The comparative advantage of South Africa soybean production

Yonas T Bahta,Johan Willemse

doi:10.1051/ocl/2015069

Abstract

The effect of trade policy on the South African soybean industry is analyzed by using 4 digits Standard International Trade Classification of soybean (1201) data of 1996–2011. The Revealed comparative advantage (RCA), Hirschman index, Major export category, Effective rate of protection (ERP) and Nominal rate of protection (NRP) were calculated. The RCA of the soybean industry in South Africa has shown a revealed comparative disadvantage from 1996–2011. Hirschman index indicates that the soybean industry shows lower concentration throughout 16 years. Lower concentration reduces the impact of international trade risk due to the possibility of price fluctuation of the soybean product. MEC measurement also indicates that South Africa does not rely its international trade from the soybean industry. ERP and NRP were also calculated, using an enterprise budget for soybean production. The result shows that the ERP is negative, which indicates that the weighted input tariffs on soybean inputs amount are more than the output tariffs; that is an indication producers of soybean would be better off, everything else being equal, by not being protected through tariffs. The NRP is higher than the ERP which implies that the tariff applied on the output is higher than the tariff applied on inputs. The structure of the tariff schedule may have an important bearing on efficiency. Thus, the study recommended that an extremely dispersed and ill-chosen tariff structure implies that protection remains uneven and gains from openness may still be confined.

Highlights

The nominal rate of protection (NRP) is higher than the Effective rate of protection (ERP) which implies that the tariff applied on the output is higher than the tariff applied on inputs
The recommendations embedded in the South African World Trade Organization (WTO) modalities pertaining to protection, were mainly based on a general guideline that the customs duty should result in domestic production and consumption volumes more or less similar to those produced under import control (Bahta, 2004; Kraamwinkel, 1998; USAID, 2006)
Since South Africa is a net importer of soybean meal and soybean oil, the domestic price of soybean meal and soybean oil will trade close to the import parity price of soybean meal and oil (Dlamini et al, 2014; National Agricultural Marketing Council (NAMC), 2011)

Summary

Introduction

The Bureau for Food and Agricultural Policy (BFAP) projects that 605 000 hectares of soybeans could be planted. The recommendations embedded in the South African World Trade Organization (WTO) modalities pertaining to protection, were mainly based on a general guideline that the customs duty should result in domestic production and consumption volumes more or less similar to those produced under import control (Bahta, 2004; Kraamwinkel, 1998; USAID, 2006). To answer the questions appertaining to the effect of trade policy on the soybean sector is vitally important. (RCA), Hirschman index (H), Major export category (MEC), Effective rate of protection (ERP) and Nominal rate of protection (NRP) to better understand a national pattern of production and export of soybean in South Africa

Overview of the South African Soybean sector

Methodology and data

Economic model

Export diversification index

Interpretation of results

Findings