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The comparative advantage of commercial wheat production in the Western Cape

Van Rooyen, Ray (Ray Glen) (2000-12)

Thesis (MAgricAdmin)--Stellenbosch University, 2000.

Thesis

ENGLISH ABSTRACT: Agriculture is heavily subsidised and protected in most of the major industrial countries. Some of the effects are obvious through the heavy costs imposed on national budgets. Other effects, such as those on consumers or on overall economic efficiency, are less obvious but are nonetheless extremely important. In South Africa there has never been an attempt to calculate total government intervention in agriculture. However, this changed at the time of the negotiations for the Uruguay Round of multilateral trade negotiations under the auspices of the GATT, and the greater importance of the consumer in the designing of agricultural policies. The aim of this study is to determine whether the production of wheat in the Western Cape is economically optimal under the current policy environment. The study investigates if there was a comparative advantage in the production of wheat as of April 1999. The technique used to calculate the various indicators of comparative advantage is the Policy Analysis Matrix. This technique is used to identify the effects of policy measures on the social profitability of wheat production. The analysis used data from eight areas, and seventeen varying enterprise budgets were constructed in order to compile a representative picture of the industry's condition. The results of the analysis indicate that Western Cape wheat producers do not have a strong comparative advantage in the production of wheat for the selected areas. The reasoning behind this is complex, but is primarily a result of high levels of input use. Input prices are inflated by policy distortions in input markets, partly because of tariffs on imported inputs. The net effect of the total policy environment also had a negative effect on producers, in the sense that sub-normal profits were achieved. The future of the Western Cape and South African wheat farmer is uncertain. What is certain is that, if the wheat farmer in South Africa does not take immediate and swift action, directed at improving efficiency in current management and production techniques, and implementing some form of crop diversification, farm debt will ultimately be the demise of the farmer. As interest rates rapidly increase, and producer prices remain constant or decrease, the farmer begins to farm more for the bank than for private remuneration.

AFRIKAANSE OPSOMMING: In die meeste groot industriele lande word landbou grootliks gesubsidieer en beskerm. Sommige van die effekte word weerspieël in hoë kostes in die nasionale begroting. Ander effekte soos die op verbruikers is minder vanselfsprekend, maar steeds baie belangrik. Voorheen is daar geen poging aangewend om die totale owerheidsinmenging in landbou in Suid-Afrika te bereken nie. Dit het egter verander met die onderhandelinge rondom die Uruguay Ronde van die AOTH, en die groter belangrikheid van die verbruiker in die ontwerp van landboubeleid. Die doel van hierdie studie is om te bepaal of dit ekonomies optimaal is om koring in die Wes-Kaap te produseer onder die huidige beleidsomgewing. Met ander woorde, die studie poog om te bepaal wat die vergelykende voordeel, indien enige, is by koringproduksie. Die tegniek wat gebruik is om die verskillende indikatore van vergelykende voordeel te bereken, is die Beleidsanalise Matriks of PAM. Die tegniek word gebruik om die effek van die beleid met betrekking tot koringproduksie te identifiseer. Agt produksiestreke in die Wes-Kaap is ontleed vir die doeleindes van hierdie analise. Sewentien verskillende bedryfsvertakkingsbegrotings is hiervan afgelei om sodoende 'n goeie verteenwoordigende beeld van die bedryfstoestande te kry. Die resultate van die analise toon aan dat koringproduksie in die Weskaap nie 'n sterk vergelykende voordeel het nie. Die rede hiervoor is kompleks, maar die hoë vlak van inset gebruik kan beskou word as hoofrede. Hoër insetpryse, na aanleiding van die beleidsversteuringe in insetmarkte, is deels die gevolg van invoerbeskerming in die vorm van tariewe op ingevoerde insette. Die netto effek van die totale beleidsomgewing het ook 'n negatiewe effek op die produsente gehad, veral in die sin dat subnormale winste behaal is. Die toekoms van koringboere in die Wes-Kaap en Suid-Afrika is onseker. Wat wel seker is, is dat as koringboere in Suid-Afrika nie daadwerklike en vinnige hul bestuurs- en produksieeffektiwiteit verbeter me, sal skuld toeneem en sal dit koeringboerdery se einde beteken. Soos rentekoerse vinniger toeneem en die produsenteprys konstant bly of afneem, sal boere meer aan skuld afbetaal as wat hulle uit koringboerdery kan verdien.

Please refer to this item in SUNScholar by using the following persistent URL: http://hdl.handle.net/10019.1/51948
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