The effects of price deregulation on maize marketing margins in South Africa

Abstract

There has been continuous controversy over the impact of food market reforms on food security in Africa. In South Africa, the government and media have often questioned the effects of price deregulation of maize meal, the major staple food, on consumers. This article determines the effect of retail price deregulation on the size of maize milling/retail margins in South Africa. Regression models of monthly milling/retail margins are run from the period May 1976 to December 2004. To assess the robustness of our findings, we estimate several different models of structural change, vary the sample period to examine the sensitivity of findings to unusual weather and market conditions in the region during episodes between 2001 and 2004, and run the models using different estimation techniques, OLS with Newey-West robust estimators and Feasible General Least Squares. In virtually all models, the results indicate that real maize milling/retailing margins in South Africa have increased by at least 20% since the deregulation of retail prices in 1991. Moreover, there is evidence of trend growth in the size of the milling margin over time. Simulations indicate that the deregulation of maize meal prices has entailed a transfer of at least US$179 million/year from consumers to agents in the marketing system. Further study is needed to understand why this outcome in South Africa differs from findings in other countries in the region concerning the effects of reform on food marketing margins.