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THE POTENTIAL IMPACT OF TRADE ON THE ECONOMY OF LESOTHOBahta, Yonas Tesfamariam 25 January 2008 (has links)
The potential impact of trade on the economy of Lesotho was assessed using the Lesotho
Social Accounting Matrix (SAM) 2000 as a data base to construct a Computable General
Equilibrium (CGE) model, to design trade policy scenarios, and to simulate the impact of
trade policy scenarios on the Lesotho economy
Since the Lesotho SAM was unbalanced, it was necessary to balance the initial matrix,
using the cross-entropy optimization procedure with the aid of GAMS software.
Four simulation sets were carried out. Results from two sets (duty-free access (DFA) and
a +10% increase in world prices) indicate significantly increased textile exports and
decreased prices for imported commodities. DFA will also be associated with increased
textile imports, while a +10% increase in world prices will lead to increased crop imports.
Demand and supply prices of textile commodities produced and sold domestically will
decrease, as will composite goods prices in the textile sector. Average output price of
textiles will decrease with DFA and with a 10% increase in world prices; the aggregated
marketed commodity quantity for textiles will increase. Output prices of fruit and vegetable processing and intermediate aggregate inputs for the
textile sector decrease with DFA. An increase of 10% in world prices will lead to
increased water service prices. The textile sector will experience increased value added
prices in both scenarios. Gross domestic product (GDP) for the textile sector will increase
significantly.
Lesotho will gain in welfare, measured in terms of equivalent variation (EV). Effects on
labour categories depend on changes in productive activities. In the textile sector, labour
demand, labour income, and capital income will increase significantly. Lesothoâs net
commodity exports and gross government expenditure will also increase.
Erosion of existing preferential access (EEP) and common external tariffs for non-SACU
member states (CET) will reduce the quantity of textile products exported; with EEP, the
price of imported textiles will increase and the quantity decrease. CET will have similar
effects on the skins and hides sector. Demand and supply prices of textile commodities
produced and sold domestically (with EEP) and pharmaceutical products (with CET) will
increase. Prices of composite textile goods will increase slightly. Average output price for
textiles at EEP and pharmaceutical products at CET will increase, and the aggregated
marketed commodity quantity for the textile sector will decrease in both scenarios.
With EEP, prices of output and intermediate aggregate outputs of textiles and micro
industry outputs will increase. CET effects will be smaller. The textile sector at EEP and
accommodation-catering services at CET will experience decreased prices of value
added. Gross domestic product (GDP) of the textile sector will decrease. Welfare or
equivalent variation (EV) will decline. Employment in the textile sector will decline with
a concomitantly small decrease in labour and capital income.
The EEP regime will lead to decreased total government consumption expenditure, while
CET will cause a slight increase; this translates into decreased net commodity imports.
Effects vary among economic sectors. Performance in U.S. markets indicates that Lesothoâs textile exporters have been
competitive under MFA/ AGOA arrangements. This competitiveness can, however, be
jeopardized by lower costs in some Asian countries. The policy makers should develop
permanent comparative advantage to avoid the risk of losses when temporary tariff
preferences are discontinued.
Lesothoâs export trade is highly concentrated, both in terms of products (textiles) and
markets. Diversification of products and markets is prerequisite for avoiding failure and
for sustainable development of the country; considerable manufacturing potential for
export diversification exists in furniture, bricks, sandstone and ceramics, wool and
mohair products, pharmaceutical products, and the recently revitalised diamond industry.
Export trade development and market penetration to non-US destinations should receive
attention.
In this process, the government should strengthen the capacity of the private sector to
deal effectively with rapid change and growing competition by means of, for example,
knowledge dissemination, technological transfers, and negotiations for improved market
access for textile and other potential export products.
