The agricultural input elasticity of rural-urban migration in South Africa

The pace of rural-urban migration relative to urban job creation is of particular relevance in relation to the level of urban unemployment and poverty in many developing countries. Faced with high levels of urban unemployment and other socio-economic problems governments in developing countries adopted several policies to ameliorate the situation. Since such policies were mainly urban biased in nature it not only failed in most cases but also in some instance exacerbated the situation by stimulating more rural-urban migration. Rural-urban migration occurs where there is economic disparity between rural and urban areas. Some economists therefore, argue that boosting agricultural productivity and/ or income can reduce the incidence of economic problems partially posed by rural-urban migration. In this paper, an attempt is made, using a recursive equation system and a South African data set for the period 1965-2002, to measure the indirect agricultural input elasticity of rural-urban migration. The results indicate that narrowing the urban-rural income differentials can reduce the massive rural-urban migration and high urban unemployment in the country. It is furthermore shown that developing agricultural land and infrastructure and increasing fertilizer use can boost agricultural income, reduce rural-urban migration and is consistent with policies aimed at curbing urban unemployment.Labor and Human Capital,

The comparative advantage of selected long-term crops in Lesotho

This paper evaluates the comparative economic advantage (CEA) of irrigated long-term crops (cherries, peaches, apples and asparagus) in the four agro-ecological zones of Lesotho based on analyses of profitability coefficients and domestic resource costs. The analysis was carried out using the net present value (NPV) approach. The CEA analysis yielded higher private returns relative to economic returns in the lowlands, Foothills, the Senqu River Valley and the Mountains of Lesotho for all the crops examined. In the lowlands zone all products have a RCR of lower than one indicating a comparative advantage. In the Foothills only apples and peaches were investigated, and both show a comparative advantage of equal strength. In the Senqu River Valley the result for apples and peaches are mixed, i.e. apples show a comparative advantage, whilst peaches show a comparative disadvantage. In the Mountain zone only apples have a comparative advantage. Sensitivity analysis was also conducted related to exchange rate changes, land and water prices, and threshold prices.Crop Production/Industries,

The Effect of Monetary Changes on Relative Agricultural Prices

Relative change in agricultural prices determines farmers` investment decisions, productivity and income. Thus, understanding the factors that influence agricultural prices is fundamental for sustainable growth in this sector and the rest of the economy. This paper investigates the short- and long-run impacts of monetary policy changes on relative agricultural prices in South Africa by employing Johansen cointegration analysis and the Vector Error Correction Model (VECM) respectively. The results of Johansen cointegration analysis reject the long-run money neutrality hypothesis which suggests that the rate of increase in prices is not unit proportional to the rate of increase in money supply. On the other hand, the results of the dynamic relationships provide evidence of agricultural prices being overshot. Therefore, when a monetary shock occurs, the agriculture sector will have to bear the burden of adjustment, increasing farmersÂ’ financial vulnerability. Consumers also have to absorb short-run price volatility and overshooting of prices which in turn impacts on their ability to manage their cash flow optimally; this could be a substantial challenge in poor households. Due to the linkages between monetary policy variables and relative agricultural prices, it is recommended that agricultural policy makers and monetary authorities work closely in designing and implementing monetary policy in the country. This is important because monetary policies meant to stabilize the economy may have less desirable impacts on farmers and consumers, especially in the short run.Monetary Policy, Error Correction Models, Agricultural Prices, Industrial Prices, Money Neutrality, Agricultural Finance, Financial Economics,

EVALUATING SUPPORT TO AGRICULTURE IN SOUTH AFRICA: THE CALCULATION OF NET PROTECTION COEFFICIENTS (NPCS)

The Effective Protection Ratio (EPR) is used in this study as a measure of the impact of policy distortions on agricultural producers. The results of the EPR analysis show that in 1995, most of the interventions supporting agricultural production have disappeared, particularly if the production is aimed at the domestic market. This holds for basic grains and oilseeds, as well as other products such as potatoes, cotton and tobacco, across all regions. Beef cattle and sheep production is also not being favoured by support in any of the regions. On the contrary, a number of commodities are effectively being taxed.Agricultural and Food Policy,

The effect of internationalisation on the beef and maize sub-sectors: The relevance of revealed comparative advantage measures

