Markets Research

 

Food-fuel Tradeoffs in the Consumption of Maize meal, Bread and Liquid Petroleum Fuels: Implications for Price Stabilization Policy in South Africa

Arthur Mabiso and Dave Weatherspoon

South African consumers have experienced sharp increases in food and fuel prices in the last decade, especially during the 2008/9 food-fuel crisis. This study investigates the relationships between starch staple consumption, fuel consumption and their respective prices. The objective is twofold: First, we analyze the long-run relationships between consumption of starch staples (maize meal and bread), petroleum fuels (petrol, diesel and paraffin) and prices of these and other related food products using the autoregressive distributed lag (ARDL) approach to cointegration testing. Secondly, the direction and magnitude of food-fuel tradeoffs is identified by estimating long-run and short-run price elasticities of demand. The results indicate that bread consumption is more responsive to price changes than maize meal consumption. Policy implications are that, depending upon the cause of increased food prices, the government may need to react differently to cushion consumers from increasing food prices. If the rising food prices are fundamentally due to an increase in fuel prices, then bread prices would more likely be affected, implying the need to target bread prices. On the other hand, if the underlying cause of food prices increases is an increase in other food product prices (not fuel prices) then both bread and maize meal consumption will be affected and price stabilization policy would need to be broader. Therefore, for policy makers it is important to understand the underlying cause of any increase prices be it due to increased oil prices or increased food import parity prices.

 

The Impact of Biofuels Crop and Land Rental Markets on Farm Household Incomes: Evidence from South Africa

Arthur Mabiso and Dave Weatherspoon

This study assesses the impact of new biofuels crop and land rental markets on farm household incomes in rural South Africa. Data collected from 247 farm households in eight village areas where biofuels firms were engaging farmers to grow crops was analyzed using a mixed multinomial treatment effects model. Results show that, on average, there was no statistical difference in incomes between households participating in biofuels crop markets, households participating in biofuels-related land rental markets or those not participating in any biofuels-related market. However, when a comparison was made between subsistence households and those households participating in a biofuels related market, it was found that households participating in biofuels related markets had significantly higher incomes. Results also show that female-headed households and low-asset households were the least likely to participate in biofuels-related markets, suggesting that the equality gap between female and male-headed households is likely to increase when biofuels-related market opportunities present themselves. However, biofuels-related land rental markets do provide an opportunity, especially to female-headed households, to free up labor and earn non-biofuels incomes in addition to the rent earned for leasing their land to biofuels firms. Overall, the results suggest that biofuels-related investments do expand market opportunities for most smallholder farm households, but may have different impacts on female-headed and low-asset households. Female-headed households and low-asset households benefit the least, even though they increase their income earning opportunities, while male-headed households leasing land benefit the most.

 

Development of a Biofuels Industry in South Africa: a Case Study of Select Emerging Firms

Arthur Mabiso and Dave Weatherspoon

In South Africa there is a new biofuels industry that has quietly been developing in the last few years. This new industry has the potential to improve the livelihoods of smallholder farmers and be one of the most lucrative “green” agribusiness industries in the country if not the whole of Southern Africa. Using key-informant data collected between September and November, 2009 from nine emerging biofuels firms, development banks and government departments, this case study examines the structure, conduct and performance of the developing biofuels industry while analyzing a variety of principal-agent relationships in the industry. A stylized theoretical model is developed to explain the principal-agent interactions observed empirically. Findings show that a variety of supply chain configurations have emerged as a result of relatively limited government market intervention, foreign direct investments (particularly from Europe), and innovations by local entrepreneurs. Ranging from vertically integrated sugar beets to ethanol firms; strategic alliances in marketing new bio-ethanol gels, to land leasing markets and biodiesel lubricant contracts sold by mining companies, the new industry is found to be vibrant and innovative; providing multiple supply chain opportunities that smallholder farmers can be involved in. Thus, the adoption of a portfolio of biofuels investments and government support that promote both foreign and domestic innovations is encouraged, to improve biofuels market access opportunities and livelihoods for smallholder farmers.

 

Import Composition Effects of the EU Trade Policy Reforms: The Case for Beef Imports from Namibia

Hikuepi B. Katjiuongua and Dave Weatherspoon

Namibia’s beef export to the EU market can be viewed as a mixed success story. While the Namibian beef industry managed to meet high EU food safety and quality standards, it never fully utilized its beef quota level provided under the preferential trading regime because of supply constraints. With the end of preferential trade between the EU and African Caribbean Pacific (ACP) countries, uncertainty abounds regarding the potential economic effects of the new proposed trade agreement, the economic partnership agreement (EPA) on sensitive ACP agricultural sectors. The EU trade structure is complex as it includes various components of specific tariffs, ad valorem tariffs, and tariff rate quotas (TRQs). We estimate EU import demand for Namibian beef in response to the (EPA) agreement and its alternatives, the standard generalized system of preferences (GSP) and enhanced GSP options. Specifically, we measure the impact of the trade agreements on the quantity and import composition of beef imports from Namibia to the EU market. Results show that the proposed trade alternatives affect import demand for high and low quality beef differently. The proposed EPA trade agreement has a quality downgrading effect, while the generalized system of preferences (GSP) options have a quality upgrading effect on Namibian beef import demand. The results are consistent with the Alchian-Allen conjecture, and have different implications for Namibian beef exporters and producers.

 

Farmers’ Participation in the International Beef Export Market:The case of Cattle farmers in Namibia

Hikuepi B. Katjiuongua and Dave Weatherspoon

Marketing cattle in Namibia involves multiple outlets. This paper focuses on cattle farmers’ participation in the international beef export market. It empirically tests how transaction costs and other socio-economics variables determine a cattle farmer’s choice to participate, and the intensity of participation in the beef export channel. Using primary data from a producer surveys, a double hurdle model is applied using a probit model to estimate participation and a fractional logit model to measure the intensity of participation. Results show that grade uncertainty, being a male-headed household, having a land title and membership in a farmer’s association, all significantly increase the probability of farmers supplying to the export channel. For the farmers that have decided to participate in the export market, payment delay, grade uncertainty and distance to the market significantly reduce the intensity of participation, while premiums, being a part-time farmer and ownership of a transport vehicle increase the intensity of a cattle farmer’s participation in the beef export channel. The findings suggest that cooperative support for farmers’ associations by various stakeholders in the beef industry is critical to address the barriers that hinder small communal farmers’ participation in the international beef export market. In addition, to effectively address supply side constraints by cattle farmers in communal areas, it is critical for the government to revisit its land reform policy.