AN ECONOMIC ANALYSIS OF ALTERNATIVE MARKET SCENARIOS FOR WHEAT IN SOUTH AFRICA

J. Howcroft and G. F. Ortmann

Agrekon, 1992, vol. 31, issue 01

Abstract: The marketing of wheat has been controlled by the Wheat Board since 1935 and wheat is currently marketed through a one channel fixed price scheme. In this paper various market scenarios for wheat in South Africa are simulated with the use of a regional linear programming model which incorporates negative-sloping demand functions, substitution in demand between wheat and maize, and income risk. The model is used to predict changes in product prices, production levels, location of production and welfare transfers under the different market scenarios. A free market simulation showed a distortion in production patterns of the major crops caused by the price support policy. The domestic free market equilibrium price of wheat was predicted to be about 15 per cent lower than the mean fixed price. Owing to the strong price relationship between wheat and maize there is no significant decrease in the wheat price in a free market for winter cereals only and when maize is the only crop marketed under a fixed price system. The social cost analysis showed clearly that to reduce social costs a combined marketing policy for wheat and its related industries is required.

Keywords: Crop Production/Industries; Marketing (search for similar items in EconPapers)
Date: 1992
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Persistent link: https://EconPapers.repec.org/RePEc:ags:agreko:267510

DOI: 10.22004/ag.econ.267510

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