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,

Britz, Wolfgang

Jooste, Andre

Oyewumi, Olubukola Ayodeju

van Schalkwyk, Herman D.

English

Research Papers in Economics

  1
Implications of Tariff Rate Quotas Liberalization in the South African Livestock 
Industry 
 
 
 
 
By 
 
Oyewumi, O.A.*, Jooste, A. **, van Schalkwyk, H.D*** and Britz, W.**** 
 
 
 
 
 
 
Poster paper accepted for presentation at the 26
th Conference of the International 
Association of Agricultural Economists, Gold Coast, Australia,  
August 12 – 18, 2006. 
 
 
*Assistant researcher, Department of Agricultural Economics, 
University of the Free State Bloemfontein, South Africa. 
E-mail: oyewumioa.sci@mail.uovs.ac.za 
 
**Associate Professor, Department of Agricultural Economics, 
University of the Free State, Bloemfontein, South Africa. 
E-mail: joostea.sci@mail.uovs.ac.za 
 
***Professor and Dean, Faculty of Natural and Agricultural Sciences, 
University of the Free State, Bloemfontein, South Africa. 
E-mail: vschalhd.sci@mail.uovs.ac.za 
 
****Agricultural Economist, Institute for Agricultural Policy,  
Market Research and Economic Sociology, 
University of Bonn, Germany. 
E-mail: wolfgang.britz@ilr.uni-bonn.de 
 
 
 
 
 
 
Copyright by Oyewumi, Jooste, van Schalkwyk and Britz. All rights reserved. Readers 
can make verbatim copies of this document for non-commercial purposes by any means, 
provided that this copyright notice appears on all such copies. 
   2
1.  Introduction 
Agricultural trade has continued to play a major role in the South African economy. 
Between 1994 and 2004, agricultural export contributed an annual average of 4.6% to 
total exports and agricultural imports an annual average of 2.05% to total imports (DTI, 
2005).  In addition, despite the drop in the contribution of the agricultural sector to GDP 
from about 20% in the 1930s to around 4% in early 2000s (DoA, 2005), it remains an 
important sector to the economic growth with the gross value of agricultural production 
reaching R68 596 million in 2002/03 (NDA, 2005). 
 
 Imports as a percentage of domestically produced agricultural commodities and products 
amounted to 4% in 1990 and increased to 7% in 2000 (Jooste, Kruger and Kotze, 2003). 
However, with the increasing potential for agricultural imports lies the challenge of 
monitoring the impact of such on both the producers and consumers of agricultural 
products. For instance, Cassim, Onyango and Van Seventer (2002) observed that the 
South African tariff schedule still remains complex and that a cumbersome tariff 
structure may limit gains from openness, while Lewis, Robinson and Thiefelder (1999) 
observed a slight worsening of South African terms of trade due to increased demand for 
imports.  
 
In addition, trade statistics by the South African Revenue Services (SARS) since 1994 show 
that the increase in import demand for agricultural commodities and products in South 
Africa are unevenly distributed among sub-sectors and product groups. Therefore, the 
challenge of monitoring the impact of import demand viz a viz trade policy would prove   3
more rewarding if conducted on a sub-sector level.  In this study the main focus is on the 
livestock and meat trade in South Africa. 
 
2.  Meat trade with specific reference to TRQs 
After the liberalization of the agricultural sector and phasing out of past protection 
mechanisms, South Africa introduced a process of tariff reform in compliance with WTO 
regulations.  Furthermore, a system of tariff rate quotas was introduced in compliance 
with WTO regulations; this is achieved by imposing a lower in-quota tariff to imports 
within the quota limit imposed, while imports above this level attract a higher tariff (in 
meat trade, the applied tariff represents the over-quota tariff rate).  
 
Table 1 supplies information about the importance of TRQs in the South Africa livestock 
industry in value terms. Two indicators are employed for the measurements. Firstly, the 
potential value of imports on the HS8 tariff lines for which TRQs are applicable and their 
importance relative to total value of imports (column 2). Secondly, the actual values of 
imports are represented in value terms. This is done by multiplying the actual quantity of 
imports under TRQs by the unit price of each product (as in column 4). 
 
