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Agricultural Economics

Agrekon Published Articles

Agrekon, Vol 46, No 4 (December 2007)
Maine, N., Nell, W. T., Lowenberg-DeBoer, J. & Alemu, Z. G.
Economic Analysis of phosphorus applications under variable and single-rate applications in the Bothaville district.
Abstract
Variable-rate (VR) application of inputs in South African cash crop production is mainly concerned with fertilizer and lime, and this indicates the importance of these inputs in cash crop production. However, the profitability of VR application of inputs has not yet been investigated under South African conditions. This paper studies the maize yield response to variable-rate application of phosphorus (P) and the profitability thereof in South Africa, on the basis of data collected on a 104-hectare experimental field on a farm in the Bothaville district. The strip-plot design of 180 strips was used for this on-farm research experiment. This design involved treatments that run in the same direction across the field as planting and harvesting. The objective is to determine the maize crop response functions under different P rates and to estimate the profitability of VR relative to the single-rate (SR) application of P. The methodology involves modelling maize yield response functions for P under VR and SR treatments, and for different management zones. A spatial quadratic regression model is developed, according to which yield is estimated as a function of applied P, the treatment and management zones. The results indicate that yield response to P varies between VR and the SR application methods, as well as between management zones. Variable-rate treatment results in higher profits than the SR treatment.
Keywords: Precision agriculture, precision farming, site-specific phosphorus management, variable-rate application, fertilizer, yield response, South Africa
 
Jordaan, H. & Grové, B.
Factors affecting maize producers adoption of forward pricing in price risk management: The case of Vaalharts.
Abstract
Logistic regression is employed to analyse the factors which influence the decision of whether or not the respondent used forward pricing methods during the 2004/05 maize production season. Forward pricing methods include cash forward contracting and hedging with futures contracts and/or options, through the South African Futures Exchange (SAFEX). Based on the results, the use of forward pricing is associated with lower levels of risk aversion and higher levels of human capital. Factor analysis is employed to reduce the dimensionality of the personal reasons which help to interpret the underlying, common factor of the personal reasons why farmers are reluctant to use forward pricing methods. Three factors were extracted and were labelled "Lack of capacity", "Distrust of the market", and "Bad experiences". The results from the factor analysis confirm the finding that farmers need higher levels of human capital to use forward pricing methods and that farmers do not believe that the forward pricing market is effective. Education should furthermore, focus more on the practical application of alternative forward pricing methods and not purely on the benefits of the use of forward pricing methods.
Keywords: Forward pricing, Logit, Factor analysis
 
Jordaan, H., Grové, B., Jooste, A. & Alemu, Z. G.
Measuring the price volatility of certain field crops in South Africa using the ARCH/GARCH approach.
Abstract
The conditional volatility in the daily spot prices of the crops traded on the South African Futures Exchange (yellow maize, white maize, wheat, sunflower seed and soybeans) is determined. The volatility in the prices of white maize, yellow maize and sunflower seed have been found to vary over time, suggesting the use of the GARCH approach in these cases. Using the GARCH approach, the conditional standard deviation is the measure of volatility, and distinguishes between the predictable and unpredictable elements in the price process. This leaves only the stochastic component and is hence a more accurate measure of the actual risk associated with the price of the crop. The volatility in the prices of wheat and soybeans was found to be constant over time; hence the standard error of the ARIMA process was used as the measure of volatility in the prices of these two crops. When comparing the medians of the conditional standard deviations in the prices of white maize, yellow maize and sunflower seed to the constant volatilities of wheat and soybeans, the price of white maize was found to be the most volatile, followed by yellow maize, sunflower seed, soybeans, and wheat respectively. These results suggest that the more risk-averse farmers will more likely produce wheat, sunflower seed and to a lesser extent soybeans, while maize producers are expected to utilise forward pricing methods, especially put options, at a high level to manage the higher volatility.
Keywords:  Price volatility; field crops; SAFEX; time series analysis, ARCH/GARCH

