Linkages between Botswana’s Agricultural Sector, SACU and Agricultural Policies of South Africa

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CHAPTER 2 A REVIEW OF AGRICULTURAL POLICIES IN BOTSWANA AND SOUTH AFRICA

Introduction

This chapter mainly reviews the agricultural policy in Botswana since independence in 1966 and considers how the policy has contributed (or failed) to the attainment of the objectives of this sector. Despite its reduced contribution to the macro-economy (see Chapter 1), the agricultural sector in Botswana, as in many developing countries, still plays an important role especially in rural areas since it provides employment and income opportunities as well as food to many people. Besides, the beef industry continues to provide the country with scarce export earnings so that it can import food, inputs and machinery.Furthermore, because Botswana and South Africa are both members of the five-country Southern African Customs Union (SACU),1 this chapter also reviews the agricultural policy of South Africa in particular, as Botswana depends heavily on imported agricultural products from the latter. SACU administers a common external tariff in which all member countries apply a single duty on imported agricultural and industrial goods outside the customs area. This chapter will therefore also briefly describe SACU’s agricultural trade and tariff policy in order to contextualize Botswana’s agricultural policy and show how the SACU policies affect household food security in the latter country. Finally, the chapter analyzes the recent institutional and trade tariff policy changes within SACU following the advent of global economic liberalization.These changes have a direct bearing on the way in which import tariff reduction for sensitive SACU food products could improve food security and contribute to agricultural competitiveness, greater choice for consumers in Botswana, in particular, and the SACU economy in general. SACU agricultural trade liberalization through of tariff reduction and improved market access is analyzed in Chapter 7 so as to assess its effects on food security, agricultural competitiveness and the overall economy of Botswana. While the aggregate economic contribution of the agricultural sector to the Gross Domestic Product (GDP) in the economies of Botswana and South Africa has been substantially reduced to less than 5 percent in both countries,the sector still possesses considerable potential to improve food security and employment creation, subject to the formulation and implementation of appropriate sectoral and macro-economic policies (Krueger et al., 1988;Sadoulet and de Janvry, 1995; Ingco and Nash, 2004). In fact studies carried out in many parts of the world indicate very strong forward and backward linkages between agriculture and the rest of an economy (Mellor, 1979; Vogel,1984; Fenyes and Van Rooyen, 1985; Mellor, 1986; Van Zyl and Vink, 1988;Nieuwoudt, 1989; Townsend and McDonald, 1998). In particular, these studies indicate that real increases in farm incomes create a demand for commodities as well as services in and outside the agricultural sector.One of the major reasons for the growth in demand for non-food items following real growth in per capita farm income, ceteris paribus, is that the proportion of food items in the household budget declines, and this provides additional disposable income for non-food commodities, including services (Engel’s Law; Nieuwoudt, 1989; HIES, Botswana, 1993/94). Therefore in lowincome countries, where the majority of people are still engaged in farming, public policies that discriminate against the real growth of agriculture and depress farm incomes will not benefit from the multiplier effects associated with sectoral linkages. Besides income and demand linkages, the agricultural sector in Botswana and South Africa provides raw materials for the manufacturing sector, investment capital and foreign exchange earnings in order to purchase food and other inputs, including capital goods and technology (Botswana SAMs for 1993/94 and 1996/97; South Africa SAMs for 1993, 1998 and 1999).The following sections review the agricultural policies of the two countries and examine the similarities in agricultural policies and the distortions in the respective economies. Similarities in such policies have led to macroeconomic effects as well as food security implications. Before a review of the agricultural policies of the two countries is undertaken, it is important, first, to understand fully the relationship between Botswana’s agricultural sector and SACU, in which South Africa has been a dominant player since the creation of the customs union in 1910.