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FACTORS AFFECTING PARTICIPATION IN MAINSTREAM CATTLE MARKETS BY SMALL-SCALE CATTLE FARMERS IN SOUTH AFRICAMontshwe, Bolokang Derrick 02 February 2007 (has links)
Even though livestock farming has been identified in the Integrated Sustainable
Rural Development Strategy as the agricultural sub-sector with the most likely
chance of improving household food security and addressing poverty alleviation
in the small-scale farming areas of South Africa, the reality is that the small-scale
cattle sector has not achieved its full potential despite many efforts through
research and development programmes. Previous studies have mainly identified
factors impeding participation of small-scale farmers in both informal and
mainstream markets and the extent or degree at which participation is affected.
The purpose of this study was to investigate the probability of small-scale cattle
farmers participating in mainstream markets and measure the impact of change
of selected variable on the probability to participate. This is a departure from
previous research in that the study attempts to identify those factors that have the greatest probability to increase participation in mainstream markets by smallscale
farmers.
The study was conducted in three different areas, namely Hammanskraal,
Ganyesa and Sterkspruit. The sampling technique used in Hammanskraal is the
stratified random sampling technique. In Ganyesa all the identified farmers were
interviewed. Since the number of small-scale farmers was unknown in the
Sterkspruit area the snowball sampling technique was used. The total sample
size is 150 small-scale cattle farmers.
A logit model is used in this study. Since multicollinearity in the data was
identified principle component (PC) analysis was used to deal with this problem.
After PCâs were calculated and PCs with the smallest eigenvalues were
eliminated, principle component regressions (PCR) were fitted using the
standardized variables to improve the estimation power of the logistic regression
model.
Partial effects of the significant continuous variables (i.e. herd size, desired
market distance, household size, lobola, dependents, theft, household assistance and mortality) on the probability to use mainstream markets are relatively small.
However, partial effects for the significant discrete variables (i.e. market
information, remittances, training and farming systems) are more significant. The
increase in the probability to participate in mainstream markets if the initial
conditions are addressed range between 0.3 and 0.6.
Simulations with regard to a base group of households revealed training and
access to information will have the largest positive impact on the probability of
small-scale cattle farmers to market their cattle through mainstream cattle
markets if initial conditions improve. Although desired distance to markets, herd size and household size have the potential to increase off-take to mainstream
markets, its potential impact is less that training and access to information.
The impact of remittances and lobola on the small-scale cattle sub-sector, risk
behaviour and the informal market are areas that need further research.
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STOCHASTIC EFFICIENCY OPTIMISATION ANALYSIS OF ALTERNATIVE AGRICULTURAL WATER USE STRATEGIES IN VAALHARTS OVER THE LONG- AND SHORT-RUNGrové, Bennie 19 March 2009 (has links)
The main objective of this research was to develop models and procedures that would allow
water managers to evaluate the impact of alternative water conservation and demand
management principles in irrigated agriculture over the long-run and the short-run while taking
risk into account.
One specific objective was to develop a generalised whole-farm stochastic dynamic linear
programming (DLP) model to evaluate the impact of price incentives to conserve water when
irrigators have the option to adopt more efficient irrigation technology or cultivate high-value
crops over the long-run. The DLP model could be characterised as a disequilibrium known life
type of model where terminal values were calculated with a normative approach. MOTAD
(Minimising Of Total Absolute Deviations) was used to model risk. Another specific objective
was to develop an expected utility optimisation model to economically evaluate deficit irrigation
within a multi-crop setting while taking into account the increasing production risk of deficit
irrigation in the short-run.
The dynamic problem of optimising water use between multiple crops within a whole-farm
setting when intraseasonal water supply may be limited was approximated by the inclusion of
multiple irrigation schedules into the short-run model. The SAPWAT model (South African Plant
WATer) was further developed to quantify crop yield variability of deficit irrigation while taking
the non-uniformity of irrigation applications into account. Stochastic budgeting procedures were
used to generate appropriately correlated inter- and intra-temporal matrixes of gross margins
necessary to incorporate risk into the long-run and short-run water use optimisation models. A
new procedure (standard risk aversion) was developed to standardise values of absolute risk
aversion with the objective of establishing a plausible range of risk aversion levels for use with
stochastic efficiency analysis techniques. A procedure was developed to conduct stochastic
efficiency with respect to a negative exponential utility function using standard risk aversion. The
standardised risk aversion measure produced consistent answers when the risk premium was
expressed as a percentage of the range of the data.
