Modelling the relative comparative advantage of organic wheat production in the Western Cape

Mahlanza, Bongiswa (2001-12)

Thesis (MScAgric.)--Stellenbosch University, 2001.

Thesis

ENGLISH ABSTRACT: After sixty years of state control, the agricultural sector in South Africa has been transformed to the so-called free dispensation, with the driving forces being market access and rules of the WTO. On the one hand, this increased the exposure of the sector, particularly at international level where interest for South African produce developed. On the other hand, transformation induced a considerable degree of price squeeze and risk in the production of certain commodities including wheat. Notwithstanding, local wheat producers like any other farmers are generally price takers, and in some cases do not have a comparative advantage in what they produce. This is worsened by policy distortions in product markets, although to a lesser extent than before. These distortions are responsible for farmers to make decisions that are neither economically efficient nor optimal in a social sense. Therefore, the uncertain future of the wheat industry, particularly in the Western Cape, including the changing business environment, urges producers to adapt quickly if they wish to stay in business. Hence, the challenge for a farmer and agricultural support organisations is to find solutions to these problems. One of the factors that can be looked into in finding solutions is to look at the demand side of the equation by taking product differentiation and market identification into account. In other words, products that carries a specific character, and a niche market where these products attain higher prices are the main objectives of this exercise. In looking at these options, it is necessary to first study the end consumer of these products. Looking at the local market first, there is a relatively small but growing market for high priced niche products, but for the most part, local consumers are looking for low cost commoditytype products. In many cases, South Africa is marginally competitive in these products and so must look at alternative markets. On the export market, on the other hand, consumers are generally more sophisticated and specific in the kind of food they demand, where they are looking for quality and tracebility, and are willing to pay a premium which can be exploited. Therefore, the aim of this study is to determine whether wheat would have a comparative advantage if produced under organic management, as a system that have products with these attributes. The study first evaluates the comparative advantage of the existing industry, the so-called conventional wheat, specifically looking at the policy environment around this commodity, as these are likely to affect the potential of organic wheat. The Policy Analysis Matrix technique is used to calculate various indicators of comparative advantage and to identify the effects of policy measures with regard to wheat. The analysis used the available data for ten selected farming areas. On the other hand, organic wheat farming is not practised in the Western Cape at present. As a result, expert assessment was used to provide information based on the reference method. As the study is the comparison of two systems, the results therefore indicates that some areas of the Western Cape do not have a comparative advantage in wheat production under conventional practices, which would not be the case if produced under organic management. The reasoning underlying this is complex, but mainly traced from high levels of input use that carries a distorting effect, partly because of tariffs on imported inputs, unlike organic production which is less subject to this effect. The net effect of the whole policy environment has a negative impact on producers including those of potential organic wheat, as some policies are likely to affect this potential industry. Consequently, it is recommended that farmers must evaluate their options by looking at systems that utilise less distorted inputs, and hence higher profits like organic farming.

AFRIKAANSE OPSOMMING: Na sestig jaar van staats-geheer is die landbsektor van Suid-Afrika omvorm na In sogenaamde vrye bedeling met marktoegang en die reels van die WHO as drywers. Hierdie omvorming het enersyds die blootstelling van die landbou sektor verhoog, veral in die buiteland waar belangstelling in Suid-Afrikaanse produkte toegeneem het. Aan die ander kant het die transformasie die realiteite van die prys-koste knyptang en produksierisiko, ook in die geval van koring, na yore gebring. Plaaslike koringprodusente, soos aIle ander boere, is in die algemeen prysnemers en in sommige gevalle het hulle weinig mededingende voordele in wat hulle produseer. Dit word vererger deur beleidsversteurings in produkmarkte al is die versteurings minder as in die verlede. Die versteurings gee egter steeds daartoe aanleiding dat boere soms besluite neem wat nie ekonomies of sosiaal optimaal is nie. Dit volg dus dat die onsekere toekoms van die koringbedryf, veral in die Wes-Kaap, asook die vinnig veranderende besigheidsomgewing produsente noop om vinnig by die veranderende omstandighede aan te pas indien hulle in besigheid wil bly. Die uitdaging is dus vir boere en hul ondersteuningmeganismes om oplossings vir voorgenoemde probleme te vind. Een moontlike oplossing kan gevind word deur die potensiaal van produkdifferensiasie en mark identifikasie aan die vraagkant van die vergelyking te ondersoek. Met ander woorde, die identifikasie van nis-produkte met In spesifieke karakter wat hoer pryse behaal. Ten einde sodanige produkte te identifiseer is dit nodig om die verbruiker daarvan te analiseer. In die plaaslike mark is daar In relatiewe klein maar vinnig groeiende mark vir hoewaarde nis-produkte. Dit moet egter toegegee word dat die grootste gedeelte van plaaslike verbruikers meer ge'interesseerd is in goedkoop kommoditepe produkte. In die meeste gevalle is Suid-Afrika marginaal kompeterend in hierdie produkte en moet altematiewe markte dus ondersoek word. Hierteenoor is verbruikers in sekere gedeeltes van die uitvoermark meer gesofistikeerd en spesifiek in die aard van die produkte wat verlang word. Die fokus is veral op kwaliteit en naspoorbaarheid en sodanige verbruikers is gewoonlik bereid om In premie te betaal vir produkte wat hierdie behoeftes bevredig. Die doel van hierdie studie is dus om te bepaal of organiesgeproduseerde koring In mededingende voordeel sou he indien dit aan die eienskappe van kwaliteit en naspoorbaarheid sou voldoen. In hierdie studie word die relatiewe mededingendheid van die bestaande stelsel, sogenaamde konvensionele koringproduksie, geevalueer met spesifieke verwysing na die beleidsomgewing waarbinne produksie plaasvind. Hierdie beleidsomgewing sal natuurlik ook In invloed uitoefen op die organiese produksie van koring',f 'n BeleidS}nalise ¥atriks word gebruik om verskillende indikatore van mededingende voordeel te bereken en om sodoende die invloed van die beleidsmaatreels op die koringbedryf te analiseer. Vir konvensionele produksie is bestaande data uit tien verskillende boerderygebiede gebruik. Alhoewel geen voorbeelde gevind kon word van bestaande gesertifiseerde organiese koringproduksie in die Wes-Kaap nie, is die ekspert-groep tegniek met behulp van die verwysingsmetode gebruik om die nodige data te genereer. Aangesien die studie 'n vergelyking tussen twee stelsels is, is gevind dat waar die konvensionele produksie van koring geen mededingende voordele in sekere gebiede van die Wes-Kaap geniet nie, dit weI mededingende voordele tydens organiese verbouing in hierdie gebiede geniet. Alhoewel die onderliggende redes hiervoor kompleks is, kan dit herlei word na die hoe vlakke van beleidslersteurde insette wat tydens die konvensionele produksie van koring gebruik word. Hierteenoor steun organiese produksie meer op plaasgeproduseerde insette wat die distorsies dus verminder. Die netto effek is egter dat die beleidsomgewing 'n " negatiewe impak op produsente, ingeslote potensiele organiese produsente, inhou. Gevolglik word dit aanbeveel dat produsente hul opsies moet oorweeg deur veral te fokus op stelsels, soos organiese verbouing, wat minder beleidversteurde insette gebruik en waar die winsmoontlikhede dus hoer is.

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