Integrating agricultural input expenditure into a partial equilibrium model of the South African agricultural sector

Abstract

Most partial equilibrium models of the agricultural sector have not incorporated a dynamic and interlinked module for agricultural input expenditure. The South African Bureau for Food and Agricultural Policy (BFAP) model, which models a major share of agricultural output in South Africa, has also up to now not integrated input expenditure into the modelling framework. In most models, input costs are treated as exogenous and the recursive link between the input and output sides of the sector is overlooked in the models that attempt to incorporate input expenditures. This article addresses both issues by integrating agricultural input expenditures into the South African sectoral partial equilibrium model by endogenising input costs and recursively linking both the input and output sides of the agricultural sector. Thus, the impact of increasing the input cost may not only signal a fall in the gross value added and net farming income, but also a growth in subsequent years when the recursive effect of the impact is fully accounted for.