Long-run results showed that the elasticity of irrigation water demand was low. Overall risk
aversion and the individual farming situation will have an important impact on the effectiveness
of water tariff increases when it comes to water conservation. Although the more efficient
irrigation technology scenario had a higher net present value when compared to flood irrigation,
the ability to pay for water with the first mentioned scenario was lower because the lumpy
irrigation technology needs to be financed. Failure to take risk into account would cause an
over- or underestimation of the shadow value of water, depending on whether water was valued
as relatively abundant or scarce. The conclusion was that care should be taken when interpreting the derived demand for irrigation water (elasticity) without knowing the conditions
under which they were derived. Cognisance should also be taken of the fact that higher gross
margins per unit of applied water would not necessarily result in greater willingness to pay for
water when the alternatives were evaluated on a whole-farm level.
The main conclusion from the short-run analyses was that although deficit irrigation was
stochastically more efficient than full irrigation under limited water supply conditions, irrigation
farmers would not willingly choose to conserve water through deficit irrigation and would be
expected to be compensated to do so. Deficit irrigation would not save water if the water that
was saved through deficit irrigation were used to plant larger areas to increase the overall
profitability of the strategy. Standard risk aversion was used to explain the simultaneous
increasing and decreasing relationship between the utility-weighted premiums and increasing
levels of absolute risk aversion and was shown to be more consistent than when constant
absolute risk aversion was assumed.
The modelling framework and the models that were developed in this research provide powerful
tools to evaluate water allocation problems that are identified while busy implementing the
National Water Act. Only through the application of these type of models linked to hydrological
models will a better understanding of the mutual interaction amongst water legislation, water
policy administration, technology, hydrology, human value systems and the environment be
gained to enhance water policy formulation and implementation.
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MODELING TARIFF RATE QUOTAS IN THE SOUTH AFRICAN LIVESTOCK INDUSTRYOyewumi, Olubukola Ayodeji 12 May 2006 (has links)
The Uruguay Round of trade negotiations resulted in three main areas of trade
liberalization in agriculture, namely market access, domestic support, and export
subsidies. In terms of market access, the introduction of tariff rate quotas (TRQs) was
one of the main tools to facilitate greater market access. 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 TRQs was introduced in compliance with WTO regulations.
Literature on South African agricultural trade shows that very little research has been
conducted on the impacts of TRQs. In this study the impacts of further TRQ
liberalization on the South African livestock industry were investigated using four TRQ
liberalization scenarios, namely: 33 per cent expansion of import quotas, 33 per cent
reduction in ad valorem MFN tariffs, a combination of the first two scenarios and a
complete removal of tariffs.
The approach followed in this study is spatial partial equilibrium in nature and consists
of the primary (beef cattle, broilers, pigs, and sheep) and secondary (beef, poultry, pork and sheep meat) sub-sectors. The model delineates South Africa into its nine provinces,
as well as neighbouring important meat producers â Namibia and Botswana.
For the four secondary products (beef, poultry, pork and sheep meat) 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. The largest decline in beef and sheep meat prices due to liberalization was
recorded in the Eastern Cape and KwaZulu-Natal Provinces. Cattle and sheep numbers
owned by emerging producers are more than those of the established commercial farmers
in these two provinces. The implication is 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.
The study used the consumer and producers surplus concepts, as well as the equivalent
variation concept to measure the impact on welfare of potential trade policy changes
mentioned. Welfare as measured by consumer surplus increases by R230.8 million in
scenario 1 to R1 880.8 million in scenario 4. Producer surplus decreases by R77.6
million in scenario 1 to R656.89 million in scenario 4. Welfare as measured by
equivalent variation increased by R60.6 million in scenario 1 to R468.2 million in
scenario 4. The equivalent variation concept revealed much more moderate changes to
consumer well being. The reason for this is that consumer and producer surplus
estimations assume linearity of the demand and supply curves, whereas the model used in
this study accounts for the non-linearity of demand and supply curves. Consumer and
producers surplus estimates nevertheless provide useful insight into the relative impact of
trade policy changes.
