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Economic value of quality restrictions on the wheat industry in South Africa

Naledzani, Zwiafhela, Chaminuka, Petronella, Nhundu, Kenneth, Machethe, Charles L., Liebenberg, Frikkie
Agrekon 2019 v.58 no.1 pp. 102-112
breeding, cost benefit analysis, crop production, cultivars, economic valuation, industry, irrigation, prices, rain, summer, wheat, winter, South Africa
Wheat is South Africa’s second most important grain crop and is produced in winter rainfall, summer rainfall, and irrigation regions. Despite being a net importer of wheat, the country has stringent wheat quality requirements as per the Agricultural Products Act (Act No. 119 of 1990). This paper investigates the effects of the quality requirements in different regions and the wheat industry as whole. Forward regression and benefit–cost analysis were applied to data on wheat area planted, seed adoption rates, prices, and cultivar performance from 1999 to 2016. A total of 31 527 observations from winter, summer and irrigation regions were used, each accounting for 4563, 8824 and 18 140 cases respectively. Forty-nine cultivars were used for trials during this period. Results show that stringent quality requirements have resulted in losses of approximately 39 000 tons from 1999 to 2016. The benefits of pursuing the prevailing quality standards amounted to R400 million while the costs amounted to R514 million, far exceeding the benefits. The resulting benefit–cost ratio was 0.78, implying that for every rand invested in breeding for quality alone, 22 cents is lost. It can be concluded that government intervention through quality standards has led to more losses than gains. In addition, investments made towards quality improvement alone have not been recovered due to the high standards. There are therefore cogent reasons to consider relaxing the quality standards to allow for higher wheat outputs, thus unlocking growth in local wheat production.