Thesis (M.B.A.)--Boston University

Statistics paint a picture of a wheat industry under severe pressure, with the number of hectares dedicated to wheat production that have decreased while imports notably increased since 1997. This has had a negative impact on the industry‘s global competitiveness. The direct and indirect linkages between wheat and wheat products, together with the benefits that the industry can bring to the economy in the form of heightened food security and employment opportunities, highlight the need for a competitive wheat industry in South Africa. Clearly, the underlying causes of the declining wheat production in South Africa need to be investigated and understood. The presence of strict wheat quality standards and the fact that one of the general characteristics of wheat is the defect of conversion (that is, yield declines as quality improves) help to explain why wheat production in South Africa has declined in recent years. This can also negatively affect prices received for produce because South African wheat prices are determined by the lowest import parity price and not by the specific quality of the wheat. The fact that market concentration has been observed in certain parts of the wheat industry in South Africa has raised concerns that this phenomenon could potentially have had a negative impact on the performance of the country‘s wheat production sector. Consequently, this study revolves around the following main questions: ―could the evident market concentration in the South African wheat industry influence the performance of the wheat production sector by prescribing certain quality standards which attract relatively low prices?‖, and if so, ―can the wheat quality standards and prices be held responsible for the decline in the industry‘s performance, and to what extent?‖ Both qualitative and quantitative approaches were used in pursuit to answer these questions. The qualitative approach was used to describe the theoretical basis of performance, competitiveness and concentration. Three different quantitative approaches were employed to determine the current state of competitiveness (Relative Trade Advantage (RTA) method), the factors influencing it (hedonic price model) and the extent of such influence (dynamic linear model). From the RTA, it was clear that South Africa is the only country, compared to its trading partners, that has an uncompetitive unprocessed (production) wheat sector alongside a competitive semi-processed (flour) wheat sector. The hedonic price model supported the finding that the institutional environment of the wheat industry uses quality-related mechanisms such as the cultivar release criteria to influence the competitiveness of the wheat production sector. Four comparisons were developed to determine whether the strict qualities required for the release of new cultivars are justified. It was found that with all four of these comparisons, the strict prescribed wheat quality was not justified in terms of the quality and demand considerations. It was found that when prescribed wheat quality could be relaxed to accommodate market supply and demand, an estimated 12.8 percent increase in yields could have been realised equating to a loss of approximately R606 million in Net Farm Income (NFI) per annum. When increasing this percentage to 20 percent, it was seen that the effect on NFI per annum would be R920 million. This study therefore provides evidence as to why the performance of the wheat industry has been declining over the last two decades and also contributes to the development of a framework for policy and decision makers which will encourage more competition and a freer market in terms of quality standards. Further contributions of this study lies in the body of literature on competitive behaviour by showing how concentrated industries can use statutory bodies to manipulate markets for rent-seeking purposes. It further shows how these decisions impact on important aspects like the profits of role players in an industry. / PhD (Agriculture, Economics), North-West University, Potchefstroom Campus, 2015

Statistics paint a picture of a wheat industry under severe pressure, with the number of hectares dedicated to wheat production that have decreased while imports notably increased since 1997. This has had a negative impact on the industry‘s global competitiveness. The direct and indirect linkages between wheat and wheat products, together with the benefits that the industry can bring to the economy in the form of heightened food security and employment opportunities, highlight the need for a competitive wheat industry in South Africa. Clearly, the underlying causes of the declining wheat production in South Africa need to be investigated and understood. The presence of strict wheat quality standards and the fact that one of the general characteristics of wheat is the defect of conversion (that is, yield declines as quality improves) help to explain why wheat production in South Africa has declined in recent years. This can also negatively affect prices received for produce because South African wheat prices are determined by the lowest import parity price and not by the specific quality of the wheat. The fact that market concentration has been observed in certain parts of the wheat industry in South Africa has raised concerns that this phenomenon could potentially have had a negative impact on the performance of the country‘s wheat production sector. Consequently, this study revolves around the following main questions: ―could the evident market concentration in the South African wheat industry influence the performance of the wheat production sector by prescribing certain quality standards which attract relatively low prices?‖, and if so, ―can the wheat quality standards and prices be held responsible for the decline in the industry‘s performance, and to what extent?‖ Both qualitative and quantitative approaches were used in pursuit to answer these questions. The qualitative approach was used to describe the theoretical basis of performance, competitiveness and concentration. Three different quantitative approaches were employed to determine the current state of competitiveness (Relative Trade Advantage (RTA) method), the factors influencing it (hedonic price model) and the extent of such influence (dynamic linear model). From the RTA, it was clear that South Africa is the only country, compared to its trading partners, that has an uncompetitive unprocessed (production) wheat sector alongside a competitive semi-processed (flour) wheat sector. The hedonic price model supported the finding that the institutional environment of the wheat industry uses quality-related mechanisms such as the cultivar release criteria to influence the competitiveness of the wheat production sector. Four comparisons were developed to determine whether the strict qualities required for the release of new cultivars are justified. It was found that with all four of these comparisons, the strict prescribed wheat quality was not justified in terms of the quality and demand considerations. It was found that when prescribed wheat quality could be relaxed to accommodate market supply and demand, an estimated 12.8 percent increase in yields could have been realised equating to a loss of approximately R606 million in Net Farm Income (NFI) per annum. When increasing this percentage to 20 percent, it was seen that the effect on NFI per annum would be R920 million. This study therefore provides evidence as to why the performance of the wheat industry has been declining over the last two decades and also contributes to the development of a framework for policy and decision makers which will encourage more competition and a freer market in terms of quality standards. Further contributions of this study lies in the body of literature on competitive behaviour by showing how concentrated industries can use statutory bodies to manipulate markets for rent-seeking purposes. It further shows how these decisions impact on important aspects like the profits of role players in an industry. / PhD (Agriculture, Economics), North-West University, Potchefstroom Campus, 2015

