The development of an integrated modelling framework for the dualistic beef sector in Namibia

Abstract

This study develops an integrated model that can capture the dynamics of supply and demand in the dualistic beef cattle market of Namibia. The dualistic nature of the Namibian beef cattle sector is characterised by the co-existence of communal and commercial cattle production sub-sectors.Against this background and context of Namibia, this study explores the ability of an integrated partial equilibrium model to generate various baseline projections, including the supply and demand variations, off-take rate, pricing and gross margin of the complex dualistic cattle sector.In the process of evaluating the performance of the model, the study pursued three objectives: (i) to evaluate the impacts of price adjustment mechanisms and relationships in the beef cattle industry in Namibia; (ii) to project a baseline of main aggregate variables for the beef cattle sector that includes the slaughter stock, off-take rates and beef cattle disappearance in the commercial and communal areas; (iii) to quantify the impact of the productivity gain for the beef production, exports, pricing and long-term gross margin of the beef cattle industry in the formal and informal beef sub-sectors in Namibia. In pursuit of the first objective, this study estimated a multivariate cointegration vector error correction model. The findings on the price adjustment indicate that informal beef cattle prices do not adjust rapidly (about 63 percent) to equilibrium, compared with the cattle prices in the formal beef market (about 81 percent). Further analyses of the disaggregation of the supply responses of live cattle and beef markets indicate that the main drivers of cattle and beef supply responses in Namibia are the off-take rates, veld condition, ratio between the beef carcass price and the weaner price. Addressing the second and third objectives required the use of an integrated partial equilibrium approach to simulate the demand and supply dynamics of beef cattle in the formal and informal markets. An integrated partial equilibrium model developed in this study was based on the autoregressive distributed lag formulation. A short-term projection from 2023 to 2030 was assumed in this analysis, which included two shocks. The outlook for cattle numbers in both formal and informal sub-sectors are increasing year-on-year. A productivity gain of 20-percent off-take rate would cause increases in slaughter numbers in the formal commercial sub-sector of 14.88 percent in 2023, about 0.05 percent in 2024, and no increase is expected from 2024 to 2030. While the informal sub-sector, slaughter stock is expected to increase by 0.04 percent in 2023, about 0.12 percent in 2024 and an increase of less than 0.23 percent is expected in 2026 to 2030. During the same scenario shock, the weaner stock numbers are expected to increase by 4.01 percent in 2023, an increase of 0.38 percent is expected in 2024, and 1.36 percent in 2025. Overall, a positive outlook is expected for slaughter stock, weaners, and beef production. An increase in supply of slaughter stock and weaner has an impact on the price. Namibia exports beef, therefore, a trade policy shock introduced on the model to capture its implication on slaughter stock, beef production, weaner production, beef cattle price, on-farm supply of beef and gross margin. The shock leads to reduction of slaughter stock and beef production in the 2023 period only. This results in growth in 2024 to 2030. A trade policy restricting access to the EU market means that Namibia would have to export its high value beef cuts to non-EU countries such as Norway, UK, USA, mainland China, Hong-Kong, South Africa and other African markets such as Angola, Ghana and Zimbabwe under the African Continental Free Trade Agreement. This study shows that an integrated partial equilibrium model that incorporates the dualistic sub-sectors is ideal for capturing the real impacts more appropriately than would a single sub-sector analysis that does not account for the dualistic nature of commercial and communal sub-sectors. Such a single sub-sector analysis may overlook important aspects and implications of the policy by concealing the effects on the productivity and financial and economic positions of the farmers in a dualistic sub-sector. Accordingly, this study provides a modelling tool to be used by policy makers to comprehensively investigate the combined effects of policies on the disaggregated beef cattle sector and to perform scenario analysis. However, it is observed that the simulation outcome presents mixed results on slaughter numbers, beef production, prices, on-farm supply and beef export levels. Furthermore, the model simulates small impacts. This can be attributed to the autoregressive distributed lag approach adopted in chapter 4. An alternative approach is adopted, because developing a model, requires getting the model closure right, and it is just as important as having good supply and demand elasticity estimates. Therefore, to use the model developed in this study for policy formulation, a refinement to the model is required to generate robust and realistic impacts.