Supply Response of Milk Producers to Economic and Non-Economic Factors in Swaziland

Abstract

Supply response indicates the output change due to the change in price and non-price factors. The main aim of this study was to analyse the supply response of milk producers to various economic and non-economic factors. The specific objectives were to determine the responsiveness of milk supply in Swaziland to price and its substitute price (milk powder) and to examine the responsiveness of milk producers to non-economic factors such as rainfall, technology and dairy cattle inventory. The study used time series data from 2010 to 2014 and each year was given in months in-order to have 60 data points. Several techniques relevant for analysing time series data were employed, which included testing for stationarity of the data, checking if the independent variables if are able to explain the dependent variable (cointegration), running the long-run regression, then dropping some of the residuals which were not significant, after which the Vector Error-Correction Model and the diagnostic tests were conducted. Such analysis included the formal test for stationarity. The Johansen cointegration test was used which provided evidence of cointegration between Milk Output and its determinants. The long-run regression results revealed that Milk Powder Output and Milk Powder Price are significant in determining milk response in the long-run in Swaziland with the elasticities of -0.48 and -0.92 respectively, while the short-run coefficients were-0.21 and -0.70 respectively. Both variable were significant at 1% in the short-run and only the Milk Output was significant at 5% (P>0.05) in the short-run. The Vector Error Correction Model (VECM) came out with the correct -0.129 implying that only 12.9% of the shocks will be adjusted back to the long-run path within a month. The study therefore, recommended that the Swaziland Government should promote local market share and purpose policies to decrease the country’s reliance to imported dairy products, which negatively affects economic development.