An Analysis of Southern African Development Community (SADC) Free TradeArea (FTA): Implications for the Liquid Milk Consumers and Producers’ Potential Welfare in Swaziland

Abstract

Free Trade Area (FTA) is a regional integration agreement that removes tariffs among members, but leaves them with autonomy to set their tariffs with non-member countries. The Southern African Development Community (SADC) has launched its free trade area since 2008, but this process has remained a statement of intent for some member countries. This paper analyzed the SADC Free Trade Area - Implications for the Liquid Milk Consumers and Producers' Potential Welfare in Swaziland.Time series data for thirty-six years(1975- 2010) were sourced from Food and Agriculture Organization (FAO), Swaziland Dairy Board (SDB), the Swaziland Central Statistics Office and Milk Producer Organization of South Africa. Data were analyzed using the partial equilibrium model to evaluate the welfare change; the log-regression models to estimate the price elasticities; and the error correction model to capturethe adjustment speed. Results show a potential positive net social welfare (198% increase in market); the price elasticities of demand and supply are0.02 and 0.04, respectively and significant at 5 per cent (p < 0.05); and the error correction model (ECM) is -0.62. These results suggest that Swaziland should not only be committed to free trade agreement, but also to all regional integration processes in order to reap economic benefits from regional trade liberalization.