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SIMULATIONS: THE IMPLEMENTATION OF THE DOHA ROUND
Simulation 1 (Joint policies –combination of simulation 2 and 3 below)
Simulation 2 (Tariff reduction): 100% cut in tariffs with flexible government savings and mobile labour while capital is fixed sectorally. The rate of agricultural tariff reduction was set at 100% considering the prevailing low rates of protection given to the agricultural commodities in South Africa (see chapter 2).
Simulation 3 (Changes in agricultural world price of imports and exports): Introduction of potential price changes with endogenous foreign exchange rate and fixed current account balance. This study did not calculate the predicted world price rise for agricultural commodities, but rather obtained the rates from literature search (See Table 8.1) and entered them into the model exogenously. The rate of price rise used in this study ranges from 4-16% depending on the subsector.
The combination of policies (simulation 1) reflects a country’s position in which it faces simultaneous multiple policy shocks, which are both domestic and foreign oriented. For example, after joining the WTO in 1995, South Africa committed itself to the implementation of the WTO requirements of tariff reforms. The government continues to pursue the full implementation of the Doha Round (foreign) through dialogue and negotiations with the developed countries. Several analysts have predicted an increase of world prices of agricultural commodities to accompany the implementation of the Doha Round. As a ‘small country’ case or a price taker, South Africa is expected to face higher world prices of agricultural imports and exports following the implementation of the Doha Round.
Table 8.1 indicates agricultural subsectors selected for simulation in this study which include commodities most likely to be affected by the Doha Round. These commodities are maize, wheat, fruits and vegetables, poultry, livestock and diary, and other-agriculture (an aggregation of all other non-selected agricultural commodities).
Results of a joint policy simulation (tariff reduction and rises in world prices)
The results of rise in world prices for agricultural exports lead to a slight GDP increase of less than a percentage (0.1%) point. The increase is partially due to increased imports (0.3%) and slight increases in exports (0.031%), mainly agricultural exports. Although rise in world prices for agricultural exports reduce imports, the effects of the concurrent policy of agricultural tariff reduction raise imports, which outweighs imports fall. Increased economy-wide imports slightly raise nominal private consumption (0.006%) while real consumption and private savings drops by (-0.001%) and (-0.1%) respectively. Increased imports imply slight reduction of government revenue (-0.036%) resulting in falling government expenditure (-0.094%), and consumption (-0.114%). Fall in private savings is offset by slight rise in government savings. While agricultural exports increase based on higher export prices, economy-wide exports fall due to the appreciation of the exchange rate (-0.2%) brought about by imports. From the macroeconomic results, if the implementation of Doha Round raises world prices from 6-15% as predicted by the current model, and the country continues to liberalise agriculture, there will be minimal positive effects at the aggregate level. The results also reflect the small contributions of agriculture in the South African economy. However, the welfare of low-income households declines because of reduced commodity demand due to higher prices, particularly for maize, which is a staple food (see Table 8.7)
General results
The policy changes affect the demand and supply in the market, forcing prices to adjust in order to restore equilibrium in the related markets. While the effect of tariff reduction is to raise imports, a rise in world prices has an opposite effect on domestic production by encouraging exports and discouraging imports. The combination of these two policies induce a substantial expansion in some of the South Africa agricultural subsectors’ output and exports, leading to increased employment demand.
Significant domestic production expansion occurs in the maize subsector (2.552%), followed by fruit and vegetables (2.465%). Other subsectors’ production declines slightly by less than a percentage point. For example, poultry production declines by 0.510%, livestock production by -0.600%, while other agriculture declines by -0.390% (see Table 8.3 in Appendix 8). Related sectors, such as food processing, contract (-0.708%) due to rising prices of agricultural commodities which are used as intermediates in food production. In the non-agricultural sectors of manufacturing, production contracts marginally while production in the service sectors holds steady, with only marginal expansion based on the extent of linkage with agriculture. The changes in agricultural production are consistent with changes in the sectoral value added price. This follows the model assumption that producers maximise their profits based on the value added prices for their products. Table 8.3 shows a rise in value-added prices in almost all subsectors, particularly in the maize sector. However, value-added prices of non-agricultural sectors falls, resulting in output contraction.
