Adoption of genetically modified crops in South Africa : effects on wholesale maize prices

Abstract

The ability of genetically modified (GM) crops to increase yields and reduce use of pesticides is well established. Based on food security needs and the central role of agriculture, Africa may stand to benefit from green biotechnology given the low agricultural productivity and the looming food crises in most urban areas. However, the adoption of GM crops in Africa has been slow and limited to a handful of countries. The primary objective of this paper is to evaluate the impact of GM maize adoption in South Africa by looking at wholesale spot prices. We apply a threshold autoregressive model to time series data on the price of maize and GM adoption rates in South Africa to address the following questions: (1) Does the adoption of GM maize excite the growth rate of price of maize in South Africa; (2) Does the error variance of the maize price growth rate exhibit regime-switching behaviour to impact the volatility? The results show evidence that the adoption of GM maize influences the dynamics of the maize price growth rate in South Africa. Further, there is strong evidence that the error variance exhibits regime-switching behaviour with the posterior mean for the error variance in the first regime about twice as large as that of the second regime.