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,

Jooste, Andre

van Zyl, Johan

English

Research Papers in Economics

Agrekon, Vol 37, No 4 (December 1998)    Jooste & Van Zyl 
 
 
  582
EVALUATING SUPPORT TO AGRICULTURE IN SOUTH 
AFRICA:  THE CALCULATION OF NET PROTECTION 
COEFFICIENTS (NPCS) 
 
A. Jooste1 and J. van Zyl2 
 
 
 
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.  
 
1. INTRODUCTION 
 
There has been a long history of state intervention in South African 
agriculture, which reached a zenith around 1980 with a host of laws, 
ordinances, statutes and regulations. These affected, and in many cases still 
affect, all aspects of agriculture, including prices of, access to and use of 
natural resources, finance, capital, labour, local markets, foreign markets and 
foreign exchange, etc. However, history has shown that neither racial 
discrimination nor price distortions in South African agriculture could be 
sustained, and the pressures on agriculture for reversal of these polices began 
to mount during the 1980s. The sector faced increasing deregulation and 
market liberalisation from the mid-1980s (Vink, 1993). Within a general 
climate of macroeconomic and political change, a number of shifts in 
agricultural policy took place during the 1980s and 1990s (see Brand et al., 
1992 and Vink, 1993, among others).  
 
These changing policies had a major effect on the domestic support 
agriculture received. Helm & Van Zyl (1994) calculated the total domestic 
support received by South African agriculture during the period 1988/89 to 
1993/94, using the Producer Subsidy Equivalent (PSE) measure. Table 1 
shows their findings. 
 
                                                      
1  Agricultural Division, Standard Bank. 
2   Department of Agricultural Economics, Extension and Rural Development, University 
of Pretoria. Agrekon, Vol 37, No 4 (December 1998)    Jooste & Van Zyl 
 
 
  583
The net total support of agriculture received was relatively small (see Table 1), 
particularly when compared to that of some trading partners within the 
developed world (Helm and Van Zyl, 1994).  However, the liberalisation of 
agriculture was neither complete by 1993, nor have the effects of earlier 
changes had time to permeate throughout the agricultural economy.  Also, 
while the aggregate figures provided by Helm and van Zyl (1994) are useful, 
it is also important to take note of what the situation is with respect to 
individual commodities in different parts of the country.  
 
Table 1:  Total domestic support to South African agriculture (% PSE) 
 
Year 1988/89  1989/90  1990/91 1991/92  1992/93 1993/94 
%  PSE 11,70  11,56 13,69 16,74  31,04 14,50 
 
Source:   Helm & Van Zyl (1994). 
 
In this paper, the support to agriculture is examined on a regional basis for 
individual crops.   
 
2.  METODOLOGY USED, ENTERPRISE BUDGETS AND PRICING 
ISSUES 
 
The Effective Protection Ratio (EPR) is used in this study as measure of the 
impact of policy distortions on agricultural producers.  A comprehensive 
discussion on this (and other measures) can be found in Monke and Pearson 
(1989) and Masters (1995). For purposes of the EPR calculations, South Africa 
was divided into six agro-ecological regions or zones while 1995 was used as 
base year for all calculations. 
 
Farm prices for inputs and outputs, as well as transport costs, differ in 
different regions in South Africa.  It was therefore necessary to calculate the 
market profitability of each region.  The main source of data to calculate 
market profitability is the COMBUD publication (COMBUD, 1994; 1997), 
which is published each year by the National Department of Agriculture and 
which contains data on production costs, fixed costs as well as yields and 
prices of produce.  
 
Due to market failure and government intervention, market prices often do 
not necessarily reflect the scarcity value of goods and services.  It is therefore 
necessary to calculate the economic price (shadow price) of goods and 
services. Bradfield (1993) gives an extensive explanation of the different Agrekon, Vol 37, No 4 (December 1998)    Jooste & Van Zyl 
 
 
  584
theoretical methods that can be used to calculate different shadow prices. He 
concluded that the world price method is the most practical for the calculation 
of the shadow price of goods and services.  Mullins (1992) states that this 
approach takes into account world prices of goods and services, especially 
with regard to those goods that are freely traded on international markets. 
There is, however, one issue which the world price method cannot address, 
namely the calculation of shadow prices for non-traded products and services.  
 
