Is there justification for levy expenditure on export promotion and market development in the agricultural sector in South Africa

Abstract

South Africa’s industries in the agricultural sector spend some of the statutory levy income on export promotion and market development (EPMD) activities. Some industries argue that levy expenditure on EPMD activities generates satisfactory returns on investment but empirical evidence is yet to be presented to support the argument. Hence, this study fills this gap by building a unique dataset based on levy expenditure on EPMD for four industries (citrus, deciduous fruits, table grapes and wine) and using econometric analysis to assess the impact of EPMD on exports, net agricultural income and social welfare over a ten years’ period (2006- 2015). Furthermore, we estimate the returns generated on exports, agricultural net income and social welfare per Rand of levy expenditure on exports, net agricultural income and social welfare. In the analysis, we control for unobserved heterogeneity, multi-collinearity and reverse causality. Results suggest that levy expenditure on EPMD has a statistically significant positive impact on exports, net income and social welfare across all industries. On average, a unit increase in levy expenditure on EPMD leads to an increase in exports by 7.3 percent (table grapes and deciduous fruits), 5.6 percent (wine), 5.25 percent (citrus). For agricultural net income, a unit increase in levy expenditure on EPMD is on average associated with a 7.5 percent, 4.9 percent, 4.3 percent and 3.6 percent increase for table grapes, citrus, wine and deciduous fruits, respectively. Across all industries, the range of social welfare improvement lies between 0.2 percent and 0.4 percent per unit increase in levy expenditure on EPMD. Furthermore, results suggest that one Rand spent on EPMD for the four industries in question on average generates a R404 increase in exports, R39 of additional agricultural net income and a US$26 worth of improvement in social welfare. All in all, levy expenditure on EPMD plays a key role in fostering exports, agricultural net income and social welfare improvement. Policy wise, there is need for mobilisation of more resources to facilitate the EPMD initiative into new markets and products for the industries.