing sector and that companies are increasingly moving away from the open market as a source of supply for raw commodities, and are utilising contractual arrangements instead. According to the main findings, 78.5% of the total volume of fruit and vegetables procured by agribusiness companies for processing is based on some form of contracting arrangement. The balance is procured through a combination of the open market, own estates, agents and imports. It is only in the case of potatoes, onions, beans and peanuts that a stronger reliance on the spot market is evident. South African retailers source 70% to 100% of their fresh produce directly from farmers (usually through growing programmes). The procurement of meat, poultry and eggs appears to favour vertical integration (and in some cases own production), medium- to long-term contracts and long-term ‛informal’ supply arrangements with selected groups of farmers.

Agricultural trade policy reform in South Africa

Abstract: This paper empirically investigates the impact of agricultural trade reform in South Africa. Using UNCTAD’s Agricultural Trade Policy Simulation Model (ATPSM), the study investigates two specific scenarios that capture the magnitude of (i) the economic impact of global agricultural trade reform in South Africa and (ii) the economic impact if the reform in South Africa is coupled with agricultural reforms in the European Union (EU). Trade reform focuses on substantial tariff reduction; although in the case of the EU, scenarios also include reduction in domestic support and export subsidies. The results show that a unilateral tariff reduction in a selected number of agricultural products amounts to welfare gains of US$21 million. These gains are three times higher when accompanied by extensive reforms in the EU.

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 Policy’s (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 industry’s development. Additional issues, such as the impact on food and feed prices, also need to be taken into consideration.

A factor analysis of access to and use of service infrastructure amongst emerging farmers in South Africa

Abstract: While many studies have identified infrastructure as a constraints to production in agriculture in South Africa, few have attempted to investigate the extent to which emerging farmers are able to access and utilise infrastructure services. This paper uses data collected from 500 emerging farmers across the nine provinces of South Africa to determine the accessibility and use of infrastructure by emerging farmers. Factor Analysis was applied on fifteen indicators of infrastructure. The principal components extraction method extracted four factors, namely distance to services infrastructure, tarred road conditions to the services infrastructure, visitation to general services infrastructure and agricultural support services infrastructure. The results show that services infrastructure is generally more accessible to emerging farmers than before. The factors that determine the accessibility to infrastructure services include the distance of the nearest town from the villages, the state of the roads ...

Determinants of the demand for regular farm labour in South Africa, 1960-2002

Abstract: This paper estimates long-run price (wage) elasticities of demand for regular farm labour in South Africa using both Ordinary Least Squares (OLS) regression and a Two-stage Least Squares (2SLS) simultaneous-equation model for the period 1960–2002. Both models include a piecewise interactive slope dummy variable with 1991 as the threshold year to reflect South African (SA) commercial farmers' expectations that farm labour costs would increase as new labour legislation was introduced from the early 1990s onwards. The long-run price (wage) elasticity of demand for regular farm labour in South Africa during 1960–1990 was estimated as −0.25 for OLS and −0.23 for 2SLS regression, respectively. For the period 1991–2002, this elasticity estimate rose to −1.32 and −1.34 for OLS and 2SLS regression, respectively. These results suggest that a marked structural decline in the demand for regular labour has occurred since 1991 that raises questions about the appropriateness of labour laws and minimum wage legi...

Households' welfare analyses of the impact of global change on water resources in South Africa

Abstract: Most of the climate change models for South Africa predict a reduction in freshwater availability by 2050. Population growth is projected at 3% per annum, implying increased domestic water use. In addition to these factors, the concern for ecological sustainability and increased water pollution due to increased industrial, mining and agricultural activities, water availability for sectoral production activities is expected to decline. This decline has an impact on sectoral output, value added and households’ welfare. Using a computable general equilibrium approach, this study investigates the possible impact of global change on households’ welfare. The simulation results show that water scarcity due to global change can potentially lead to a general deterioration in households’ welfare. The poor households, whose incomes are adversely impacted, are the most vulnerable to the consequences of the impact of global change on water resources in South Africa. This vulnerability can only be reduced if welfare policies that maintain food consumption levels for the least and low-income households are implemented.