In this study, cases where the world price approach could not be used, 
s h a d o w  p r i c e s  w e r e  d e t e r m i n e d  b y  the opportunity cost approach.  The 
opportunity cost approach uses the production that is given up elsewhere, by 
withdrawing these inputs from alternative uses, as the shadow prices of 
inputs.  On the other hand, for the shadow prices of outputs, the additional 
incremental benefit achieved by undertaking the project, relative to the 
situation, had it not been undertaken, is used (see Gittinger, 1994). 
 
Shadow prices of fuel, electricity and water was determined from earlier 
studies. Jooste & Van Zyl (1997) provide a detailed analysis of the procedures 
followed. 
 
The effective protection ratio (EPR), which is a measure of policy distortions at 
the economic exchange rate, is presented. An EPC of higher than one (1.0) 
indicates that the private profit is hig h e r  t h a n  w h a t  i t  s h o u l d  h a v e  b e e n  
without any commodity policies in place. However, if EPC<1.0, then that 
commodity is effectively taxed. 
 
3.1  Field and horticultural crops 
 
The  net policy effect (NPE) and effective protection ratio (EPR) for the different 
crops in each agro-economical zone are shown in Table 2 for large-scale, 
commercial farming.  
 
The table yields very interesting results.  Only maize yields EPRs of higher than 
one, and then only when regarded as an export crop. All other crop yield EPRs 
of less than one.  This implies that, in general, all of the field crops, which were 
analysed and being produced for domestic production, are effectively being 
taxed. This holds for both dryland and irrigated production. 
 
However, several of these commodities have EPRs of close to one, for example 
potatoes (dryland and irrigation), cotton (dryland and irrigation) and tobacco. 
On the other hand, the EPRs for maize, wheat, sunflower, sorghum and 
soybeans are significantly less than one, indicating that present policies effective Agrekon, Vol 37, No 4 (December 1998)    Jooste & Van Zyl 
 
 
  585
tax these commodities. Except for irrigated wheat in Zone 4, this holds for all 
these commodities. 
 
Table 2:  Effective protection ratios (EPR) for different crops in different 
zones, 1995 
 
Item  Zone 1  Zone 2  Zone 3  Zone 4  Zone 5  Zone 6 
Maize – dryland* 
Maize – irrigation* 
Maize – dryland** 
Maize – irrigation** 
Wheat – dryland 
Wheat – irrigation 
Potatoes – dryland 
Potatoes – irrigation 
Sunflower – dryland 
Sunflower – irrigation 
Sorghum – dryland 
Sorghum – irrigation 
Soybeans – dryland 
Soybeans  - irrigation 
Cotton – dryland 
Cotton – irrigation 
Tobacco – irrigation 
 
 
 
 
0.64 
 
 
0.99 
 
 
  1.52 
2.38 
0.56 
0.54 
0.80 
0.70 
0.97 
0.98 
0.33 
0.34 
 
 
 
 
0.97 
 
 
4.78 
 
0.46 
 
0.69 
 
 
 
 
 
 
 
 
 
0.95 
 
1.61 
2.02 
0.49 
0.54 
0.83 
0.96 
 
 
 
 
0.41 
0.34 
0.50 
0.68 
0.93 
0.99 
 
1.49 
3.41 
0.59 
0.55 
0.70 
0.67 
0.91 
 
0.40 
 
 
0.42 
0.19 
0.21 
 
 
0.97 
 
Notes:  *   Maize is regarded as an export crop (export parity price) 
  **  Maize regarded as an import substitution crop (import parity price) 
 
3.2 Livestock 
 
The effective protection ratios for beef cattle and sheep are shown in Table 3. 
Similar to field crops, beef cattle and sheep production is effectively being 
taxed, yielding EPRs of less than one.  However, the EPRs are all still 
relatively close to one, indicating that the taxation level is relatively low. 
 