Articles published in Ag Econ Search

http://ageconsearch.umn.edu/

The Impact of HIV on Total Factor Productivity
Alemu, Zerihun
Terry L. ROE [troe@umn.edu]
Rodney B.W. SMITH [smith142@umn.edu]
This study investigates whether HIV prevalence rates impact TFP growth. We construct a panel of data on general macroeconomic indicators and HIV prevalence rates for over 100 countries, for the years 1994 through 2002, and estimate the impact of HIV on TFP growth rates for each country. We find that HIV can have a large negative impact on factor productivity growth in Southern African countries. For example, factor productivity growth in Lesotho falls by up to 23%, and for South Africa factor productivity growth falls by up to 15%. We then investigate the potential impact of the disease on the economic growth of Lesotho and South Africa. This is accomplished by calibrating a single sector, neoclassical model of economic growth with endogenous savings to the two countries. The models show that TFP effects can have large, negative impacts on both per capital and aggregate GDP.
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Causes of instability in cereal production in Ethiopia
Alemu, Z. G.
In Ethiopia, average cereal production between the period 1990 and 2000 did not change significantly compared to the period between 1974 and 1990. However, cereal production between the period 1990 and 2000 was characterized by significant instability. This study reviews literature on factors with potential impact on instability in cereal production in Ethiopia and applies descriptive and variance decomposition procedures to determine the sources of increased instability in cereal production. It was found that production instability was caused more by increased yield instability than instability in an area. Yield instability could be the result of changes in technology, changes in policy and changes in weather conditions. It was concluded by this study that instability regarding yield was predominantly the result of weather variability. This is because, in Ethiopia, rainfall fluctuating from the long-term average is becoming more common, the use of high-powered inputs is limited to a small number of farmers, production is at subsistence level, and farmers’ responsiveness to policy changes is constrained by infrastructural, institutional and the existing land policy.
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Is increased stability in cereal production in Ethiopia caused by policy changes?
Zerihun Gudeta Alemu
Klopper Oosthuizen [Oosthlk@ufs.ac.za]
H.D. van Schalkwyk [Hvs@ufs.ac.za]
Contributed paper, Annual Meeting, August 16-22, 2003, Durban, South Africa
In Ethiopia, growth in cereal production is accompanied by a more than proportionate increase in the standard deviation of production. This study applies descriptive and variance decomposition procedures to determine the sources of increased instability in cereal production in order to show whether they are caused by policy changes. It was found that production instability was caused more by increased yield instability. Considering the fact that use of high-powered inputs is limited to a small number of farmers, production is at subsistence level and that farmers’ responsiveness to policy changes is constrained by infrastructural and institutional constraints and by the existing land policy, instability in yield is predominantly attributed to weather variability.