Competitive performance of global deciduous fruit supply chains: South Africa versus Chile

Abstract: The South African deciduous fruit industry has experienced difficulties in the past few years. Most deciduous fruit producers have suffered from increased globalisation of markets; trade liberalisation; deregulation of the industry; advances in information technology; changes in consumer preference; over-supply of deciduous fruit in South Africa's traditional markets and increased global competition, particularly from Chile. These factors have a continuous effect on the competitiveness of the industry and force deciduous fruit producers to position themselves as capable competitors in the global free-market environment. This paper measures the competitive performance of the South African deciduous fruit supply chains relative to those of Chile. An internationally recognised index, the Relative Revealed Comparative Trade Advantage (RTA) index and also data from both Food and Agricultural Organisation (FAO, 2007) and World Trade Organisation (WTO, 2007) are used to measure the competitive performan...

Modelling South African grain farmers' preferences to adopt derivative contracts using discrete choice models

Abstract: This paper applies a discrete choice model to determine specific characteristics that influence South African grain farmers’ preferences to hedge against uncertainties. This is the first empirical study on South African grain producers’ preferences to adopt derivative contracting and is based on the survey data of Grain South Africa for 2006. With the application of separate binary logit models for each major grain commodity, this paper establishes that different grain farmers are significantly heterogeneous. The results also show that grain farmers’ preferences to adopt derivative contracting are mostly influenced by the farmers’ prediction of daily grain prices and trends, farm size and various geographic characteristics. From a policy perspective it has been indicated that food and income insecurity will be reduced if farmers can adopt derivative contracting at large scale since it will enable the producers to produce staple food on a continuous basis at a relatively profitable level.

Institutions and economic research: a case of location externalities on agricultural resource allocation in the Kat River basin, South Africa

Abstract: The Physical Externality Model is used to illustrate the potential limitations of blindly adopting formal models for economic investigation and explanation in varied geographical contexts. As argued by institutional economists for the last hundred years the practice limits the value and relevance of most general economic inquiry. This model postulates that the geographical location of farmers along a given watercourse, in which water is diverted individually, leads to structural inefficiencies that negatively affect the whole farming community. These effects are felt more severely at downstream sites and lead to a status quo where upstream farmers possess relative economic and political advantages over their counterparts elsewhere. In the study of the Kat River basin these predictions appear to be true only in as far as they relate to legal and political allocations and use of water resources. In terms of lawful uses of land resources aimed at expanding citrus production, the model's predictions ...

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.

Investigating alternative governance systems for the South African mohair supply chain

Abstract: Mohair is an exclusive natural animal fibre with niche market appeal. It is, however, questionable whether it is inherently suited to a commodity-based marketing system in a marketing environment that requires marketing systems to convey far more information than commodity-based systems do. Historically, mohair has been considered a commodity and the marketing system for mohair has been structured accordingly. It is, however, argued that, the exchange between mohair growers and the buyers of greasy mohair requires increased levels of coordination to govern the exchange in a transaction costs efficient manner. The inefficiencies created by an inappropriate or incomplete marketing system for South African mohair are expected to lead to a loss of consumer value and a loss of potential profit throughout the mohair supply chain if a more coordinated governance structure is not implemented to curb these costs and augment the current spot market exchange.

Rethinking agricultural development finance in South Africa : options for implementation : presidential address

Abstract: The 2007 Presidential Address was delivered on 26 September 2007 at the Indaba Hotel, Fourways

Factors affecting the use of forward pricing methods in price risk management with special reference to the influence of risk aversion

Abstract: Risk aversion is the primary reason for farmers to use forward pricing methods to hedge against price risk. Previous international research on farmers' forward pricing behaviour found inconsistent results with respect to the relationship between risk aversion and the use of forward pricing methods. Ordinary Least Squares (OLS) regression is used in this research to investigate the relationship between the proportion of maize Vaalharts maize producers are willing to forward price and risk aversion. The quantity decision is modelled conditional on the adoption decision to ensure that the modelling procedure does not force the same variables to influence the two decisions in the same way. Regression results showed that more risk averse farmers are forward pricing a larger proportion of their crop produce. The main conclusion from this research is that the relationship between farmers' risk aversion and the quantity of maize forward priced is consistent with expected utility theory in spite of the fa...

