An economic assessment of the implications of changes in wheat quality standards in South Africa

Abstract

South Africa has been a net importer of wheat for the past two decades. Due to the inverse relationship between quality and yields, it has been argued that the pursuit of the high wheat quality standards as set by government has led to greater financial loss, rather than financial gain. Various stakeholders in the wheat value chain are said to lose more than they gain from the high quality standards that are required to be maintained. Given the industry claims of the required wheat quality standards being too high, the aim of the study is to evaluate the economic implications of government intervention in the wheat industry through their enforcement of quality standards. The specific objectives of this study have become the determination of historic output changes of bread-baking wheat and non-bread-baking wheat in the South African wheat industry, and to determine the returns from the current government-required wheat quality standards. The Fisher Divisia index method was used to determine the historic output changes of bread-baking wheat and non-bread-baking wheat in the South African wheat industry. It was found that the output of both non-bread-baking and bread-baking wheat quality had a declining rate. However, the output of wheat of bread-baking quality was declining at a faster rate than that of wheat of non-bread-baking quality. To determine the returns from the current wheat quality standards, econometric modelling was used along with a benefit-cost analysis. It was found that the application of quality standards as set in the Agricultural Product Standards Act No. 119 of 1990 (APS) has led to an average total cost of R45.6 million and associated benefits of R28.2 million between 1999 and 2014. This has resulted in a benefit-cost ratio of 0.62. This implies that for every Rand invested in public breeding for quality improvement, 38 cents has been lost. This further suggests that for any amount invested in breeding solely for the purposes of quality improvement, a significant amount has not been recovered. There are therefore cogent reasons to consider reforming the Agricultural Product Standards Act.