Quality adjusting agricultural machinery in South Africa

This paper quality adjusts machinery inputs for South African agriculture. It does this by treating different qualities of machinery as separate inputs. Thus, quality adjustment becomes quantity adjustment when there is sufficient disaggregation. This matters because many mechanical and chemical inputs have been transformed by technological progress. If this is not taken into account, the inputs are under-counted and total factor productivity (TFP) calculations are not accurate. Gandidzanwa and Liebenberg (2016) estimated the proportion machinery to implements and used this series to scale up the tractor series, instead of assuming fixed proportions. This study quality adjusts the machinery and implements input series by applying a greater level of disaggregation and by careful monitoring of model turnover. The number of models monitored was increased tenfold. Removing tractor improvements resulted in a price index that grew more slowly than the official index. Thus, the tractor stock value series is deflated less and by 2015 was 53% larger than in the official figures. The service flow entering the TFP calculations will be similarly increased, so there is less residual to be attributed to TFP growth. If all the inputs were equally undercounted, the TFP estimate would be double its true value.