An analysis of the comparative advantage and policy incentives of commercial wheat production in South Africa

Abstract

Despite the fact that all direct and indirect measures of subsidisation and protection have been removed, commercial agriculture is still widely considered to be subsidised, privileged and uncompetitive. This paper shows how the process of deregulation has in fact changed the situation. It reports on the comparative advantage in the production of wheat in South Africa and reveals the various distortionary effects, if any, of the policy environment on the production of wheat prior to 1997. The paper concludes that South Africa has a strong comparative advantage in the production of wheat, especially in the inland areas. Favourable climatic and soil factors as well as abundant and relatively cheaper domestic factors of production may be some of the reasons for this strong comparative advantage. The inland areas have better RCRs due to higher inland transportation costs. However, wheat production under irrigation seems to have no comparative advantage. This is mainly due to the implicit subsidy on irrigation water.