The results in Table 1 shows that of all imports of livestock products in South Africa in 
2003 (which is worth about R1.01 billion), TRQs were used to administer 35 per cent 
(worth about R0.36 billion).  It should be noted that this is a substantial amount 
considering the fact that total imports included those from the SACU countries of which 
zero tariff was applicable.   4
Table 1:   Relative importance of TRQ to livestock products and TRQ imports 
by main commodity (2003) 
Product Total 
imports 
Of which: 
imports of HS8 
products for 
which TRQs are 
opened 
As per 
cent of 
total 
imports 
Actual 
value of 
TRQ 
imports 
As per 
cent of 
total 
imports 
Ratio of actual 
to potential 
TRQ imports 
i.e. fill rate 
   1  2  (3) 
=(2)/(1) 
4 (5)  = 
(4)/(1) 
(6) = (4)/(2) 
   Rand 
(‘000) 
Rand (‘000)  %  Rand 
(‘000) 
% % 
Meat of bovine 
animals 
280,000 185,878  66 163,180  58  88 
Meat of swine  113,066  35,511  31  35,511  31  100 
Meat of sheep  64,823  29,350  45  29,350  45  100 
Meat and edible 
offal of poultry 
551,105 104,519  19 104,519  19  100 
Total 1,008,994  355,258  35  332560  33  94 
 
A recent study by Pustovit and Schmitz (2003) observed that assuming complete 
liberalization of agricultural policies in all OECD countries, South Africa would be a net-
exporter of all the major meat products, including beef, pork and poultry. Presently, 
however, South Africa remains a net-importer of most of these products. In this study, the 
impact of a change in tariffs and tariff rate quotas (TRQs) on the livestock industry in South 
Africa are investigated. 
 
3.  Theoretical background 
 
Several studies (Ingco, 1995; Bureau and Tangerman, 2000; Boughner, de Gorter and 
Sheldon, 2000; Herrmann, Kramb and Monnich, 2000; Skully, 2001) have examined the 
approaches to liberalizing TRQs which would result in greater market access. While it is 
obvious that increasing the quota volume or lowering the in-quota tariff can both result 
in improved market access, Bureau and Tangerman, (2000) have argued that each of the   5
two forms of reform are only applicable under different scenarios. They argue that both 
the fill rate and import demand can influence the mode of TRQ reform which would be 
effective. A low fill rate combined with limited import demand (even at lower tariff) 
would not respond to either larger quota volumes or a lower in-quota tariff. However, 
substantial TRQ liberalization exists with the expansion of import quotas when existing 
TRQs are filled, but a reduction in in-quota tariffs in such cases will only create rents. 
 
4.  Methodology and data used 
Empirical literature shows several approaches that have been used to study the 
implication of trade liberalization on the agricultural sector. The overarching approach 
followed in this study is in line with the work of Takayama and Judge (1971) and 
McCarl and Spreen (1980). This approach allows for sectoral analyses of allocation of 
resources among spatially separated market. The model is spatial partial equilibrium in 
nature and consists of the primary (beef cattle, broilers, pigs, and sheep) and secondary 
(poultry, beef, pork and sheep meat) livestock and meat sub-sectors. Furthermore the 
model delineates South Africa into its nine provinces, as well as neighbouring important 
meat producers – Namibia and Botswana. The model explicitly incorporates the 
processing level (that is the slaughtering process) within a regionalized framework.   
Also, the demand system was calibrated to the necessary micro-economic conditions. 
 
4.1  Tariff rate quota handling 
Following Junker, Wieck, Jansson & Perez (2003), the functioning of tariffs and tariff 
rate quotas was represented by the sigmoid function as follows:   6
Equ (1)   
⎥
⎥
⎦
⎤
⎢
⎢
⎣
⎡
⎟ ⎟
⎠
⎞
⎜ ⎜
⎝
⎛
− − + = ) 01 . 1 * ( ) ( i i trq
i
pref
i
MFN
i
pref
i
eff
i TRQ QIMP
QIMP
sigmoid TARR TARR TARR TARR
α
 
where: 
eff
i TARR    = Effective tariff (ad-valorem or specific) 
pref
i TARR    = Preferential tariff 
MFN
i TARR    = Most favourite nation tariff 
i QIMP    = Gross import quantity 
i TRQ      = Tariff rate import quota  
α      = Positive parameter 
 
