Nick Vink

Department of Agricultural Economics

Economists, and especially agricultural economists, have been criticized for focusing on the supply side of the food security equation, even today when we know that food security is so much more than just supply

The question why they do so is never really asked – it is just seen as another manifestation of economic reductionism of the Say’s Law variety: Supply creates its own demand (without production there is no income, hence no demand). It took Keynes to teach a new generation of economists that this was not necessarily the case.

But agricultural economists know an even larger truth: the economic problem of agriculture is a problem of over-production.

Farmers are like other people: when prices increase they produce more.

But farmers have high fixed costs and the time between their input costs and their revenues is a whole planting season. So when prices fall they have an incentive to produce more even if they only cover their variable costs.

So farmers always have an incentive to produce more. But all farmers have that incentive, so prices fall – and farmers produce even more: the treadmill effect.

On top of that demand for food is inelastic as is the short-run supply response, so prices fluctuate more than in other industries.

And returns to agriculture are generally lower than in other sectors because returns to land come only after you stop farming.

So the purpose of agricultural policy always and everywhere SHOULD BE to deal with surpluses, low returns and instability.

When countries forget this, they get into trouble: contrast South Korea and Zimbabwe

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Korea Zimbabwe

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Republic of Korea Zimbabwe

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Farmers don’t need support to ensure production: they just don’t need to be ‘taxed’ excessively

Taxed in the form of distorted prices; disincentives to invest (land reform? Labour policy?); poor infrastructure; poor R&D; etc. These are obvious

So what other examples can we give about the relationship between food security and agricultural policy?

Agriculture has always been associated with food security through:

Its role in food production

The wages and salaries it pays and

The prices at which its produce is sold.

With globalisation, the links between the two have become far more complex and agricultural policy makers have to be far more careful than in the past in formulating and implementing agricultural policies

Rural history: segregation, suppression and support

This distorted SA’s rural space: a) between black and white farming, b) within communal areas, AND c) within commercial areas

a) is well known: dualism

b) is less well known: betterment

c) is the subject of the rest of presentation

1937 – 1996: Marketing Act

1997: ”Big bang” deregulation

1997 on: aftermath

Aims of Act:

Enable farmers to stand together and stabilise and increase prices

Second, cooperation amongst farmers would cut out duplication in the marketing chain

But elite capture

In the 1930s already it was argued that the restrictive registration requirements of the Wheat Scheme would lead to concentration in the market

Millers and bakers have recently been found guilty of uncompetitive acts under the Competition Act

In the case of the bakers, there were complaints against four companies for price-fixing, one of which had been a cooperative appointed as agent under the marketing scheme (Pioneer), while the other three (Tiger, Premier and Foodcorp) had been registered bakers under the Scheme

Seventeen millers were found guilty of price fixing. The state of concentration in these markets could probably be ascribed to the Marketing Act, but it is not clear that the misconduct of employees of these enterprises can.

The grain Schemes resulted in an over-supply of rail and storage infrastructure, some badly placed after deregulation resulted in a shift in production location

There were allegations of anti-competitive dominance in the storage market, but the Competition Commission lost a landmark case against Senwes, a former cooperative

New storage technologies in the form of silo bags have already made it impossible to dominate the market for grain storage

The Kassier Committee noted that there had been an increase in informal sector sales of agricultural products, and ascribed this to the strict regulatory environment created under the Marketing Act

The Kassier Committee cautioned that deregulation would lead to a loss of industry information, which had been the responsibility of the Boards

This came to pass, and a consequence is that an unknown proportion of the processing and sales of agricultural goods takes place in the formal market, but goes unrecorded e.g. red meat

These activities go unrecorded, and it is believed that they make up a large proportion of total sales – this of course in addition to sales into the informal sector

There has been almost no research on the impact of the Marketing Act on farm employment

The literature shows the two structural trends in employment from 1945-1970, and from 1970 to the late 1980s

The first period saw an expansion in cultivated farm area as a result of the large scale introduction of tractors. While tractors replaced workers, the harvest was still largely done by hand, until the introduction of combine harvesters from the late 1960s

Increased employment to the 1970s could be ascribed to the Boards, but the subsequent decline was more probably the result of fiscal policies

Furthermore, the impact of the marketing schemes on employment in the upstream and downstream industries is an issue that requires further research

It is hard not to argue that the rapid rise in consumption of poultry meat is not at least partly due to the Meat Board

In 1970 the total consumption of red meat (beef, pork and mutton) in South Africa was 831 000 tons, and of poultry was 290 000 tons.

In 2009 red meat consumption was 1 200 000 tons, while poultry consumption was 1 550 000 tons

There were warnings in the 1930s about the real impact of the Marketing Act: increased food prices would harm the poor (largely black people)

But what was not commented on at the time or at least until the report of the Kassier Committee was the effect that the schemes would have on black farmers’ access to markets.

By the time of deregulation in the late 1990s black farmers farmed on a small scale far away from any serious marketing infrastructure or institutions.

The unwillingness or inability to take this aspect seriously has become one of the legacies of the failed land reform programme.