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.
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:ufs/oai:etd.uovs.ac.za:etd-08312006-082026 |
| Date | 31 August 2006 |
| Creators | Uchezuba, David Ifeanyi |
| Contributors | Dr Z.G. Alemu, Prof A Jooste |
| Publisher | University of the Free State |
| Source Sets | South African National ETD Portal |
| Language | en-uk |
| Detected Language | English |
| Type | text |
| Format | application/pdf |
| Source | http://etd.uovs.ac.za//theses/available/etd-08312006-082026/restricted/ |
| Rights | unrestricted, I hereby certify that, if appropriate, I have obtained and attached hereto a written permission statement from the owner(s) of each third party copyrighted matter to be included in my thesis, dissertation, or project report, allowing distribution as specified below. I certify that the version I submitted is the same as that approved by my advisory committee. I hereby grant to University Free State or its agents the non-exclusive license to archive and make accessible, under the conditions specified below, my thesis, dissertation, or project report in whole or in part in all forms of media, now or hereafter known. I retain all other ownership rights to the copyright of the thesis, dissertation or project report. I also retain the right to use in future works (such as articles or books) all or part of this thesis, dissertation, or project report. |
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