When used for the representation of a two-tiered tariff line such as TRQs, the sigmoid 
function ensures that the preferential tariff is the effective tariff on the in-quota quantity 
while the MFN tariff is effective on over-quota imports. The three general cases can be 
summarized thus: 
•  Quota unfilled: effective tariff at preferential level 
•  Over-quota imports: effective tariff at MFN level 
•  Quota exactly filled: effective tariff between the two 
The expression that represents the implementation of the effective tariff in the model 
under a TRQ regime is given as: 
Equ (2)   
[]
) ( *
) * ) (( exp 1
)) * ) ( , 0 exp(min(
, ,
, ,
, ,
, ,
pref
r i
MFN
r i
r i r i
r i r i pref
r i
eff
r i TARR TARR
TRQ QIMP abs
TRQ QIMP
TARR TARR −
− − +
−
+ =
α
α
   7
With this expression, effective tariff levels have now become a variable rather than a 
parameter. The applied or effective tariff (either specific or ad valorem) generated using 
equation (2) may be different from the observed tariff rate by a value representing the 
error of approximation incurred by using the sigmoid function. 
 
With the ad valorem and specific tariff values endogenously generated in the model, the 
import (or border) price can also be generated endogenously using the following 
equation: 
Equ (3) 
eff
r i
eff
r i r i r i TariffS TariffA Domprice pp , , , , )) * 01 . 0 . 1 ( * ) (( Im + + =  
where:  r i pp , Im   = Import price 
r i Domprice ,   = Average domestic price 
eff
r i TariffS ,   = Effective specific tariff 
eff
r i TariffA ,   = Effective ad valorem tariff 
The traditional measurement of welfare uses the consumer and producer welfare. 
Following Britz (2003), this modeling framework uses the equivalent variation to 
integrate a well-behaved demand system for welfare analysis. 
 
Using available data on the current South Africa tariff regime and the minimum market 
access quota commitments in livestock meat products, four liberalization scenarios were 
conducted for all commodities in the model. The different scenarios examined include: 
•  A 33 per cent expansion of quota. 
•  A 33 per cent decrease in MFN ad-valorem tariffs.   8
•  A scenario combining the two reforms described above. 
•  Full liberalization scenario with all tariffs set to zero. 
 
The objective of the scenarios was to examine how regional domestic prices would 
respond to policy changes under alternative trade policy reforms. The policy instruments 
affect border prices, which in turn results in changes in demand, supply and domestic 
prices. In addition, welfare changes were also measured for the different scenarios. 
 
5.  Results 
The results pertaining to the different scenarios are reported in Appendix A
1 and 
summarized as follows: 
•  For the four secondary products (beef, pork, mutton and poultry) the border prices 
declined by between 0.89 and 2.39 per cent for scenario one, 2.35 and 7.96 per 
cent for scenario two, 2.96 and 9.97 per cent for scenario three and 8.25 and 25.19 
per cent for scenario four.  
•  Demand for poultry responded most to changes in border prices, followed by 
beef, sheep meat and lastly pork. The number of animals slaughtered declined 
most for pigs, followed by cattle and sheep as a result of TRQ liberalization. 
•  As expected consumer welfare (as measured by the equivalent variation) 
increased with more liberal trade policies, i.e. R60.6 million for scenario 1 to 
R468.2 million for scenario 4. The Western Cape Province experienced the 
largest gains while the Limpopo Province experienced the lowest gains.  
                                                 
1 Due to space limitations, tables showing the impact of the different scenarios on domestic prices, demand, 
supply and producer prices per product per province can not be shown. However, the main findings are 
discussed.   9
•  In the case of scenario 1 the change in consumer welfare represents a change in 
real gross national income of 0.04 per cent or 0.06% change in real disposable 
income.  For scenario 2 the change in welfare represents a change of 0.10% in the 
real gross national income or 0.16% in real disposable income.  For scenarios 3 
and 4, respectively, comparable figures are 0.13% and 0.20%, and 0.33 and 0.5%.   
•  The largest decline in beef and sheep meat prices due to liberalization will be 
recorded in the Eastern Cape and KwaZulu-Natal Provinces. This is noteworthy 
since in these two provinces, the cattle and sheep numbers owned by emerging 
producers are more than those of the established commercial farmers. The 
implication of the results are that the development efforts by government aimed at 
commercializing emerging commercial stock farming in order to address equity 
and poverty may be slowed down considerably with further trade liberalization; 
especially since substitution with other agricultural enterprises are limited. 
  The results obtained for scenarios 1 and 2 have quite important policy 
implications, especially over the short to medium run, and if one takes into 
account the level of support afforded to, for example OECD countries.  On the 
one hand, consumers could benefit from cheaper meat, but one also has to take 
cognizance of the potential impact on producers of livestock (as stated this sub-
sector are vitally important).  A potential recommendation based on the relative 
difference between the impacts of these two scenarios is that TRQ liberalization 
in the South African livestock industry should first be implemented by expanding 
the existing quota rather than reducing tariffs. The reason for this is that quota   10
expansion brings about moderate changes in domestic prices of livestock and 
meat products as compared to tariff reductions. 
 