Key words: Cereals, detrending, differencing, production instability, variance decomposition, Ethiopia.
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The effects and persistence of major changes in Economic Policies on th long-term performance (trend) of Ethiopian agriculture
Z.G. ALEMU
L.K. OOSTHUIZEN (oosthlk@ufs.ac.za)
H. VAN SCHALWYK (hvs@ufs.ac.za)
41st Annual Conference of the Agricultural Economics Association of South Africa, CSIR conference centre, Pretoria, 2 October 2003.
Agriculture in the Ethiopian economy has survived three major structural breaks, namely the 1974 change of policy in favour of a command-based economic system, the 1984 famine and the 1992 change of policy that introduced a market economy. A regression procedure was applied to analyze the effect of these breaks on the slope and intercept of agricultural GDP. In addition, statistical properties were studied to measure the degree of persistence of shocks in agricultural GDP. In the regression equation, only the 1984 famine was found to be significant. The non-significance of policy parameters in the regression equation could be associated with a lack of infrastructural facilities and the subsistence nature of Ethiopian agriculture. The study of the statistical property of agricultural GDP revealed that agricultural GDP is a trend stationary process, which implies that fluctuations on agricultural GDP series, which mostly occur due to good or bad weather conditions, are temporary and dissipate in a short period of time.
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Causes of household food insecurity in Koredegaga peasant association, Oromiya Zone, Ethiopia
Haile, H. K., Alemu, Z. G. & Kudhlande, G.
The main objective of the study was to examine the determinants of households’ food security using a logistic regression procedure. The model was initially fitted with eleven factors, of which six were found to be significant, and all exhibited the expected signs. These include farmland size, ox ownership, fertilizer application, education level of household heads, household size, and per capita production. The result was analyzed further to compute partial effects and to conduct simulation studies on significant determinant factors. Analysis of partial effects revealed that an introduction to fertilizer use and an improvement in the educational levels of household heads lead to relatively greater probability of food security. On the other hand, simulations were conducted on the basis of the base category of farmers, representing food secure households, revealed that both educational levels of household heads and fertilizer application by farmers have relatively high potential to more than double the number of food secure households in the study area following improvements in these factors.
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Relative Competitiveness of the South African oilseed industry
Hallat, Jani
M.Sc.Agric.
Publication date: 2003
An overview of the oilseed industry locally and globally is provided, followed by measurements of the comparative and competitive advantages of the South African and Argentine oilseed industries. Three indexes are used to calculate the comparative and competitive advantages namely the Net Export Index (NXI), the Revealed Comparative Advantage (RCA) and the Relative Revealed Comparative Trade Advantage (RTA) index. According to the results South African groundnuts and sunflower seed have a competitive advantage in their primary form. Oilseeds to which value has been added have, in most cases, a competitive disadvantage, exactly the opposite to Argentina‘s oilseed products. The finding that South Africa is only competitive in the primary oilseed market, lead to the secondary oilseed industry. In the analysis it was found that the South African oilseed industry is price driven. Since price plays a large role in the competitiveness of the industry, imports of cheaper bottled refined oils are considered to pose a major threat.
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Conditions of successful land reform in Africa
Groenewald, Jan A.
Paper presented at Pre-IAAE-Conference on African Agricultural Economics, Ausut 13-14, 2003, Bloemfontein
Land reform has traditionally had two objectives: equity and productivity. Food insecurity and the need for agriculture to contribute to development emphasise the need to maintain and improve productivity while improving equitability. Land must foster production and agriculture must attract good human material. The main problem involves policy formulation and delivery Necessary conditions include: (1) A proper institutional framework involving all the relevant public and private bodies: the role and tasks of each should be clear, and also relationships between institutions. (2)Proper fiscal planning is essential. (3) Potentially successful farmers must be selected and given special support, including extension and adult education. Existing extension services are generally not adequate, particularly in the fields of finance and marketing. (4) Complementary services and infrastructure are needed in the form of improved access to financial services, markets and inputs and also improved transport, health, communications and other infrastructure. (5) As not all functions can be done at the same time, proper prioritising is needed to optimise the process. (6) Land tenure reform is usually necessary: property rights and security of tenure are at the core of the matter.
International agricultural markets are very important: there is a need for wealthy nations to cease trade-distorting protection of their own farmers.
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Econometric estimation of the demand for meat in South Africa
Taljaard, Pieter R. (taljaapr@ufs.ac.za)
Master's degree thesis
In this study the demand relations for meat in South Africa are estimated and interpreted. Two demand model specifications, namely the Rotterdam and Linearized Almost Ideal Demand System (LA/AIDS), were estimated and tested in order to determine which model provide the best fit for South African meat data.

Tests for separability included an F and Likelihood ratio version. Both tests rejected the null hypothesis of weak separability between meat, eggs and milk as protein sources, indicating that the demand model for meat products should be estimated separately from eggs and milk. Consequently, separability tests between the four meat products fail to reject the null hypothesis, confirming that the four meat products should be modelled together.