Should further TRQ liberalization be considered in the South African livestock industry,
consideration should first be given to expanding the existing quota rather than reducing
tariffs.
Further research on the following aspects is recommended, (i) products differentiated by
place of origin based on the Armington assumption, (ii) expansion of current modelling
framework to include additional products and (iii) explicit modelling of TRQs such as the
creation of rents and its distribution.
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THE EFFECT OF THE SOUTH AFRICAN TRADE POLICY REGIME ON THE BEEF AND MAIZE SUB-SECTORS.Bahta, Sirak Teclemariam 17 June 2005 (has links)
Trade policies form the main economic âbufferâ between one national economy and
another, i.e. the general and specific elements of each nationâs trade policy interact directly
or indirectly with those of other nations in all economic transactions across international
borders. A nationâs trade policy involves specific actions to encourage and promote or
discourage foreign trade through the legal, financial and institutional environment within
which foreign transactions occur.
This study evaluates the trade policy applicable to the beef and maize sub-sectors in South
Africa. Issues that are investigated include whether trade policy provides more or less
protection than needed, whether it creates more openness for trade and the revealed
comparative advantage of beef and maize.
According to the RCA and RCA# the beef sub-sector in South Africa shows a revealed
comparative disadvantage for 17 out of the 22 years since 1980. The maize sub-sector, on
the other hand, shows a revealed comparative advantage for 18 out of the 22 years since
1980. It appears as if both the beef and maize sub-sectors have adjusted favourably since
the implementation of the Marrakesh 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. It is however important to take note that the results do not show the real state of
competitiveness that exists in these sub-sectors. The reason for this is that the RCA
measures should not be used to make definite conclusions whether an industry, sector or
sub-sector in a country is competitive nor whether it uses scare resources in an efficient
manner. The RCA measures explain in more accurate ways, relative to a simple analysis
of export trends, how a country features in the context of word trade. Hence, one possible
application of RCA measures is to deduct 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 regionâs factor endowments.
The study also shows that the ERP calculation is lower than the NRP for beef and higher
for maize. This means that the protection for inputs is higher than that of the output in the
case of the beef sub-sector and vice versa in case of the maize sub-sector. The results from
the ERP calculations show that the beef sub-sector is taxed, whilst the maize sub-sector are
subsidized.
Furthermore, this study recommends the market niche should be exploited more. However
it is necessary to give attention to: (i) Small scale farmers (ii) Increased efficiency and (iii)
Considering issues such as food safety.
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INVESTIGATION OF KEY ASPECTS FOR THE SUCCESSFUL MARKETING OF COWPEAS IN SENEGAL.Faye, Mbene Dieye 17 June 2005 (has links)
Due to the lack of information on the factors that affect the marketing of
cowpeas in Senegal, this study investigates key aspects for the successful
marketing of cowpeas in Senegal. The contribution this study makes lies in the
information it generates to empower role-players in the cowpea value chain to
better understand (i) the demand relations of cowpeas in Senegal, (ii) the
information needs of role-players and the extent to which markets are
integrated, and (iii) for which characteristics of cowpea consumers are willing to
pay premiums.
An Almost Ideal Demand System (AIDS) model is applied to one period cross
sectional data to estimate demand relations of cowpeaâs in Senegal. The own
price elasticity of cowpea is -1.23 while its expenditure elasticity is 0.97 showing
that cowpea is a normal necessity.
A sample of 443 respondents was taken to determine the information needs of
different role-players in the cowpea supply chain. Availability of price
information on local and export markets are deemed vitally important by all role players. Information pertaining to quantities supplied and demanded, and
buyersâ preferences are not regarded by all role-players as equally important.
