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Implications of deregulated wheat market for the Western Cape Province: Evaluation with the aid of a spatial model

Listed author(s):
  • Troskie, Dirk P.
  • Vink, Nick
  • Wallace, M.

The deregulation of the single channel marketing system for wheat poses new challenges to producers and advisors in the Western Cape Province. This deregulation is simultaneous with a number of other changes in the socio-political, economic, marketing and technological environments. In facing these challenges it is necessary to incorporate such diverse trends as globalisation and individualisation within a single framework. In the first part of this paper the development of a model, combining spatial data, resource attributes, crop characteristics and financial/economic data in an interactive model is described. This is followed in the second part by the evaluation of the impact of certain macro-economic variables on farm-level enterprises. This is done with the aid of six scenarios. It was found that, under certain specific conditions (i.e. low international wheat price, zero tariff protection and 40 percent of production being exported), wheat production in the Western Cape is unprofitable. However, if an import tariff on wheat of 30 percent (fob, ad valorem) is introduced and the marketing mix is changed to only 20 percent of local production being exported, then ceteris paribus, wheat can be profitably produced on 68 percent of the area. This allows the opportunity for structural adjustments and cost reducing practices. If the cost of production is lowered by 20 percent and the import tariff removed, then, ceteris paribus, wheat can be profitably produced on 59 percent of the area. Even more important than the results from the scenarios is the fact that a methodology was developed through which the impact of macro-economic variables on farm level profitability can be investigated. As this methodology allows for the identification of specific areas or farms that will be adversely affected, specific remedial measures can be implemented. This methodology will be an important tool in the hands of decision-makers.

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Article provided by Agricultural Economics Association of South Africa (AEASA) in its journal Agrekon.

Volume (Year): 39 (2000)
Issue (Month): 1 (March)

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Handle: RePEc:ags:agreko:54194
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