Regional agricultural trade and changing comparative advantage in South Africa

Both rainfed and irrigation crops are studied, along with large- scale and small-scale production systems for maize and beef. The study includes an evaluation of the private and social profitability, the domestic resource costs (DRC) of different commodities within different agro-ecological zones, and a sensitivity analysis. As evident from the larger economic rather than private returns for many commodities, market distortions in South Africa cause scarce resources to be used sub-optimally to the detriment of farmers. These distortions, which are indicated by net policy effect (NPE) and effective protection ratio (EPR) results, stem from three main factors: (1) distortions in product prices, mainly due to the statutory powers of the different Marketing Boards; (2) the exchange rate; and (3) tariffs and subsidies levied on inputs. The first two contribute the most to market distortions, while the latter"s contribution amounts to less than 15%. The DRC methodology used to determine the CEA of different products in different zones shows that farmers must exploit their CEA and be given incentives to do so by the government. Calculation of CEAs on the basis of returns to land and water revealed that policies such as the new Water Act will have a definite impact on water usage. In Zones 1-6, crops under irrigation have a CEA over other crops. Increasing the cost of water may have an influence on a crop"s CEA. The constraints of each zone must also be considered. A crop may have a CEA over other crops, but be incultivable throughout that zone due to climatic, biological, and physical constraints. In this situation, the second best option must be identified. The distance from markets must also be considered. Transport cost plays an increasingly important role in the competitiveness of agricultural producers. Transport costs may make it unprofitable to produce a crop despite its CEA. Policies regarding land and water will have a major influence on CEA in agricultural production not only between South Africa and other countries, but between regions within South Africa as well. One should expect changes in resource use if tariffs on water in South Africa depend on its scarcity value. The change in production patterns that can be expected if the latter is implemented will differ between regions. It may be relatively easy to interchange seasonal crops, but this will not be the case with long-term crops, such as sub-tropical fruits and citrus. In summary, the analyses show that: (1) water cost will influence the competitiveness of dryland production in relation to irrigation production; (2) in the future, the amount of water used will influence the competitiveness of production; (3) dryland production practices may in some instances be more advantageous than irrigation production practices; and (4) the intensity of water use may cause one crop to lose its comparative advantage to another crop. Other factors that should be considered are domestic and international demand and supply forces. Although a crop may hold a CEA over other crops, unlimited production will cause prices to drop and thus erode its CEA. The balance between demand, supply, and CEA is not clear. A general equilibrium model that incorporates resource endowments and supply and demand forces is necessary to understand these forces better and provide a basis for policy. Includes references, an assessment of the South African land market, and statistical tables on crop and livestock production by zone.