6.  Conclusion 
Considering the continued protection in developed countries and its negative impact 
on South Africa’s livestock meat trade (Pustovit and Schmitz, 2003), it is expected 
that further liberalization should be properly analyzed in order to allow for well 
informed policy making. Equally important is the economic importance of this sector 
in South Africa’s rural areas, and the impact of further trade liberalization in South 
Africa’s livestock industry on rural livelihoods (Hoekman, Michalopoulos, Schiff and 
Tarr, 2001).  This sector contributes more than 40% to the gross value of agricultural 
production and approximately 80% of the total agricultural land (of which 68% is 
currently used for livestock production) of South Africa is suitable for animal 
husbandary.  The importance of this sector to alleviate poverty and contribute to food 
security is also recognized by government.  On an institutional level it is vitally 
important that policy makers in different government departments give proper 
consideration to the potential impact of further trade liberalization since it could 
significantly affect individual departmental imperatives.  For example, 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, but at the 
same time have a minimal impact on poverty and upliftment programmes.  
 
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Appendix A 
Table A1: Impact of TRQ liberalization on border price of livestock meat products 
Scenario 1  Scenario 2  Scenario 3  Scenario 4 
Commodity 
Base 
border 
price 
(R/kg) 
Border 
price 
(R/kg) 
% 
change
Border 
price 
(R/kg) 
% 
change 
Border 
price 
(R/kg) 
% 
change 
Border 
price 
(R/kg) 
% 
change
Beef  11.71  11.43  -2.39  10.97 -6.33 10.78 -7.94  9.33 -13.47 
Mutton  16.48  15.98  -3.00  15.17 -7.96 14.83 -9.97 12.33  -25.19 
Pork  10.38  10.29  -0.89  10.14 -2.35 10.08 -2.96  9.53  -8.25 
Poultry  12.35  12.14  -1.69  11.80 -4.47 11.66 -5.62 10.54  -14.63 
Average  12.73  12.46  -1.99  12.02 -5.28 11.84 -6.62 10.43  -15.39 
 
Table A2: Equivalent variation as a result of the four trade liberalization scenarios  
Scenario 1  Scenario 2  Scenario 3  Scenario 4  Region 
   Total monetary change (Million rand) 
Western Cape  9.4 25.0 35.5  73.2 
Northern Cape  8.5 22.5 28.2  65.4 
Free State  7.1 18.8 23.6  54.9 
Eastern Cape  5.1 13.4 16.8  39.0 
Kwazulu-Natal  5.5 14.5 18.2  42.3 
Mpumalanga  8.4 22.3 28.0  65.2 
Limpopo  2.5 6.6  8.3  19.4 
Gauteng  8.8 23.3 29.3  68.0 
North West  5.3 14.0 17.6  40.8 
South Africa  60.6 160.4 205.5  468.2 
 

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Available at: http://www.dplg.gov.za/html/progs/ISRDP.htm

Impact of Agricultural Protection in OECDCountries on South African Agriculture. A contributed paper presented at the 25

Liberalizing Tariff-Rate Quotas. Agricultural Policy Reform in the WTO- The Road Ahead (AER-802), Economic Research Service,

Spatial and temporal price and allocation models.

Standards and trade in South Africa: Paving pathways for increased market access and competitiveness,

The Economics of Two-Tier Tariff Rate Quotas in Agriculture.

The state of trade policy

Trade Policy Reform and Poverty Alleviation. International Trade Team, the World Bank.

Trade Statistics. Department of Trade and Industry.

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

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

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