Developing a simulation model for the South African potato industry : a regional approach

Abstract

The introduction of democracy in country of post-Apartheid South Africa precipitated both economic and social changes. These changes have led to the liberalisation of the economy and the movement of the agricultural sector from being highly regulated to a market-based sector. Consequently, the country‟s economy has become exposed to global uncertainties. These changes brought about the need for role players to understand the dynamics of the agricultural sector in order to forecast possible future trends and assess their impact on agricultural production and consumption. Projecting economic and environmental uncertainties in agriculture is essential to make informed decisions and sustain agribusinesses.</li> In an attempt to combat the challenges and to understand the dynamics mentioned above, a system of equations with the ability to simulate the dynamic interaction between production and consumption at a regional level for South African potato producers, policy makers and wholesalers, is developed in this study. Existing methodology on partial equilibrium modelling is applied to develop a tool that can be used to analyse the potential impact of relative environmental shifts on the South African potato industry. Individual equations, which are | vi collapsed into a single system of equations, are estimated by means of Ordinary Least Square (OLS). The specific objectives of this study are as follows: <ul> <li> To estimate the potato area planted, yield and consumption of various categories of potatoes, in order to determine the price elasticity of demand and elasticity of supply.</li> <li> To develop a system of equations that will be used to generate baseline projections of demand and supply in the industry.</li> <li> To undertake impact analysis of various scenarios over the period 2011 to 2015. Although the model developed is mainly South African focusing on regional production and national consumption, the dissertation will recommend the possibility of future studies that use this study as a springboard for further research. These recommended studies include the linking of other models to improve and simulate relations between the potato sector and other sectors, thereby emulating the actual economy.</li> <li> One such requirement is to connect the vegetable and potato industries, a move which agricultural sector experts believe will benefit the outcomes of the potato industry.</li></ul> Consumption is estimated at national level, and is conducted according to the use of informal fresh and formal fresh potatoes for processing and seed potatoes. It is advisable for future research and study to estimate and project production and consumption at regional level. The baseline projection will be developed, and then the study will further undertake several scenarios which will lead to various possible future outcomes, discusses and document the response. Eventually, the model shows possible relationships, uncertainties and interactions between potato productions, consumption and prices. And that the domestic price, quantity demanded, the supply and the net exports actually determine the South African market equilibrium price and the decision to export in the South African potato industry. This is also called the near autarky situation. Copyright