Structural adjustments in the wheat industry of the Western Cape Province

Troskie, Dirk Pieter (2001-03)

Dissertation (PhD (Agric))--Stellenbosch University, 2001.

Thesis

ENGLISH ABSTRACT: The objective of this dissertation was to investigate the structural imbalances of the wheat industry of the Western Cape Province and, with due recognition of a changing environment, to develop an effective strategy for the industry. It was found that the origins of the structural imbalances could be detected in the interaction between policy, technological and demand factors and is not unique to the specific industry. The farm problem provides an explanation for the instability of and downward pressure on wheat prices as well as the sluggish adaptation to environmental change experienced in the wheat industry. Internationally similar problems led to a whole range of policy measures. Relatively unique to South African agriculture, but not only to the Western Cape wheat industry, is the circumstances that gave rise to the current dual structure of the domestic agricultural sector. The origins of these circumstances could be traced back to the Dutch settlement of the Cape in 1652 and the resulting measures was later upheld under British rule. After the commercialisation of the local agricultural sector following the discovery of diamonds in South Africa, certain measures were lobbied for at the end of the 19th Century to protect white farmers. These measures were expanded in the 20th Century and gave rise to the particular duality along ethnic lines of the South African agricultural sector. If it is accepted that the structural problems of the wheat industry are the result of political, policy, technological and demand factors, the question of the potential future role of the sector, and more specifically the wheat industry, can be asked. It was established that agriculture is a natural catalyst for economic development through the provision of food, foreign exchange, manpower, and capital formation as well as a market for industrial produce. Whereas the potential exists, agriculture has not yet fulfilled this role in Southern Africa due to inconsistent domestic policy, adverse trade regimes, inappropriate technology and problems encountered in the management of development. This potential role of agriculture has been quantified for the Western Cape Province. In the development of a strategy for an industry it is imperative to evaluate the future economic and social environment. It was verified that in the next phase of economic development, towards information societies, agriculture would still fulfil the functions previously mentioned. However, a new and more esoteric role relating to identity could be added to this list in an information society. Given the important role of agriculture as described in the previous section, intuition would lead one to expect that government would play an important role in alleviating the structural problems of the Western Cape wheat industry. However, contrary to this intuitive expectation it was found that, in alleviating the problems of the Western Cape wheat industry, government intervention will be largely limited to creating a favourable enabling environment. In getting to this conclusion the theory of welfare economics, public choice and politician - voter interaction were explored. The traditional wisdom has it that in searching for a Pareto-optimal state, or at least a second-best solution, pressure group activities may play an important role. This is seen as important due to the difficulties, as indicated by Arrow's impossibility theorem, in transforming individual preferences into political preference functions. However, numerous examples have shown that pressure group activities may only playa marginal role in influencing the final outcome. The underlying structural characteristics of the national and provincial economies may be a more important determinant. This became more certain as the way politicians perceived agriculture before and after the 1994 political transition was analysed. It follows that a strategy for the wheat industry of the Western Cape will take the global, social, policy, natural and consumer environment into account and both the strategy and the industry will have to be self-reliant. It was argued that a solution would be found in changing the slope (elasticity) of the demand and supply functions for agricultural produce. With the aid of a spatial model developed the impact of the different elements of the strategy on the profitability of wheat production in the Western Cape was evaluated. This model took into consideration the yield potential for wheat, the gross and net margin of wheat production, spatial dispersion, transport costs and also made provision for different intermediate markets. It was found that each of the components of the strategy would substantially contribute to a more profitable wheat industry for the Western Cape. The combined effect of the strategy would result in a 97 percent decrease in the area where wheat production is unprofitable. Profitable production of wheat would be possible on 99,3 percent of the total area that is suitable for rainfed wheat production. The production of wheat would be highly profitable at a margin of more than R200 per ton on more than 1,1 million hectares (77,1% of the total area). It is concluded that, while taking the global, social, policy, natural and consumer environment into account and without relying on government, a strategy could be developed that will rectify the structural problems of the Western Cape wheat industry.

