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Nick VinkDepartment of Agricultural Economics
University of Stellenbosch
Policy changes Productivity indexes SA/NZ (Vink and Sandrey) Technology change (Sandrey and Vink,
OECD) Where does RSA fit in? (Anderson et al) Conclusion
Reduction in commodity-specific subsidies
Interest rate subsidies cut (but ‘drought aid’) Abolition of dairy price control Bread price subsidy Abolition of control over price of maize meal,
bread flour, bread Maize price formula changed Etc.
Reduction in farmer support programmes
Tax treatment changed (ring fencing tightened, capital depreciation aligned)
Budgetary allocations supporting white farmers declined by some 50 per cent between 1987 and 1993
The basis for farmer support programmes was taken away
Trade liberalization under the AoA
Tariffication and agreed reductions Unilateral reductions GEIS
Intervention in input markets
Land Abolition Act 1991 White Paper, Acts, ImplementationLabour Dedicated legislation, 1993 Incorporated in mainstream after 1994 Minimum wage, etc. 2001Water Loss of riparian rights
Deregulation of agricultural marketing
The ‘big bang’ of 1997
Productivity of:
Labour Capital Land TFP
Western Cape
RSA
1993 9.2 18.5
2002 15.4 11.7
2007 15.2 10.8
0
1000
2000
3000
4000
5000
6000
7000
8000
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
(R '0
00)
2000
= 1
00
0.00
20.00
40.00
60.00
80.00
100.00
120.00
140.00
160.00
Real gross capital formation Index of interest rates
Poly. (Real gross capital formation) Poly. (Index of interest rates)
60000
80000
100000
120000
140000
160000
180000
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
00
= 1
00
Real value of capital assets Poly. (Real value of capital assets)
0
1
2
3
4
5
6
7
8
Ra
tio
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
Debt/GDP Debt/NFI Debt/Asset
Poly. (Debt/NFI) Poly. (Debt/GDP) Poly. (Debt/Asset)
100
150
200
250
300
350
400
450
500
550
Ra
nd
NFI/R100 investment Poly. (NFI/R100 investment)
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
1970
/71
1972
/73
1974
/75
1976
/77
1978
/79
1980
/81
1982
/83
1984
/85
1986
/87
1988
/89
1990
/91
1992
/93
1994
/95
1996
/97
1998
/99
2000
/01
2002
/03
2004
/05
2006
/200
7
To
n/h
a
Mielies Koring Poly. (Mielies) Poly. (Koring)
80
130
180
230
280
330
380
47/48
49/50
51/52
53/54
55/56
57/58
59/60
61/62
63/64
65/66
67/68
69/70
71/72
73/74
75/76
77/78
79/80
81/82
83/84
85/86
87/88
89/90
91/92
93/94
95/96
97/98
99/00
Years
Ind
ices
Output Inputs TFP
SA/NZ comparison Technology adoption Southern hemisphere comparison
Share southern hemisphere climate NZ has more reliable rainfall and better
soils NZ, with its smaller domestic population, is
more export-oriented Both are Cairns Group members: world
leaders in unsubsidised agriculture
Both underwent dramatic reforms; NZ in the mid 1980s and SA a decade later
The evidence shows that NZ has adjusted to ‘free’ markets better than SA to date
The ‘to date’ qualification is important, as the NZ experience shows that time lags can be longer than expected
Marketing reform was triggered by external macroeconomic factors in both
NZ: economic stagnation, change in government in 1984, subsequent drive to liberalise
Agriculture a central part of these reforms SA: also macroeconomic precedents, as
attempts to stabilise the economy in the late 1970s resulted in a rapid increase in interest rates
Thus, both countries embarked on the reforms at about the same time
However, the process from that time onwards was markedly different
To understand these differences, and their consequences, it is necessary to compare the reforms in terms of their timing, sequencing, breadth, and depth
NZ: most reforms implemented within 3 years of the 1984 elections
PSE declined to below 5% after 1988, and has since declined to below 1%
SA: reforms for 15 years followed by the ‘big bang’ that lasted for 12 months
NZ market reforms preceded SA by a decade
SA’s PSE remained at above 10% until 1995 after which it declined to below 5%
Deregulation in NZ had two distinguishing features :
NZ: marketing reforms preceded international trade liberalisation under the AoA
SA: sequencing more complex as explained above. Trade liberalisation preceded the ‘big bang’
However, no evidence that policy makers in NZ or SA followed any deliberate sequence of reforms
SA and NZ: Virtually all of agriculture was subject to intervention before deregulation
In both there is evidence that previously uncontrolled industries have been the most successful
NZ: deer and wine SA: Poultry and vegetables NZ also implemented labour market
reforms, which resulted in more flexible labour markets
The biggest difference between SA and NZ was in the depth of the reforms
SA: all statutory powers were removed, with two exceptions:
Sugar industry The powers of the NAMC that allow
statutory leviesNZ: the end result was more nuanced: Quota allocations into EU and USA remain
in dairy and meat, while kiwifruit operates a single desk with monopoly export powers
This did not result in a higher PSE, because import controls are not necessary to maintain an export monopoly, hence the price gap between domestic and world prices, the key to the measurement of PSE, is unaffected
This has both costs and benefits to different stakeholders
Agricultural exports’ share in production increased from 1/5 to 1/3
Agricultural exports increased by 9.2% p.a. between 1997 and 2007: wine, citrus and table grapes grew by 17.8%, 16% and 12.9%
Some evidence of innovation, but the jury is still out on the results of the reforms
Different patterns of technological growth can be observed by and within regions over time
Innovation continues apace, but how much of it can be ascribed to the reforms?
