Nick VinkDepartment of Agricultural Economics

University of Stellenbosch

Policy changes Productivity indexes SA/NZ (Vink and Sandrey) Technology change (Sandrey and Vink,

OECD) Where does RSA fit in? (Anderson et al) Conclusion

Reduction in commodity-specific subsidies

Interest rate subsidies cut (but ‘drought aid’) Abolition of dairy price control Bread price subsidy Abolition of control over price of maize meal,

bread flour, bread Maize price formula changed Etc.

Reduction in farmer support programmes

Tax treatment changed (ring fencing tightened, capital depreciation aligned)

Budgetary allocations supporting white farmers declined by some 50 per cent between 1987 and 1993

The basis for farmer support programmes was taken away

Trade liberalization under the AoA

Tariffication and agreed reductions Unilateral reductions GEIS

Intervention in input markets

Land Abolition Act 1991 White Paper, Acts, ImplementationLabour Dedicated legislation, 1993 Incorporated in mainstream after 1994 Minimum wage, etc. 2001Water Loss of riparian rights

Deregulation of agricultural marketing

The ‘big bang’ of 1997

Productivity of:

Labour Capital Land TFP

Western Cape

RSA

1993 9.2 18.5

2002 15.4 11.7

2007 15.2 10.8

0

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Real gross capital formation Index of interest rates

Poly. (Real gross capital formation) Poly. (Index of interest rates)

60000

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100000

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Real value of capital assets Poly. (Real value of capital assets)

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tio

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Debt/GDP Debt/NFI Debt/Asset

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NFI/R100 investment Poly. (NFI/R100 investment)

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1970

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To

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a

Mielies Koring Poly. (Mielies) Poly. (Koring)

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Years

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Output Inputs TFP

SA/NZ comparison Technology adoption Southern hemisphere comparison

Share southern hemisphere climate NZ has more reliable rainfall and better

soils NZ, with its smaller domestic population, is

more export-oriented Both are Cairns Group members: world

leaders in unsubsidised agriculture

Both underwent dramatic reforms; NZ in the mid 1980s and SA a decade later

The evidence shows that NZ has adjusted to ‘free’ markets better than SA to date

The ‘to date’ qualification is important, as the NZ experience shows that time lags can be longer than expected

Marketing reform was triggered by external macroeconomic factors in both

NZ: economic stagnation, change in government in 1984, subsequent drive to liberalise

Agriculture a central part of these reforms SA: also macroeconomic precedents, as

attempts to stabilise the economy in the late 1970s resulted in a rapid increase in interest rates

Thus, both countries embarked on the reforms at about the same time

However, the process from that time onwards was markedly different

To understand these differences, and their consequences, it is necessary to compare the reforms in terms of their timing, sequencing, breadth, and depth

NZ: most reforms implemented within 3 years of the 1984 elections

PSE declined to below 5% after 1988, and has since declined to below 1%

SA: reforms for 15 years followed by the ‘big bang’ that lasted for 12 months

NZ market reforms preceded SA by a decade

SA’s PSE remained at above 10% until 1995 after which it declined to below 5%

Deregulation in NZ had two distinguishing features :

NZ: marketing reforms preceded international trade liberalisation under the AoA

SA: sequencing more complex as explained above. Trade liberalisation preceded the ‘big bang’

However, no evidence that policy makers in NZ or SA followed any deliberate sequence of reforms

SA and NZ: Virtually all of agriculture was subject to intervention before deregulation

In both there is evidence that previously uncontrolled industries have been the most successful

NZ: deer and wine SA: Poultry and vegetables NZ also implemented labour market

reforms, which resulted in more flexible labour markets

The biggest difference between SA and NZ was in the depth of the reforms

SA: all statutory powers were removed, with two exceptions:

Sugar industry The powers of the NAMC that allow

statutory leviesNZ: the end result was more nuanced: Quota allocations into EU and USA remain

in dairy and meat, while kiwifruit operates a single desk with monopoly export powers