The most appropriate mode to dissemination cowpea related information should
depend on the accessibility of a particular mode by role-players.
Bivariate correlation coefficients, co-integration tests, Granger Causality tests
and Ravallionâs model are used to investigate level of market integration. The
results show that cowpea markets as a whole are not integrated. This is not a
surprising result since it can be linked to the general lack of market information.
The influence of cowpea characteristics on cowpea prices is analyzed with a
hedonic pricing model. The results show that large grain size and sugar
contents are characteristics for which consumers are willing to pay premiums in
all markets.
The implication of the results of this study has several dimensions, i.e. (i) role-players
in the cowpea supply chain now has information to guide pricing
strategies, (ii) changes in expenditures on cowpeas can be properly discounted
in marketing strategies, (iii) interventions can be designed to address the needs
of information users and to address the non-integrated nature of cowpeas
markets, and (iv) research programs and role-players should focus their
research and marketing activities on those characteristics for which consumers
are willing to pay premiums.
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CHAIN MANAGEMENT AND MARKETING PERFORMANCE OF THE BANANA INDUSTRY IN ERITREA.Zereyesus, Yacob Abrehe 17 June 2005 (has links)
The current marketing of agricultural products in general, and of bananas in
particular, poses special problems for Eritrean farmers. Poor climatic conditions
coupled with crude and inefficient agricultural technologies render agricultural
output sub-optimal. The major production problems include shortage of capital
and scarcity of land; shortage of farming materials; spoilage of bananas during
harvesting due to inappropriate harvesting techniques and facilities and lack of
technical know how. In addition, the main marketing problems comprise transport
problems to stores; general storage problems; lack of information and spoilage
during transport.
Taking the above into account it should be noted that current trends towards the
increased globalization of markets, trade liberalization, advances in information
technology, consumer preferences and improved logistics means that the
competitiveness of fruit industries in various regions and countries, as affected by
the performance of their supply chains, is becoming increasingly important and
will be even more important in the future.
Cognisance should also be taken of the fact that much confusion exists regarding
the exact meaning of the term competitiveness. Comparative advantage and
competitiveness are related, but are often mistakenly exchanged for one another.
Comparative advantage explains how trade benefits nations through more
efficient use of their resource base when trade is totally unrestricted. Competitive
advantage defines trade patterns as they exist in the real world, including all the
barriers to free trade ignored by comparative advantage (Worley, 1996). Vitally important is to take cognizance of the fact that the establishment of a competitive
supply chain is a prerequisite for an industryâs competitiveness and success.
Based on this analysis, this study proposes what should be done to achieve a
workable SCM for the banana industry in Eritrea. In its broader sense, the
proposed structure of the SCM involves the introduction of horizontal strategic
alliances between existing banana producers and the marketing group and a
vertical relationship along the supply chain.
Given that bananas comprise a considerable portion of the international trade
makes it significant to this study. Bananas are also symbolic of the wide range of
injustices present in international trade today. The Lomé Convention, which
placed certain Latin American banana exporting countries at a disadvantage, was
the root cause of trade disputes, and the eventual replacement of this Convention
will have an impact on the future banana export prospects of ACP countries.
Eritrean producers, like those of other ACP countries, therefore have little time to
adjust and become competitive against âdollarâ bananas on the European market,
which at this point enjoy a production cost and quality advantage.
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TRADE AND WELFARE IMPLICATIONS OF GENETICALLY MODIFIED MAIZE ON SOUTH AFRICAvan Wyk, Marcel 24 June 2008 (has links)
During the last century, human life and the quality of living have been impacted
significantly through continuous developments in science and technology. Man has
evolved himself from a hunter and gatherer to the modern man whose lives are enriched
with products that relate to information and communication technology, biotechnology
and info-space technology. The domestication of biotechnology may dominate our lives
during the next fifty years at least as much as the domestication of computers has
dominated our lives during the previous fifty years.