Field crops Prices declined to world market levels Farmers shifted to low-till, etc. production Reduced inputs such as fertilisers,
insecticides, herbicides, tractors, other machinery, and fuel
Thus process rather than product innovation Industry average yields more than doubled
Fruit sector Increase in output and exports, driven by: (1) the addition of new export-oriented
production regions (Orange river: pre-reform)
(2) introduction of new production technology
(3) introduction of better control over the cold chain
Export growth OK, but limited
Wine Marketing reforms resulted in: (1) Many new entries in the industry (2
cellars/month for >10 years!) (2) Inward FDI, accompanied by overseas
marketing and the burgeoning tourism sector
(3) Large scale replanting of vineyards
Agric. land per capita
GDP per capita
Agric. share of exports
Southern Hemisphere temperate-zone countries
Argentina 4.3 0.9 5.4 Australia 28.6 4.2 2.8 Chile 1.2 0.9 3.9 New Zealand 5.4 3.1 6.7 South Africa 2.8 0.6 1.3
Other BRICS Brazil 0.4 0.5 0.5 China 0.5 0.2 0.6 India 0.2 0.1 1.4 Russia 1.9 0.5 0.5
Northern Hemisphere temperate-zone countries
Western Europe 0.5 4.5 1.1 United States 1.8 6.6 1.1 Canada 2.7 4.5 1.4 Japan 0.1 6.1 0.1 WORLD 1.0 1.0 1.0
World = 1.0
Argentina Australia Chile New Zealand South Africa GDP share 1950-54 22 1960-64 16 14 1970-74 11 9 7 12 7 1990-94 6 3 9 10 4 2000-04 7 3 4 9 3 Employment 1960-64 19 10 29 14 36 1980-84 13 6 20 11 17 2000-04 9 4 15 9 9 Export share 1950-51 86 1960-64 93 78 9 83 1970-74 79 51 9 70 351
1980-84 73 40 28 58 9 1990-94 60 31 36 50 8 2000-04 48 25 34 44 8
Agricultural exports as % of primary production Argentina Australia Chile New
Zealand South
Africa1
1960s 42 46 1 40 11 1970s 34 44 8 45 15 1980s 37 55 34 61 11 1990s 36 56 41 66 9 2001/04 36 55 67 64 11 1These percentages for South Africa are close to the share of just unprocessed agricultural exports, according to official data from SA Customs and Excise. If processed food is added, those shares roughly double but are still much less than those for the other four countries shown.
Argentina Australia Chile New Zealand South Africa
Simple average applied (bound)a tariff:
Agriculture 10(33) 1 (3) 6(26) 2 (6) 9(41) Non-agriculture 13(32) 4(11) 6(25) 3(10) 8(16)
Share of MFN applied tariffs <6%b
Agriculture 14 99 100 83 56 Non-agriculture 29 85 100 67 64 a The WTO-bound tariff is shown in parentheses.
b Less than or equal to 5 percent, except for Chile where it refers to 6 percent
0
20
40
60
80
100
120
140
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Inde
x
Output index
Argentina
Australia
Chile
New Zealand
South Africa
NRA calculations show that South African agriculture is relatively unprotected – similar to Australia, Chile and New Zealand (Argentina still taxes agriculture)
But output and export growth has been slowest in South Africa
Why: poor resources or investor confidence?
Or do we just have to wait longer to reap the benefits (or pay the price!)