According to the Hausman exogeneity test, the expenditure term is exogenous. As a result, a Restricted Seemingly Unrelated Regression (RSUR) was used to estimate both models. Annual time series data from 1970 to 2000 were used. Both models were estimated in first differenced format, whereafter the estimated parameters were used to calculate compensated, uncompensated and expenditure elasticities.

In a non-nested test, the Saragan’s and Vuong’s likelihood criterion, selected the LA/AIDS model. In terms of expected sign and statistical significance of the elasticities, the LA/AIDS also proved to be more suitable for South African meat data.

Although the magnitudes of most own price and cross-price elasticities were significantly lower than previous estimates of demand relations for meat in South Africa, several reasons, including estimation techniques and time gaps, were offered as explanations for these differences. The uncompensated own price elasticity for beef (-0.7504) is the largest in absolute terms, followed by mutton (-0.4678), pork (-0.36972) and chicken (-0.3502). In terms of the compensated own price elasticities, which contain only the pure price effect, pork (-0.30592) was the most elastic, followed by mutton (-0.27713), chicken (-0.1939) and beef (-0.16111).

The expenditure elasticities of beef (1.243) and mutton (1.181) are greater than one, indicating that beef and mutton are luxury goods in South Africa. The expenditure elasticity for beef is the most elastic; indicating that South African consumers as a whole, will increase their beef consumption as the total expenditure on meat products increase.
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A Linearized Almost Ideal Demand System (LA/AIDS) Estimation of the Demand for Meat in South Africa
P.J. TALJAARD [taljaapr@ufs.ac.za]
Z.G. ALEMU
H.D. VAN SCHAKLWYK [hvs@ufs.ac.za]
41st Annual Conference of the Agricultural Economics Association of South Africa, CSIR conference centre, Pretoria, 2 October 2003.
A linear approximated Almost Ideal Demand System (LA/AIDS), estimated in first differences, were used to estimate the demand relations for meat (beef, chicken, pork and mutton) in South Africa from 1970 –2000. Two tests for weak separability, including an F and Likelihood ratio version, failed to reject the null hypothesis of weak seperability, confirming that the four meat products are separable, and should be modelled together. According to the Hausman exogeneity test, the expenditure term in the South African meat demand model is exogenous. As a result, a Restricted Seemingly Unrelated Regression (RSUR) was used to estimate the model, whereafter the estimated parameters were used to estimate compensated, uncompensated and expenditure elasticities.
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Management of water extremes: A south African perspective on guideline for policy and strategy development
Viljoen, M. F. (viljoenmf@ufs.ac.za)
Paper presented at Pre-IAAE-Conference on African Agricultural Economics, Ausut 13-14, 2003, Bloemfontein
Utilising insights gained from a literature study about the social, economic and political impacts of irrigation droughts, research done on the impacts and management of floods and water restrictions in South Africa as well as analysing the disaster management policy process in South Africa since 1994, this presentation endeavours to present some guidelines for policy and strategy development with regard to the effective management of floods and droughts. In compiling this contribution extensive use has been made from a paper presented at a workshop of the ICID Working Group on Irrigation under Drought and Water Scarcity, Tehran, by G.R. Backeberg and M.F. Viljoen.
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Creating Agribusiness Opportunities for small-scale farmers in Thaba Nchu by introducing water havesting techniques: A probability and risk analysis
M. BAIPHETHI
M.F. VILJOEN (viljoenmf@ufs.ac.za)
G. KUNDHLANDE
41st Annual Conference of the Agricultural Economics Association of South Africa, CSIR conference centre, Pretoria, 2 October 2003.
Thaba Nchu is a semi-arid area with low and erratic annual rainfall not exceeding 600mm. Various dryland crops are produced with relatively low yields and high risk of failure. Lack of appropriate technology and other constraints has led to most of the arable land being unused thus restricting agribusiness opportunities in an area where unemployment and food insecurity are thriving.