According to the RCA and RCA# the beef sub-sector in South Africa has shown a revealed comparative disadvantage for 17 out of the 22 years to 2002, while the maize sub-sector showed a revealed comparative advantage for 18 out of the same 22 years. However, this article argues that these results do not show the real state of competitiveness that exists in these sub-sectors, mainly because RCA measures should not be used to make definitive conclusions whether an industry, sector or sub-sector is competitive, nor whether it uses scare resources efficiently. RCA measures explain in more accurate ways, relative to a simple analysis of export trends, how a country features in the context of world trade. Hence, one possible application of RCA measures is to deduce the impact of changes in trade policies on an industry, sector or sub-sector. Cognisance should also be taken that the RCA measures fail to distinguish between a region's factor endowments. Finally, it appears as if both the beef and maize sub-sectors have adjusted favourably since the implementation of the Marrakech agreement and subsequent deregulation of the domestic market. Favourably in this context means that both sub-sectors appear to have discounted the changing trade and regulatory environments into their respective supply chains. The question of how competitive these sub-sectors are relative to their international counterparts however remains unanswered, and will require a more in-depth analysis of the complete chains for these sub-sectors.International Relations/Trade,

Measuring Asymmetric Price and Volatility Spillover in the South African Broiler Market

This study investigated asymmetric price and volatility spillover in the broiler value chain. The data used for the study includes farm and retail broiler monthly prices dated from January 2000 to August 2008. The threshold autoregressive (TAR) and momentum threshold autoregressive (M-TAR) models were used to investigate asymmetry in farm-retail market prices, whereas the exponential generalised autoregressive conditional heteroskedasticity (EGARCH) model was used to measure price volatility and the volatility spillover effect between retail and farm prices. Price asymmetry was found between farm and retail prices with retail prices responding more rapidly (with a lag) to negative than positive changes in farm price. The results indicate that within one month, the retail prices adjust so as to eliminate approximate 2.8 % of a unit-negative change in the deviation from the equilibrium relationship caused by changes in producer prices. This implies that the retailers must increase their marketing margin by 2.8% in order to response completely to a unit-negative change in farm prices. The results from the volatility model show that the magnitude of volatility in the retail and farm prices for the periods 2000M1 to 2008M8 is 1.8% and 2.8%, respectively, with significant asymmetric volatility spillover from the farm to retail level of the value chain. This implies that the response to positive shock at any production and marketing stage differs from the response to a negative shock.Livestock Production/Industries,

INDIRECT EFFECTS OF DIFFERENT AGRICULTURAL TRADE SCENARIOS: A SOUTH AFRICAN CASE STUDY

One of the most important policy measures used by government to influence agricultural production and trade patterns are tariffs. A substantial depreciation in the exchange rate will not be enough to compensate for the negative effects of removing tariffs if the playing field is not level for producers in South Africa. Although the import multiplier show that less inputs will be imported, this saving on foreign exchange is not big enough to outweigh the total impact of imports on the balance of trade. The value-added multiplier clearly indicate that reinvestment and consumer spending (buying power) in agriculture will receive a severe blow. Employment will be reduced, thus increasing the supply of labour into other sectors.International Relations/Trade,

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

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.Price volatility, field crops, SAFEX, time series analysis, ARCH/GARCH, Demand and Price Analysis,

International Trade Performance of the South African Fish Industry

In an effort to gain a better understanding of the trade in fish products by South Africa a starting point is examining South Africa's current trade in fish products. Useful tools in this regard, the Gini-coefficient, used to examine the degree of concentration for fish exports, and the intra-industrial trade coefficient (IIT), and used to examine the balance of international fish trade by South Africa. The Gini-coefficient for fish exports shows that fish export by South Africa is highly concentrated. The trend in concentration appears to have remained constant, and therefore the South African fisheries industry may boast a competitive advantage. However, cognisance should be taken of the fact that such a high level of concentration may render the South African fisheries industry vulnerable to exogenous changes. The IIT analysis shows that, after 1985, the fisheries industry underwent substantial changes in that it has increased exportable surpluses, probably as a result of increased specialization and competitiveness. The analysis conducted does not pertinently explain the factors that sustain the levels of concentration, nor does it highlight specific factors that may underpin the competitiveness of the industry, and hence further analysis in this regard is necessary.International Relations/Trade,

Implications of Tariff Rate Quotas Liberalization in the South African Livestock Industry

Livestock farming is an important facet of agriculture and livelihood in South Africa. It forms the essence of rural agriculture contributing food, socio-economic stability, employment and income. After the liberalization of the agricultural sector and phasing out of past protection mechanisms South Africa introduced a process of tariff reform. Furthermore, a system of tariff rate quotas was introduced in compliance with WTO regulations. A partial equilibrium comparative static model was used to investigate the impact of further liberalization in the livestock industry of South Africa, particularly in meat products using four policy scenarios. Specific emphasis was given to the liberalization of the current TRQ regime. The conclusion is that the expansion in current quotas might be a more proper policy directive than reducing applied tariffs over the short to medium run to comply with trade liberalization targets.International Trade, Agricultural Development, Partial Equilibrium Model, Applied Welfare Economics, International Relations/Trade, Livestock Production/Industries,