Costs and benefits of higher tariffs on wheat imports to South Africa

Abstract: Low international wheat prices, caused by tariffs and subsidies in developed countries, have been blamed for causing financial difficulty to South African farmers. While indignation at unfair trade practices may be valid, it does not necessarily follow that protection of the local industry is the best response. This study uses a static general equilibrium model to describe and quantify the effects of increased tariffs (by up to 25 percentage points) on the local wheat industry, other affected industries—particularly downstream industries—and the economy at large. The effects on factors, households and the government are also analysed. The results show that the benefits to the wheat industry are highly concentrated and smaller than the loss of income caused in other sectors. Welfare is negatively affected, especially for low-income households, for whom the effects are exacerbated by increases in relative food prices.

Management decisions on commercial sugarcane farms in KwaZulu-Natal: a focus on choice bracketing behaviour for risk management

Abstract: The sugar industry is an important contributor to the South African (SA) economy, with average annual production estimated at 2.5 million tons of sugar. This study aims to quantify actual use of management instruments by a sample of commercial sugarcane farmers in KwaZulu-Natal (KZN) that are commonly associated with risk management, and uses factor analysis to investigate the extent to which these farmers bracket their management decisions. Data were obtained in 2006 via personal interviews of a stratified random sample of 76 large-scale sugarcane farmers in two separate mill-supply areas of KZN. Respondents were asked questions regarding risk-related management strategies, including diversification of on-farm enterprises, investments and management time. Factor analysis identified six management choice brackets, collectively explaining 77% of the variance in all of the 12 risk-related management responses considered. Recommendations that stem from these findings include that policy makers creat...

What is really in the economic partnership agreements for the Southern African region? A perspective from Botswana’s beef export markets

Abstract: The signing of the Economic Partnership Agreements (EPAs) between the European Union (EU) and the African Caribbean Pacific (ACP) nations dominated the multilateral trade agenda in late 2007 and early 2008. While the Caribbean nations signed the full EPAs, some of the African countries only singed interim agreements with the EU and a number of West African countries chose not to sign any EPA. Using the case of Botswana's export markets, especially in agriculture, it is argued that the interim Southern African Development Community (SADC) EPA, which was signed by Botswana and her neighbours, with the exception of South Africa, may have been economically sensible in protecting Botswana's rural poor, at least in the short run. By tracing trade flows from the border to specifically poor sectors of the country, the importance of the beef exports sector to the poor and rural communities was found. The potential effects on the most significant exports of tariff bands associated with preferential agreeme...

Environmental offsets and other market approaches with specific reference to the Olifants River (East) and Berg River

Abstract: Biodiversity offsets for a river create the incentive for cooperation amongst stakeholders with benefits to the environment. Because of the isolation paradox supporting institutions need to be created to facilitate cooperation. Environmental pollution caused by mining activity is a problem in the Olifants River (East) in South Africa. The catchment surface is fractured by mining activities and water is drained into underground aquifers, after which it seeps into streams. Mines have been permitted to release nutrients in the streams during periods of high flow, which is called the “controlled release scheme”. A main problem is the effluent leakage from old disused mines during times when river flow is low and not sufficient dilution of nutrients is possible. DWAF (Department of Water Affairs and Forestry) has accepted ownership of these mines but they may not have the technology (which is expensive) to desalinate the effluent. In an offsetting arrangement, incentives can be provided to existing mi...

On agricultural economics and the economics of agriculture - perspectives from a distance

Abstract: I want to start off by expressing my sincere gratitude and thanks to AEASA for inviting me to deliver the prestigious 2008 FR Tomlinson Memorial Lecture. This honour is accentuated by the lecture being part of my alma mater's centenary celebrations, i.e. the University of Pretoria Centenary Lecture Series. This is also the institution where FR Tomlinson did the bulk of his substantive work while heading the then Department of Agricultural Economics.

Economics education : aspirations and responsibilities of the profession : FR Tomlinson commemorative lecture

Abstract: I would like to address a topic that is very important to all of us and is a critical component of education - and that is the topic of economics education. Anyone who has participated in and benefited from the gifts of freedom and the market economy has a duty to see it perpetuated. Understanding economics as it relates to our rapidly globalising world is critically important if we are to be able to function as responsible consumers, effective workers, competitive producers and informed citizens in a democracy (Lopus, 2007).