The advent of genetically modified organisms (GMOs) has brought rapid change to world
agricultural production and trade. Evidence shows that Genetically Modified (GM) crops
can have a yield advantage over conventional crops. Currently 46% of the total area
utilised in maize production in South Africa is planted with GM maize.
South Africaâs main trading partners in maize have differing GMO regimes, and many of
them may well change their current stances and regulations as the international conventions and agreements on GMOs further evolve. Over and above this regulatory
framework, consumer attitudes to GM foods are also changing.
The objective of the study is to calculate and quantify the potential impacts of GM maize
on the South African maize trade, by applying the GTAP model. This will provide
scientific input to South African policy makers on GM maize related regulations in the
domestic market, as well as on their stances in the international conventions. The GTAP
model is generally accepted by trade researchers as the most suitable tool to analyse the
impact of trade policy decisions on trade flows and national welfare on a global level due
to its regional and sectoral coverage as well as its theoretical compliance.
The results suggest that the South African policy to allow the domestic production of
approved GM maize events was to the benefit of the country. Policy measures that will
restrict the countryâs access to new GM maize events will gradually disadvantage both
the domestic producers and consumers of maize. The consumers will suffer a decrease in
total welfare whilst the producers will be disadvantaged in terms of imported
competition. For this reason, commodity clearance before general release should be the
exception rather than the rule.
In terms of future studies on this issue to further refine the results of this study specific
effort should be afforded to improve the changes made to disaggregate the maize sector
from other grain sectors, nationally and internationally, in the GTAP model. In addition,
it is recommended that trade flows between countries as included in the GTAP model
should be scrutinised in detail to check for the correctness of actual flows. This would
entail a proper evaluation of the base data of the GTAP model specific to countries
playing a relatively smaller role in the international trade of agricultural products.
Neglecting to do the aforementioned could result in incorrect policy recommendations.
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MODELING TARIFF RATE QUOTAS IN THE SOUTH AFRICAN LIVESTOCK INDUSTRYOyewumi, Olubukola Ayodeji 31 August 2006 (has links)
The Uruguay Round of trade negotiations resulted in three main areas of trade
liberalization in agriculture, namely market access, domestic support, and export
subsidies. In terms of market access, the introduction of tariff rate quotas (TRQs) was
one of the main tools to facilitate greater market access. 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 TRQs was introduced in compliance with WTO regulations.
Literature on South African agricultural trade shows that very little research has been
conducted on the impacts of TRQs. In this study the impacts of further TRQ
liberalization on the South African livestock industry were investigated using four TRQ
liberalization scenarios, namely: 33 per cent expansion of import quotas, 33 per cent
reduction in ad valorem MFN tariffs, a combination of the first two scenarios and a
complete removal of tariffs.
The approach followed in this study is spatial partial equilibrium in nature and consists
of the primary (beef cattle, broilers, pigs, and sheep) and secondary (beef, poultry, pork and sheep meat) sub-sectors. The model delineates South Africa into its nine provinces,
as well as neighbouring important meat producers â Namibia and Botswana.
For the four secondary products (beef, poultry, pork and sheep meat) 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. The largest decline in beef and sheep meat prices due to liberalization was
recorded in the Eastern Cape and KwaZulu-Natal Provinces. Cattle and sheep numbers
owned by emerging producers are more than those of the established commercial farmers
in these two provinces. The implication is 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.
The study used the consumer and producers surplus concepts, as well as the equivalent
variation concept to measure the impact on welfare of potential trade policy changes
mentioned. Welfare as measured by consumer surplus increases by R230.8 million in
scenario 1 to R1 880.8 million in scenario 4. Producer surplus decreases by R77.6
million in scenario 1 to R656.89 million in scenario 4. Welfare as measured by
equivalent variation increased by R60.6 million in scenario 1 to R468.2 million in
scenario 4. The equivalent variation concept revealed much more moderate changes to
consumer well being. The reason for this is that consumer and producer surplus
estimations assume linearity of the demand and supply curves, whereas the model used in
this study accounts for the non-linearity of demand and supply curves. Consumer and
producers surplus estimates nevertheless provide useful insight into the relative impact of
trade policy changes.
