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GTAP Resource #2086

"Regional Growth Linkages and Market Opportunities for Agriculture and Food Security in Southern Africa"
by Nin-Pratt, Alejandro

Strengthening linkages and generating mutual benefits across countries is an important part of a strategy to generate economic growth. In the case of Africa, regionalism has received special attention as a result of growing fears of African marginalization and several regional initiatives were developed along the continent and in particular in Southern Africa.
One of the strategic choices in an agricultural-led growth strategy in Southern Africa is: staple crops vs. non-traditional, high value agricultural products. Production of staple food and in particular of cereals and maize is one of the areas that could be affected by regional integration with obvious implications in terms of rural poverty and food security. The combined effect of poor access to input and output markets, and poor infrastructure (roads and irrigation), prevents poor countries and in particular their smallholder sector from effectively competing with larger scale commercial farmers in the region. In the absence of these underlying constraints, poor countries have the potential to dramatically increase their share of maize traded in domestic and regional markets over time.
Evidence of the potential importance for the region of non-traditional products like processed food, fruits and vegetables, and oilseeds, as well as livestock products, can be derived from the expansion of trade of these products in the region and from growing regional investment in their value chain of production. South Africa’s foreign direct investment to the region – mostly in food retail (e.g. supermarkets and fast food chains), services and mineral industries – has been growing at a fast pace. Although these investments are in turn helping to increase exports from South Africa, this is expected to change in the future as the retail and agribusiness firms in each country increasingly invest in local distribution networks and become dependent on local suppliers. Moreover, by incorporating local suppliers into regional value chains, domestic agricultural sectors could become more diversified, and even specialized, as regional trade flow increases.
In this study, we assess the potential of these agricultural strategic choices for raising economic growth, and agricultural demand and production. In order to do this, a world computable general equilibrium model is used under scenarios of productivity growth and changes in transaction costs. Key agricultural sub-sectors and commodities with high potential to contribute to economic growth and food consumption are identified, and the importance of tariffs and transaction costs as barriers to regional market access are analyzed.
Model and data
The global general equilibrium model used for this study includes 32 production sectors, 21 of which are in agriculture or agriculture-related and a total of 22 countries/regions including seven individual southern African countries: South Africa, Botswana, Malawi, Mozambique, Tanzania, Zambia, and Zimbabwe, and two sub-regions: Rest of Southern African Custom Union (SACU), and Rest of Southern Africa.
Most data used to construct the model are drawn from the Global Trade Analysis Project (GTAP) database version 6, which contains data for 2001 (Dimaranan and McDougall, 2005). Given that the focus of the study is to evaluate southern African domestic and international trade opportunities and market constraints under alternative trade liberalization scenarios, the GTAP database was modified to incorporating data on international trade transport margins for African countries and regions .To evaluate such effects, the current GTAP database is adjusted to include transit trade (see Diao and Robinson, 2003). Specifically, it is assumed that trade from landlocked countries is transported through other countries in the region assuming that all transport services for transit trade through other countries are provided by transportation sectors in those countries, but are paid by the exporter. The marketing margins that represent such transportation services on transit trade are estimated using the information provided in Limao and Venables (2002). We have also disaggregated the “vegetable and fruits” and “other crops” sectors between crops produced mainly for export (e.g., specialty export products, coffee, and cocoa) and products that are sold mainly for domestic consumption, (e.g., most fruits, cassava).

Economy-wide Analysis of Agricultural Productivity and Regional Market Access
A general equilibrium model is used to analyze the potential of different agricultural sectors to affect economic growth, income, food consumption and welfare. Eight scenarios are designed to evaluate growth linkages and regional market access of different sectors. The first five scenarios show the effect of an exogenous increase in total factor productivity (TFP) in the grain sector. The last three scenarios evaluate how impact of productivity growth in different sectors is affected by constraints to market access in the region.
Productivity shocks are defined assuming that Southern African countries will catch up to world average productivity levels. Agricultural productivity is measured as production per hectare in the case of crop productivity and production per head of animal stock. Labor productivity is estimated for the manufacturing sectors combining information from the GTAP database, and FAOSTAT, while productivity growth in the transport sector to simulate reduction in marketing costs is assumed to be related to road infrastructure in each country, corrected by rural population density.

Simulation results: Productivity, growth linkages and market access
Results of this study show that growth in export crops like fruits and vegetables, oilseed and cotton could have a significant impact on expanding and diversifying exports of poor Southern African countries, with no significant demand constraints. However, a strategy focusing exclusively on expanding production of these crops will only have a small impact on GDP growth and agricultural output and no effect on food consumption, even increasing dependency on grain imports in poor countries.
The optimal strategy would be a mixed strategy combining growth in grain and livestock with growth in export crops. Growth in these sectors will expand agricultural exports while at the same time increasing consumption of food and significantly expanding agricultural output and GDP. This combined strategy is especially relevant for the poorest countries like Mozambique and Malawi.
Marketing costs are critical and much larger benefits are generated from reduction of these costs than from regional trade liberalization. Regional investment in infrastructure and other measures to reduce transaction costs appear to have the potential to benefit a wide spectrum of agricultural and non-agricultural activities.

Resource Details (Export Citation) GTAP Keywords
Category: 2006 Conference Paper
Status: Published
By/In: Presented at the 9th Annual Conference on Global Economic Analysis, Addis Ababa, Ethiopia
Created: Nin-Pratt, A. (5/1/2006)
Updated: Nin-Pratt, A. (5/1/2006)
Visits: 3,729
No keywords have been specified.

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