Crop Level Supply Response In South African I Agriculture: An Error Correction Approach

This article investigates South African supply response in agricultural production. It applies time series techniques to explain production planning decisions of the two dominant crops in the summer-rainfall grain area, maize and sorghum. After establishing the time series properties of the variables, cointegration is determined and used as the theoretical foundation for an error correction model (ECM). Maize area planted in the short run or the long run (or both), is found to depend on two sets of variables. One group changes the quantity or supply (area) of maize directly, like own price, the prices of substitutes like sorghum and sunflowers, and complementary intermediate input prices. The other variables change the supply environment, like rainfall, farmer education, R&D and cooperative extension. Sorghum is found to be a secondary crop dominated by expected changes in the maize variables, and the area planted depends simply on intermediate input prices and rainfall over both the short and long run. These results further illustrate the dominance of maize and maize policies in production decisions in the summer-rainfall areas of South Africa.