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Acknowledgements 
Abstract 
List of Tables 
List of Figures and Charts 
Acronyms/Abbreviations
CHAPTER 1: INTRODUCTION
1.1 The contribution of the agricultural sector to the macroeconomy of Botswana
1.2 Objectives of the Study 
1.3 Problem Statement 
1.4 Hypotheses of the Study 
1.5 Research Methodology
1.6 Limitations of the Study 
1.7 Commodities Chosen for the Analysis 
CHAPTER 2: A REVIEW OF AGRICULTURAL POLICIES IN BOTSWANA AND SOUTH AFRICA
2.1 Introduction 
2.2 Linkages between Botswana’s Agricultural Sector, SACU
and Agricultural Policies of South Africa 
2.2.1 External Tariff Policy for SACU
2.2.2 Agricultural Tariff Levels in SACU
2.2.3 The Role of Agricultural Trade in Botswana’s Food Security
2.3 A Review of the Agricultural Policy of Botswana 
2.4 A Review of the Agricultural Policies in South Africa 
2.5 SACU’s New Agreement and its Implications for Botswana’s
Food Security
2.6 Summary
CHAPTER 3: THE THEORY OF INTERNATIONAL TRADE AND CUSTOMS UNIONS
3.1 Introduction 
3.2 Gains from International Trade 
3.3 Theory of Comparative Advantage: The Hecksher-OhlinSamuelson Model 
3.3.1 Hecksher-Ohlin-Samuelson (HOS) Assumptions
3.3.2 Income Distribution and the HOS Model: The Stopler-Samuelson Theorem
3.4 Empirical Validity of HOS Model 
3.5 Limitations of the HOS Theorem 
3.5.1 Intra- Industry Trade
3.5.2 Increasing Returns to Scale
3.5.3 Imperfect Competition
3.5.4 No Barrier to Trade: Zero Transport Costs
3.5.5 Factor Price Equalization Theorem
3.6 The Rybczynski Theorem 
3.7 The Theory of Customs Unions or Regional Free Trade Zones 
3.8 Economies of Scale and the Customs Unions 
3.9 Intra-Industry Trade and the Customs Union
3.10 Terms of Trade and the Customs Union 
3.11 Non-tariff Barriers to Trade and the Customs Union 
3.12 Rent Seeking and the Customs Union 
3.13 Real Exchange Rate
3.14 Summary
CHAPTER 4: PARTIAL EQUILIBRIUM ANALYSIS IN AGRICULTURAL TRADE LIBERALIZATION
4.1 Introduction 
4.2 Experiences with Partial Equilibrium Analysis in Agricultural Trade Liberalization 
4.3 Border price and Producer and Consumer Surplus/Welfare
4.4 Application of a Partial Equilibrium Model to Global Trade Liberalization in the Agricultural Sector 
4.5 ATPSM formulas applied to Liberalize Global Agricultural Trade 
4.6 ATPSM Results on Agricultural Trade Liberalization in Botswana 
4.6.1 The effects of global agricultural trade liberalization on Botswana’s agricultural export earnings
4.6.2 The effects of global trade liberalization on Botswana’s agricultural import Cost by Formula
4.7 Summary: Advantages and Disadvantages of the Partial Equilibrium Approach in Agricultural Trade Liberalization/ Policy 
CHAPTER 5: SOCIAL ACCOUNTING MATRIX THEORY (SAM)
5.1 Introduction 
5.2 A description of a SAM 
5.3 Justification for using a SAM-Multiplier Analysis 
5.4 SAM-Leontief Models 
5.4.1 Accounting/Income Multipliers
5.4.2 Fixed-Price Multipliers
5.5 Price Multiplier Analysis 
5.6 Empirical Evidence Regarding Trade Liberalization using SAM-based Models 
5.7 Advantages and Disadvantages of SAM-Income Multiplier Analysis 
5.8 Summary
CHAPTER 6: A DESCRIPTION AND AN ANALYSIS OF THE 1993/94 SOCIAL ACCOUNTING MATRIX (SAM) FOR BOTSWANA
6.1 Introduction
6.2 Justification for and the description of Botswana’s 1993/94 SAM
CHAPTER 7: POLICY SIMULATIONS/EXPERIMENTS USING SAM ACCOUNTING MULTIPLIERS
7.1 Introduction 
7.2 Exogenous and Endogenous Accounts under SAM-Accounting Income Multiplier Analysis 
7.3 Policy shock based upon an increase in beef export Income/Earnings
7.4 Policy Simulation based upon an increase in textiles export earnings 
7.5 Summary 
CHAPTER 8: POLICY SIMULATIONS/EXPERIMENTS BASED UPON SAM PRICE MULTIPLIER ANALYSIS
8.1 Introduction 
8.2 Household Consumption Expenditure and SACU Tariffs
on Main Food Items 
8.3 Policy Experiments using Price Multiplier Analysis 
8.3.1 The Effects of a Change in Domestic Price of Boneless Beef on Food Security in Botswana (based upon the Multiplicative Multiplier, MP)
8.3.2 The Effects of a Change in Domestic Price of Beef, after Tariff Liberalization, on Food Security (based upon Stone’s Additive Multiplier)
8.3.3 The Effects of a Tariff Elimination/liberalization as regards Maize Grain on Food Security (based upon the Multiplicative Multiplier, Mp)
8.4.2 The Effects of Tariff Liberalization of Maize Grain on Food Security (based upon the Additive Price Multiplier)
8.3.4 The Effects of Tariff Liberalization with respect to Powdered/Concentrated Milk on Food Security (based upon the Multiplier)
8.3.5 The Effects of Tariff Liberalization of Powdered/ Concentrated Milk on Food Security (based upon Stone’s Additive Multiplier)
8.3.6 The Effects of Tariff Liberalization of Wheat Grain on Food Security (based upon the Multiplicative Multiplier)
8.4 Summary
CHAPTER 9: SUMMARY AND CONCLUSIONS 
REFERENCES 
ANNEXURE 

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