Table 3:  Effective protection ratios (EPRs) for beef cattle and sheep, 1995 
 
Item  Zone 1  Zone 2  Zone 3  Zone 4  Zone 5  Zone 6 
Beef: 
Commercial 
Small scale 
Sheep: 
Extensive 
Intensive 
 
0.95 
- 
 
0.99 
- 
 
- 
- 
 
0.96 
- 
 
0.95 
0.95 
 
0.93 
0.97 
 
0.89 
0.95 
 
0.96 
- 
 
0.95 
0.95 
 
0.97 
- 
 
0.89 
- 
 
0.99 
- 
 Agrekon, Vol 37, No 4 (December 1998)    Jooste & Van Zyl 
 
 
  586
4. CONCLUSIONS 
 
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 domestic market. This holds for basic grains and oilseeds, 
as well as other products such as potatoes, cotton and tobacco. Beef cattle and 
sheep production is also not being favoured by support. On the contrary, a 
number of commodities are effectively being taxed.  
 
Three main factors contributed to the market distortions observed in this paper, 
namely: distortions in product and input prices, mainly due to the statutory 
powers of the different Marketing Boards and protection afforded to input 
suppliers; the exchange rate; and tariffs. Clearly, the implementation of the new 
Marketing Act (Act 47 of 1996) is a step in the right direction if the aim is to 
minimise market distortions.  Under this Act all the statutory Marketing Boards 
were to be abolished during 1997.  
 
However, for the playing field to stay level, structural adjustment of the 
agricultural economy will have to take place. Particularly protection afforded to 
input suppliers, mostly in the form of tariff protection in the domestic market, 
will also have to be addressed. Signs of these structural adjustments are already 
visible since the deregulation process started in some industries. For example, 
Jooste (1996) has shown that since abolishment of the compulsory auction 
markets and controlled marketing of red meat slaughter, distribution patterns of 
beef started to change.  The structural adjustment process should, however, not 
be isolated at farming level, but must expand throughout the agricultural 
economy, i.e. structural adjustment must also take place on the input and output 
sides.  The high level of concentration on the output side in different industries, 
such as the red meat and grains industries, is an impediment within an open 
economy. 
 
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BRADFIELD, R.E. (1993). Skaduprys berekeningsmetodes vir omvattende koste-
voordeelanalise. PhD thesis, Potchefstroom: PU vir CHO. 
 
BRAND, S.S., CRISTODOULOU, N., VAN ROOYEN, C.J. & VINK, N. (1992). 
Agriculture and redistribution:  Growth and equity.  In R. Schrire (ed).  Wealth 
or Poverty? Critical choices for South Africa.  Oxford Univ. Press, Cape Town. 
 
COMBUD, (1994; 1997). Enterprise Budgets. Directorate of Agricultural 
Economics, National Department of Agriculture, Pretoria. Agrekon, Vol 37, No 4 (December 1998)    Jooste & Van Zyl 
 
 
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GITTINGER, J.P. (1994).  Economic analysis of agricultural projects. Baltimore: 
John Hopkins Univ. Press. 
 
HELM, W. & VAN ZYL, J. (1994).  Does South African agriculture receive too 
much support? – A comparison.  Agrekon, 34(2):43-49. 
 
JOOSTE, A. & VAN ZYL, J. (1997). Regional agricultural trade and changing 
comparative advantage in Southern Africa : South Africa. Unpublished research 
report, University of Pretoria. 
 
JOOSTE, A. (1996). Regional beef trade in Southern Africa.  MSc (Agric) thesis, 
University of Pretoria. 
 
MASTERS, W.A. (1995).  Guidelines on National Comparative Advantage on 
Agricultural Trade.  APAP III Methods and Guidelines.  No 4001.  A paper for 
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3052-00. 
 
MONKE, E.A. & PEARSON, S.R. (1989).  The policy analysis matrix for 
agricultural development.  Ithaca: Cornell Univ. Press. 
 
MULLINS, D. (1992). Manual for the economic evaluation of water projects.  
Department of Water Affairs and Forestry, Pretoria. 
 
VINK, N. (1993). Entrepreneurs and the political economy of reform in South 
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The policy analysis matrix for agricultural development.

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

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

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