General Equilibrium Effects in the South African Maize Market: International Trade Simulations

Abstract

Following deregulation in the 1990's the South African maize producing industry has been suffering a gradual decline. Current low prices suggest that this trend may continue or worsen. This paper discusses the results from a static general equilibrium model for the South African economy to evaluate the effects on the economy. The analysis covers summer cereals producing agricultural regions, production in other sectors in the economy, commodity markets and the economy at large. Additionally, the effects on factors, households and the government are analysed. The first set of experiments is aimed to evaluate the effects of an increase in import tariffs on summer cereals. The results indicate that under normal conditions South Africa will experience little effect for even relatively large increases in the tariff rate, which follows from the fact that South Africa does not currently import sizeable quantities of maize. The second set of experiments evaluate the effects of a change in world prices of summer cereals, under the presumption that a reduction in levels of producer support in developed countries may lead to increased world prices. The results indicate that this terms-of-trade improvement does not necessarily lead to benefits to all in the economy. Benefits to summer cereals producers are largely offset by losses in other sectors of the economy, for example producers of livestock, though the overall effect is still positive.