Should further TRQ liberalization be considered in the South African livestock industry,
consideration should first be given to expanding the existing quota rather than reducing
tariffs. Further research on the following aspects is recommended, (i) products differentiated by
place of origin based on the Armington assumption, (ii) expansion of current modelling
framework to include additional products and (iii) explicit modelling of TRQs such as the
creation of rents and its distribution.
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MEASURING MARKET INTEGRATION FOR APPLES ON THE SOUTH AFRICAN FRESH PRODUCE MARKET: A THRESHOLD ERROR CORRECTION MODELUchezuba, David Ifeanyi 31 August 2006 (has links)
Apples constitute the bulk of deciduous fruit produced in South Africa, i.e. in 2000, apples
made up the largest percentage of the deciduous fruit crop (43%). From 1991/92 to 2002/03
production averaged 574 850 tons per annum with a standard deviation of 43 922 tons. The
average distribution of the apple crop between the local market, exports and processing is
more or less even. Because of its potential lucrative nature much emphasis in the apple
industry is afforded to exports, but relatively little is known about how price transmission
takes place on the domestic fresh produce markets (FPMs). Moreover, it is increasingly
recognized that the formulation of market-enhancing policies to increase the performance of
the local market requires a better understanding of how the market functions. Aggregate
market performance is better understood by studying the level of market integration that
exists, which in turn is affected by transaction costs in the value chain.
Hence, the primary objective of this study was to measure market integration for apples on the
South African FPMs to determine the existence of long-run price relationships and spatial
market linkages. Specific issues addressed in this study include, (i) determination of the effect
of deregulation of the marketing of agricultural products in 1997 on average real market
prices, price spread and volatility (risk), (ii) determination of how FPMs where apples are
sold are linked and how prices are transmitted across these markets, (iii) determination of the
threshold prices beyond which markets adjust and return to equilibrium, and (iv) establish the
response of the FPMs to price shocks and how long it takes for shocks to be eliminated. The FPMs included in this study are Johannesburg, Cape Town, Tswhane, Bloemfontein, Port
Elizabeth, Durban, Kimberley and Pietermaritzburg. The criteria for selecting the FPMs were
based on net market positions (surplus or deficit area), geographical distribution, the volume
of trade and the importance of the market to the national apple trade flow.
The investigation revealed a statistically significant decline in real prices in six of the eight
markets investigated, a statistically significant relation in prices (price spread) between the
Johannesburg FPM and five other FPMs, as well as that the price spreads between these
markets declined after deregulation, and that the variation in real apple prices declined for five
of the eight markets after deregulation. Standard autoregressive (AR) and threshold
autoregressive (TAR) error correction models were compared to determine whether
transaction cost has significant effects in measuring market integration. Larger adjustment
coefficients were found in the TAR model. This is an indication that price adjustments are
faster in threshold autoregressive TAR models than in AR models. Also half-life deviations in
the TAR model are much smaller than in the AR model. The TAR model requires less time
for one-half of the deviation from equilibrium to be eliminated than the standard AR model.
Therefore, it is better to use TAR models than AR models because TAR models give a more
reliable result.
In addition, the parameter estimates of the threshold vector error correction model were
analyzed. The results show that bidirectional and unidirectional causality exist between
Johannesburg FPM prices and other markets. Regime switching estimates to investigate
market integration in the selected markets show that no persistent deviation from equilibrium
existed for all but one market pair and no clear evidence was found to support improved
market integration after market deregulation in 1997.
A nonlinear impulse response function to investigate the impact of positive and negative price
shocks in the Johannesburg FPM on other FPMs revealed that it takes about six to twelve
months for positive and negative shocks to be completely eliminated in all the markets.
Generally, the results obtained confirmed strong market integration in terms of apples for
selected FPMs.
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