A supply‐response analysis of Botswana's livestock and sorghum: An error‐correction approach

Abstract

This article is a supply‐response analysis of Botswana's livestock and sorghum relative to agricultural/non‐agricultural prices (terms of trade), and of capital‐labour ratio, using an error‐correction method. Aggregate capital‐labour ratio is included to measure the importance of resource endowment in particular sectors. There has been, on average, a small progressive increase in livestock terms of trade and a decline in that of sorghum. Improvements in livestock price terms of trade encourage increased livestock (cattle) supply whereas declining terms of trade reduce sorghum production. The current arable pricing policy of the government is therefore of limited potential in transforming the sub‐sector. Increases in capital‐labour ratio tend to reduce agricultural production in the Botswana economy.