AFRIKAANSE OPSOMMING: Die doel van hierdie proefskrif was om die strukturele wanbalanse van die koringbedryf in die Wes- Kaap Provinsie te ondersoek en, om met erkenning aan 'n veranderde omgewing, 'n effektiewe strategie vir die bedryf te ontwikkel. Dit is bevind dat die oorsprong van die strukturele wanbalanse uit die interaksie tussen beleid-, tegnologiese- en vraagfaktore spruit en dat die wanbalanse nie uniek is tot die bedryf nie. 'n Verklaring vir die onstabiliteit van- en afwaartse druk op koringpryse, sowel as die trae aanpassings van die bedryf by omgewingsveranderings, word deur die plaasprobleem gebied. Soortgelyke probleme het globaal tot 'n verskeidenheid van beleidmaatreëls aanleiding gegee. Wat wel uniek is tot die Suid-Afrikaanse landbou, maar nie tot die plaaslike koringbedryf nie, is die omstandighede wat tot die huidige dualistiese struktuur van die landbou sektor aanleiding gegee het. Die oorsprong van die omstandighede kan teruggespoor word tot die Hollandse besetting van die Kaap in 1652 en die gepaardgaande maatreëls wat ook onder Britse bewind in stand gehou is. Na die kommersialisering van die plaaslike landbou sektor, wat op die ontdekking van diamante in Suid- Afrika gevolg het, is bepaalde maatreëls aan die einde van die 19de eeu deur drukgroepe beding ten einde blanke boere te beskerm. Hierdie maatreëls is in die 20ste eeu uitgebrei en het die unieke dualiteit op etniese gronde van die Suid-Afrikaanse landbou sektor tot gevolg gehad. Met aanvaarding daarvan dat die strukturele wanbalanse van die koringbedryf die resultaat is van politieke, beleid, tegnologiese en vraag faktore, kan dit gevra word of die sektor, en meer spesifiek die koringbedryf, nog 'n rol te speel het. Dit is gevind dat landbou 'n natuurlike katalisator vir ontwikkeling kan wees deur die verskaffing van voedsel, buitelandse valuta, mannekrag, kapitaal vorming en 'n mark vir industriële goedere. Ten spyte van die bestaande potensiaal kon landbou nog nie hierdie rol in Suidelike Afrika vervul nie, hoofsaaklik as gevolg van inkonsekwente binnelandse beleid, onvriendelike handelsomgewings, nie-geskikte tegnologie en ontwikkelingsbestuur probleme. Die potensiële rol van landbou in die Wes-Kaap Provinsie is gekwantifiseer. Dit is belangrik om tydens die ontwikkeling van 'n strategie vir 'n bedryf ook die toekomstige ekonomiese en sosiale omgewing in aanmerking te neem. Dit is bevestig dat in die volgende fase van ekonomiese ontwikkeling, dié van 'n inligtings gemeenskap, landbou steeds die voorgenoemde funksies sal vervul. 'n Nuwe en meer esoteriese funksie, gefokus op identiteit, kan egter in 'n inligtingsgemeenskap tot die lys toegevoeg word. Gegewe hierdie belangrike rol van landbou kan intuïtief verwag word dat die owerheid bereid sal wees om 'n belangrike bydrae te maak tot die verligting van die strukturele probleme van die Wes- Kaapse koringbedryf. Teenstrydig met hierdie intuïtiewe verwagting is egter bevind dat owerheids betrokkenheid hoofsaaklik beperk sal wees tot die skepping van 'n gunstige en bemagtigende omgewing. Ten einde hierdie gevolgtrekking te bereik is welfaart ekonomie, publieke keuse en politici - kieser interaksie teorie bestudeer. Volgens tradisionele denke kan drukgroep aktiwiteite 'n belangrike rol speel in die soeke na 'n Pareto-optimale staat, of ten minste in die soeke na 'n tweede-beste oplossing. Weens probleme in die transformasie van individuele voorkeure na politieke voorkeur funksies, soos beskryf deur die onmoontlikheidsteorie van Arrow, word hierdie aktiwiteite as belangrik geag. Veelvuldige voorbeelde dui egter daarop dat drukgroep aktiwiteite slegs 'n marginale rol kan speel in die beïnvloeding van finale uitkomste. Dit blyk dat onderliggende eienskappe van die nasionale en provinsiale ekonomië meer bepalende faktore kan wees. Hierdie vermoede is bevestig namate die politieke persepsie van die landbou voor en na die 1994 politieke transformasie geanaliseer is. Uit die voorafgaande is dit duidelik dat 'n strategie vir die koringbedryf van die Wes-Kaap die internasionale, sosiale, politieke, natuurlike en verbruikers omgewing in aanmerking sal moet neem. Dit is ook duidelik dat beide die strategie en die bedryf self onderhoudend sal moet wees. Dit word aangevoer dat 'n oplossing gevind kan word indien die helling (elastisiteit) van die vraag en aanbod funksies van landbouprodukte aangepas kan word. Met behulp van 'n ruimtelike model wat ontwikkel is, is die impak van die verskillende elemente van die strategie op die winsgewendheid van koringproduksie in die Wes-Kaap geëvalueer. Hierdie model het onder meer die opbrengs potensiaal van koring, die bruto en netto marge van koringproduksie, ruimtelike verspreiding, vervoerkoste en verskillende intermediêre markte in aanmerking geneem. Dit is bevind dat elk van die elemente van die strategie beduidend tot winsgewende koringproduksie in die Wes-Kaap kan bydra. Die strategie kan daartoe lei dat die oppervlakte met nie-winsgewende koringproduksie met 97 persent sal afneem. Koring kan winsgewend verbou word op 99,3 persent van die area geskik vir droëland produksie. Terselfdertyd sal koring, teen 'n marge van R200 per ton, hoogs winsgewend verbou kan word op nagenoeg 1,1 miljoen hektaar (77,1 persent van die totale area). Ten slotte blyk dit dat, met inagneming van die internasionale, sosiale, politieke, natuurlike en verbruikers omgewing, en sonder dat op owerheids ondersteuning staatgemaak word, 'n strategie ontwikkel kon word wat die strukturele wanbalanse van die Wes-Kaapse koringbedryf kan oplos.

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