|Title: MODELLING MAIZE AND WHEAT CROPS SUPPLY RESPONSE IN SOUTH AFRICA: NEW EMPIRICAL EVIDENCE AND POLICY IMPLICATIONS|
Oluseyi A. Adeyemi and David Spies
Existing empirical evidence on agricultural supply response is very mixed, ambiguous and generally assumed to be inelastic. Using time series data for the period 1970–2019, this study employed vector error correction model to assess the responsiveness of maize and wheat crops farmers to price and non-price factors. This technique provides a more intuitive way of modelling the optimization and rational behavior of farmers.
The results from study indicate that supply response is high and positive given the thousands of hectare’s area planted annually. The estimated price elasticities in the short run are maize (0.08), and wheat (0.46), while in the long run, the price elasticity is estimated to be 1.0 for maize. These results confirm the preponderance of econometric evidence from the empirical literature reviewed that supply response is high and elastic in the long run.
The study further identify the most critical factors influencing crops supply response in South Africa, which is producer prices, intermediate input prices, price of substitute/complementary crops and real exchange rate. Besides price, the studies further identify other non-price incentives such as yield factor, average rainfall, climate (drought) and agricultural policy as other important factors. The findings of this study are significant in terms of model specification (the inclusion of real exchange rate as a proxy for trade risk) and policy implications in terms of government intervention and effective policy implementation.
|Keywords: Supply Response, Co-integration, Vector Error Correction Model, Agricultural Policy, Macroeconomic variables.|