Rainwater harvesting has a huge potential to increase crop yields in Thaba Nchu and reduce the risk of losses, and thus improve food security and enhance sustainability. Different in-field rainwater harvesting (IRWH) techniques have been tested and applied at Glen and Thaba Nchu. This paper gives comparative results for three crops produced with regard to relative profitability and risk of failure. This is done by integrating crop enterprise budgets with crop yield simulations models to calculate per hectare profits over an 81-year period and developing and analyzing cumulative probability functions.
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The ethics of informal settlements in flood plains: Insights gained from a study testing the merits of palaeoflood and conventional flood hydrology in Flood Control Planning at Soweto-on-sea
Mompati SOLOMON
M.F. VILJOEN (viljoenmf@ufs.ac.za)
41st Annual Conference of the Agricultural Economics Association of South Africa, CSIR conference centre, Pretoria, 2 October 2003.
Adhering to planning ethics is especially relevant when flood control planning of communities who settled in flood plains is at stake. Soweto-On-Sea (SOS) is an informal settlement in the flood plain of the Lower Chatty River near Port Elizabeth. As part of a research project which compared palaeoflood and conventional flood hydrology in the planning of flood control measures for SOS within a Cost Benefit Analytical (CBA) framework attention was also given to some ethical considerations. This paper, inspired by the conduct, rules and principles that govern the informal settlement of SOS evaluates some flood plain development and planning issues with a code of ethical conduct for planners and comes up with explanations for ‘unethical’ conduct of and towards flood plain residents as well as some suggestions for improving future planning and developmental endeavours.
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Impact of capital on the growth process of a sugarcane farm in Mpumalanga
B.O. HAILE
B. GROVE [GroveB@ufs.ac.za]
L. K. OOSTHUIZEN (oosthlk@ufs.ac.za)
41st Annual Conference of the Agricultural Economics Association of South Africa, CSIR conference centre, Pretoria, 2 October 2003.
The research was conducted for a representative 50 ha farm in the Onderberg region in Mpumalanga province, where farmers use a combination of centre-pivot, drip, and dragline systems of different sizes to grow sugarcane. The main intention was to establish a multi-period linear programming model capable of economically evaluating a farm expansion decision making process for farmers faced with investment decisions in alternative irrigation systems, taking in to account the available initial capital of the farm. A linear programming (LP) model was used to assign a mainline for a total of twelve irrigation system combinations based on the assumption that the farmer wishes to start with a 30 ha centre-pivot investment. Generalized Algebraic Modelling System (GAMS) was used to formulate the farm growth model as mixed integer dynamic linear programming (MIDLP) for a 15 year planning horizon. Based on the results, farmers are initially forced to invest in lower cost irrigation systems when they lack capital to start a farm business due to the time value of money. They only consider lowering operating costs by investing in expensive irrigation systems when they have more own capital or borrowing capacity.
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Precision Agriculture Journal

Maine, N. James Lowenberg-DeBoer, J., Nell, W. T. & Alemu, Z. G. 2009. Impact of variable-rate application of nitrogen on yield and profit: A case study from South Africa. Precision Agriculture Journal. Netherlands, Springler. http://www.springerlink.com/content/f86447265n141342/
Abstract  
The response of maize (Zea mays) to banded variable-rate nitrogen (N) application over a period of 3 years (2002/3–2004/5) is analyzed. The experimental design alternated variable-rate (VR) and single-rate (SR) applications of N. The yield monitor data were spatially autocorrelated and therefore were analyzed with spatial regression methods. The baseline spatial regression model defined in this study showed that the VR treatment, treatment by year and treatment by management zone were statistically significant. Sensitivity tests were applied; the first showed that VR treatment had a yield advantage when soil depth was greater than the field average of 174 cm. The second test showed that the VR N rates applied were close to those that would maximize profit. Partial budgeting indicates that benefits from VR vary from year to year, but in this test VR was slightly more profitable than uniform rate application. Economic sensitivity testing indicates that farm size and the price of maize are the key factors in the profitability of VR N.

Keywords
Precision agriculture - Variable-rate application - Spatial regression models - South Africa

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Last updated: 28 August 2013 08:03