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

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.Research and Development/Tech Change/Emerging Technologies,

Privatising agricultural R&D, an example from the South African sugar industry

Given demands on public funding, the question arises whether agricultural research should be the responsibility of the public or private sectors, or whether the state should play a facilitating role. These issues are studied using the management and success of R&D in the South African Sugar Industry as an example. The usual answer is that research should be publicly funded if it is a public good and privately funded if a private good. It is shown that even if aspects of research have clear public good characteristics, then it is still possible to internalise externalities. Sugar cane farmers pay a levy of about 1.0% of the value of the crop to finance their R&D package, which includes research, training and extension. The sugar growers decide on the amount of the levy themselves. A possible reason why sugar farmers agree to this levy is that a bottom-up multidisciplinary research programme is followed in which they have a direct say. Scientists from different disciplines work together on a single crop. The South African government should consider the Dutch example where the role of government has shifted from administrator of institutions to stimulator (sponsor) of research. Government should thus still play a critical role in R&D funding in South Africa and there is concern that State funding has declined. Private incentives for research may be weaker in the case of generic research with broad applications across commodities. However, in the latter case it will be expected that different commodity organisations will embark on joint projects as has happened in the past.Research and Development/Tech Change/Emerging Technologies,

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

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 schemeâ€. 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 mines to desalinate water from these defunct mines by allowing them to discharge a given amount in the Olifants when the water flow is sufficiently high. The above arrangement will cost the taxpayer nothing while discharge during low flow periods is reduced. A discussion was held with stakeholders of the Olifants River Forum during 2006 and support was received for some of these policy options. It is shown how offsets can mitigate negative effects of dam construction. It is further proposed that tradable pollution permits be adopted which are subject to a rule that discharges in the river are only allowed when flow is sufficiently high and that trades may only occur within certain parameters.environmental offsets, pollution permits, Olifants River (East),

The demand for livestock products in South Africa for 2000, 2010 and 2020: Part I

The demand for livestock products is projected for the next 25 years. Data on expectations regarding the following factors were included (a) population growth, (b) urbanisation, (c) income per capita growth and (d) income elasticities. Data for each population group were included. The model shows significant increases in demand for livestock products especially under assumed high growth scenarios.Demand and Price Analysis, Livestock Production/Industries,

Water market institutions: lessons from Colorado

Important water issues in South Africa relate to equity, efficiency of use, quality (return flow pollution) and instream uses such as the environment. Farmers in South Africa pay water rates whether or not water is used and water is not volumetric priced. Water markets can attach an opportunity cost price and scarcity value to water. Opportunity cost pricing by the state has received no support in the international economic literature largely because of estimation problems. Water markets have started to emerge in the Lower Orange River and in the Fish and Sunday's rivers in the Eastern Cape in South Africa but there are two reasons why agricultural water markets do not release water in South Africa. The first reason is that the only water trades that have taken place in these rivers are between non-users of water and intensive users. It may take time before all sleeper rights (water not used) are activated which is also the case in Australia. Secondly, irrigation farmers in South Africa along the Orange and Sunday’s rivers are permitted to irrigate a larger area if they adopt water saving technology such as drip irrigation. Although this water saving technologies will reduce water application per ha, the consumptive use of water per ha may not decrease and will increase if a larger area can be irrigated. Agricultural water markets are thus increasing the use of water and not promoting its conservation. It is thus recommended that transfers should be based on consumptive use if return flow is significant.Resource /Energy Economics and Policy,

The demand for protein feed in South Africa for 2000, 2010 and 2020: Part II

Protein feed consumption is projected for future years, derived from the projected consumption of animal products. Results show significant increases in the demand for protein feed largely due to expected use as poultry feed. South African protein feed imports amount to about R1 billion and results indicate that the concern of the Protein Advisory Trust about the cost of future imports is justified.Demand and Price Analysis, Livestock Production/Industries,

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 $900 million in premiums while during 1995- 98 the US government spent$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.Farm Management, Risk and Uncertainty,

AN ECONOMIC ANALYSIS OF RESTRUCTURING THE SOUTH AFRICAN HAKE QUOTA MARKET

Hake is the most valuable fisheries species in South Africa, with an estimated landed value of R658 million in 1997. The fishery is presently managed under an individual quota system, where total allowable catch (TAC) is set annually and divided up amongst quota holders according to past performance, without quota holders having to pay for it. Fundamental restructuring of the South African hake quota market is however due to take place in the near future as recommended by the White Paper on Marine Fisheries Policy (1997). Factor analysis of data collected from a postal survey of existing South African hake quota holders and rejected hake quota applicants suggests that distinct differences in attitudes towards restructuring exist amongst respondents. Four factors, representing groups of respondents defined as (1) applicants, (2) quota holders, (3) small scale respondents (comprising of both applicants and quota holders), and (4) larger, longer established quota holders, sharing similar attitudes towards restructuring were extracted. It was also calculated that a substantial annual rent of approximately R279 million is generated by the South African hake industry, which is presently harvested free of charge by those issued with quota. It is stated policy of the White Paper to capture these rents, however methods of accomplishing this have not been well accepted by the industry. This study aims at providing some solutions to these problems of restructuring.Agricultural and Food Policy, Crop Production/Industries,

An analysis of factors contributing to the use of an income equalisation deposit scheme by commercial farmers in South Africa

Recent research suggests that an Income Equalisation Deposit (IED) scheme could be a feasible new risk management tool for commercial farmers in South Africa. This prompted a study of practicing consultantsÂ’ (tax experts) views on determining what types of farmers would be likely to use the scheme. During 2000, a postal survey of 24 consultants was conducted mainly in KwaZulu-Natal, and in the Maize Triangle and surrounding areas. Each consultant was to review nine scenarios (eight plus a control, giving 192 observations) and decide whether they would recommend an IED scheme for each scenario. A statistical experimental design was used to structure the scenarios, allowing for main and interaction effects between variables that could influence the potential use of an IED scheme. Discriminant analysis revealed that, ceteris paribus, farmers with higher annual net farm incomes (>R300,000), lower debt/asset ratios (<15%), more variable net farm incomes, and less off-farm income would most likely use an IED scheme. In terms of ranking, ceteris paribus, high risk maize farmers, intermediate risk maize farmers and high risk livestock farmers are more likely to use an IED scheme than are low risk maize farmers, low and intermediate risk livestock farmers and diversified farmers. These results support the use of an IED scheme as a risk management tool as higher risk farmers are more likely to make use of the scheme.Agricultural Finance,

CHOICES OF SOIL CONSERVATION METHODS ON KWAZULU-NATAL COMMERCIAL SUGARCANE FARMS

A Principal components analysis and multiple regression techniques are used to analyse heterogeneity in 53 KwaZulu-Natal sugarcane farmers soil conservation decisions. Minimum tillage and construction of water carrying terraces are the most common methods used, whereas trash mulching is least commonly practised. Results indicate that farmers' demands for soil conservation, their demands for other attributes of soil conservation practices and interactions between practices are important to explaining their choices. Intra-farm variation in use of soil conservation methods is small relative to inter-farm variation. Education programmes, provision of information, and improving farmers' technical soil conservation skills have implications for aggregate soil conservation adoption, whereas the types of information provided, fire insurance programmes and soil conservation subsidies have implications for the combinations of practices adopted.Crop Production/Industries, Resource /Energy Economics and Policy,