Capturing the dynamics of the South African sunflower seed market in a partial equilibrium framework

Abstract

Sunflower is the most important oilseed crop in South Africa and accounts for approximately 60 % of all oilseeds produced locally. The primary by-products of the sunflower seed crushing industry provides high-value inputs towards the food and animal feed manufacturing sector in the form of edible oil and protein meal. Prior to 1996, the South African sunflower seed complex market was controlled by the Oilseed Board, which operated a single-channel pool scheme and regulated the marketing of oilseeds and oilseed products. Since the liberalisation of the South African agricultural sector, role-players have been fully exposed to the dynamics and risks of the international oilseed complex market. Over the years participants in the agricultural commodity markets have developed various instruments to assist them in their decision-making process – one of them being commodity modelling, which is described as a methodological technique that provides a powerful analytical tool for examining the complexities of commodity markets. In South Africa, many role-players in the various agricultural industries make use of a multi-sector commodity level partial equilibrium model better know as the BFAP sector model which is maintained by the Bureau for Food and Agricultural Policy (BFAP) at the University of Pretoria. The objective of this study was to expand the coverage of the existing BFAP sector model by developing a comprehensive system of equations for the total sunflower seed complex, which includes not only a partial equilibrium model for sunflower seed, but also sunflower oil and cake. In this study much emphasis was not only placed on the formation of prices of the various products, but also the application of the most suitable model structures in order to trace the behaviour of the various prices under real market conditions as accurately as possible. This study applied the methodology developed by the Food and Agricultural Policy Research Institute (FAPRI) and further adapted by the Bureau for Food and Agriculture Policy (BFAP) to develop the partial equilibrium model of the South African sunflower complex. The single equations were estimated by mainly using ordinary least squares (OLS), but in cases where the results of the OLS were contradictory to the theory or where insufficient data was available, calibration techniques were employed and the equations were synthetically constructed. The constructed model was applied to lay down a baseline projection for the total production and consumption blocks of sunflower seed, oil and oilcake. The baseline projections also formed part of the ex post validation of the model’s performance. Finally the consistency of the model was evaluated in the form of scenario analysis. Various real-world market- and policy-related shocks were imposed and the results were compared to the baseline projections. In general the model developed in this dissertation performed well and can be used to analyse the effects of economic, technological and policy changes on the South African sunflower seed complex. It also provides a sound structure for the development of a complete South African oilseed complex model that includes soybeans, canola, groundnuts, cotton and imported palm oil. Copyright