This did not result in a higher PSE, because import controls are not necessary to maintain an export monopoly, hence the price gap between domestic and world prices, the key to the measurement of PSE, is unaffected

This has both costs and benefits to different stakeholders

Agricultural exports’ share in production increased from 1/5 to 1/3

Agricultural exports increased by 9.2% p.a. between 1997 and 2007: wine, citrus and table grapes grew by 17.8%, 16% and 12.9%

Some evidence of innovation, but the jury is still out on the results of the reforms

Different patterns of technological growth can be observed by and within regions over time

Innovation continues apace, but how much of it can be ascribed to the reforms?

Field crops Prices declined to world market levels Farmers shifted to low-till, etc. production Reduced inputs such as fertilisers,

insecticides, herbicides, tractors, other machinery, and fuel

Thus process rather than product innovation Industry average yields more than doubled

Fruit sector Increase in output and exports, driven by: (1) the addition of new export-oriented

production regions (Orange river: pre-reform)

(2) introduction of new production technology

(3) introduction of better control over the cold chain

Export growth OK, but limited

Wine Marketing reforms resulted in: (1) Many new entries in the industry (2

cellars/month for >10 years!) (2) Inward FDI, accompanied by overseas

marketing and the burgeoning tourism sector

(3) Large scale replanting of vineyards

Agric. land per capita

GDP per capita

Agric. share of exports

Southern Hemisphere temperate-zone countries

Argentina 4.3 0.9 5.4 Australia 28.6 4.2 2.8 Chile 1.2 0.9 3.9 New Zealand 5.4 3.1 6.7 South Africa 2.8 0.6 1.3

Other BRICS Brazil 0.4 0.5 0.5 China 0.5 0.2 0.6 India 0.2 0.1 1.4 Russia 1.9 0.5 0.5

Northern Hemisphere temperate-zone countries

Western Europe 0.5 4.5 1.1 United States 1.8 6.6 1.1 Canada 2.7 4.5 1.4 Japan 0.1 6.1 0.1 WORLD 1.0 1.0 1.0

World = 1.0

Argentina Australia Chile New Zealand South Africa GDP share 1950-54 22 1960-64 16 14 1970-74 11 9 7 12 7 1990-94 6 3 9 10 4 2000-04 7 3 4 9 3 Employment 1960-64 19 10 29 14 36 1980-84 13 6 20 11 17 2000-04 9 4 15 9 9 Export share 1950-51 86 1960-64 93 78 9 83 1970-74 79 51 9 70 351

1980-84 73 40 28 58 9 1990-94 60 31 36 50 8 2000-04 48 25 34 44 8

Agricultural exports as % of primary production Argentina Australia Chile New

Zealand South

Africa1

1960s 42 46 1 40 11 1970s 34 44 8 45 15 1980s 37 55 34 61 11 1990s 36 56 41 66 9 2001/04 36 55 67 64 11 1These percentages for South Africa are close to the share of just unprocessed agricultural exports, according to official data from SA Customs and Excise. If processed food is added, those shares roughly double but are still much less than those for the other four countries shown.

Argentina Australia Chile New Zealand South Africa

Simple average applied (bound)a tariff:

Agriculture 10(33) 1 (3) 6(26) 2 (6) 9(41) Non-agriculture 13(32) 4(11) 6(25) 3(10) 8(16)

Share of MFN applied tariffs <6%b

Agriculture 14 99 100 83 56 Non-agriculture 29 85 100 67 64 a The WTO-bound tariff is shown in parentheses.

b Less than or equal to 5 percent, except for Chile where it refers to 6 percent

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Output index

Argentina

Australia

Chile

New Zealand

South Africa

NRA calculations show that South African agriculture is relatively unprotected – similar to Australia, Chile and New Zealand (Argentina still taxes agriculture)

But output and export growth has been slowest in South Africa

Why: poor resources or investor confidence?

Or do we just have to wait longer to reap the benefits (or pay the price!)