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
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:nwu/oai:dspace.nwu.ac.za:10394/15638 |
| Date | January 2015 |
| Creators | Van der Merwe, Johannes Daniël |
| Source Sets | South African National ETD Portal |
| Language | English |
| Detected Language | English |
| Type | Thesis |
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