Suppliers of wheat must ensure that their products have the required quality profile demanded by customers and consistently deliver that quality in order to be competitive. Australia’s wheat industry is highly exposed to such competitive threats because it relies heavily on exports. An integral component in maintaining Australia’s competitiveness has been its classification system. The first step involves the complex process of determining a genotypic quality profile of each variety – a variety classification. At harvest, subsequent steps are the use of a statutory declaration and testing of physical quality traits. Together these steps determine how deliveries of wheat are segregated. A single variety can have different classifications across the 7 classification regions of Australia. Most classification regions are divided along state borders and these are not reflective of potential environmental influences. / The manner in which Australia wheat breeding programs now tackle their task has changed since 1999. The commercially focused companies of the current era have national targets to remain viable, and are focused on costs. Other evolutions associated with the change, are the introduction of different sources of parental material, and moving to more economic composite quality testing regimes instead of the individual site by site testing used in the past. Together, these factors, particularly variety adaptability and stability of performance, have the capacity to increase variability. The likelihood of variation is further increased given that the current classification regions upon which classification decisions are made do not adequately reflect environmental effects on the expression of quality. To determine whether better divisions of the Australian wheat-belt could be identified for variety classification purposes, a substantial spatial and temporal database of historical quality results was assembled. The creation of this relational database was unique, because never before had expansive sets of independent, state-based, quality sub-sets been joined together. However, the data were unbalanced and required alternative statistical tools to be analysed. The relational database was the platform from which three phases of research were conducted. / The first research phase investigated the extent of cross over, or re-ranking of results, statistically referred to as genotype x environment interaction. The approach was to assess balanced data sets, in a manner reminiscent of the most common method identified from the literature. The results of those analyses showed that the size of genotype and environment interaction was small compared with the main effects of genotype and environment. The second phase of research focused on identifying alternative boundaries for classification purposes. Test divisions were compared with the current set of 7 classification regions for the capacity to minimise environmental variance while maintaining differences between the zones of a set. Test divisions were based on fourteen published divisions of the Australian wheat-belt. Analyses were conducting using residual maximum likelihood because of the unbalanced structure of the data. Estimates of variance components, quality trait means and standard errors were calculated. Consideration of such estimates resulted in the identification of 4 different divisions of the wheat-belt that had low environmental variance levels for important quality traits such as maximum resistance, dough development time, and water absorption. / In addition, these 4 divisions of the wheat-belt had fewer number of zones compared with the existing set of classification regions because they linked separate parts of the wheat-belt together. In order of decreasing merit, the 4 divisions of the wheat-belt represented average October maximum temperatures; agro-ecological zones reported by Williams et al. (2002); average annual rainfall; and Departments of Agriculture recommendation zones. A final phase of crosschecking was performed to assess the veracity of the 4 identified divisions. A cluster analysis supported the orientation of their boundaries and it was also observed that the use of fixed boundaries for classification purposes would not be negatively affected by seasonal variation. The 4 divisions of the wheat-belt identified in this research support the use of environmentally focused classification boundaries. In addition to improving the capacity to segregate consistent quality, the linking of geographically separate production areas of the wheat-belt reduced the number of zones and this offers process efficiencies.