The domestic price of agricultural imports, which depends partly on the world prices and partly on changes in tariff, falls greatly following the policy shock, which results in imports rise. Under this scenario, the impact related to tariff reduction offsets the effect related to increase in world prices. This makes imports more attractive to domestic consumers, who respond by increasing imports demand while switching from domestic sources of supply which are now relatively expensive. The greatest import rise occurs in wheat (3.637%), other agriculture (1.966%), maize (1.591%), dairy livestock (1.492%) and modestly in poultry. The outcome reflects the greater weight of full tariff reduction which outweighs the effects of world price rise of these commodities. This outcome indicates that the level of world price changes used in the model is not big enough to counterbalance the effects of the simulated tariff reduction changes which affects producers in the maize, wheat, and other agriculture.
Imports of other non-agricultural commodities rise except for other mining, iron and nonferrous which have low import shares. This follows the depreciation of the exchange rate induced by tariff reduction coupled with lower prices relative to those of agricultural commodities. If reductions in world agricultural production and export subsidies lead to an increase in world prices, as expected in the short and medium term, South Africans will pay more for their agricultural imports. South Africa, however, is a net exporter of agricultural and food products.
CHAPTER 1 INTRODUCTION TO THE STUDY
1.1 INTRODUCTION
1.2 THE PROBLEM STATEMENT
1.3 OBJECTIVES OF THE STUDY
1.4 SOUTH AFRICAN TRADE REFORMS
1.5 TRADE REFORMS IN RELATION TO AGRICULTURE
1.6 AGRICULTURAL TRADE REFORMS IN SOUTH AFRICA
1.7 SOUTH AFRICAN AGRICULTURE AND GENDER
1.8 GLOBALISATION: PRODUCTIVITY AND FOREIGN DIRECT INVESTMENT (FDI)
1.9 OVERVIEW OF THE SOUTH AFRICAN ECONOMY
1.10 MACROECONOMIC POLICIES
CHAPTER 2 SOUTH AFRICA AND GENDER
2.1 INTRODUCTION
2.2 EMPLOYMENT AND REMUNERATION
2.3 EDUCATION
2.4 TRADE UNIONS
CHAPTER 3 LITERATURE REVIEW
3.1 INTRODUCTION
3.2 AGRICULTURE TRADE POLICY (CGE) MODELS
3.3 FOREIGN DIRECT INVESTMENT (FDI)
3.4 SUMMARY
CHAPTER 4 DATABASE DEVELOPED FOR THE GENDERED CGE MODEL
4.1 INTRODUCTION
4.2 THE SOCIAL ACCOUNTING MATRIX (SAM
4.3 THE 2000 SOCIAL ACCOUNTING MATRIX FOR SOUTH AFRICA
4.4 DISAGGREGATION OF AGRICULTURE INTO SUB-SECTORS
4.5 BALANCING THE SAM
CHAPTER 5 THE SOUTH AFRICA COMPUTABLE GENERAL EQUILIBRIUM (CGE) MODEL86
5.1 INTRODUCTION
5.2 THE CGE MODEL STRUCTURE
5.3 THE STRUCTURE OF THE SOUTH AFRICAN CGE MODEL
5.4 THE MODEL EQUATIONS
5.5 GENERAL MACROECONOMIC BALANCE
5.6 THE CLOSURE RULES FOR THE GENDERED MODEL
CHAPTER 6 A CGE ANALYSIS: EFFECTS OF TRADE LIBERALISATION ON THE ECONOMY AND GENDER: FACTOR MOBILITY CONSIDERATIONS
6.1 INTRODUCTION
6.2 STUDY POLICY SIMULATIONS
6.3 SIMULATIONS RESULTS: FULL TRADE LIBERALISATION (SIM 1)
6.4 CONCLUSION
CHAPTER 7 THE IMPACT OF A PRODUCTIVITY RISE ON SOUTH AFRICAN GENDER AND ECONOMY
7.1 INTRODUCTION
7.2 THE MODEL POLICY SIMULATIONS
7.3 SIMULATION RESULTS OF ECONOMY-WIDE FACTOR PRODUCTIVITY RISE
7.4 EQUIVALENT VARIATION: FACTOR PRODUCTIVITY RISE (SIM 1 AND SIM 2)
CHAPTER 8 THE DOHA ROUND AND ITS EFFECTS ON AGRICULTURAL SUB SECTORS AND GENDER IN SOUTH AFRICA
8.1 INTRODUCTION
8.2 SIMULATIONS: THE IMPLEMENTATION OF THE DOHA ROUND
8.3 RESULTS AND DISCUSSIONS OF MODEL SIMULATION
8.4 SINGLE POLICY SIMULATION
8.5 EFFECTS OF WORLD PRICE OF AGRICULTURE IMPORTS RISE
8.6 EFFECTS OF WORLD PRICE OF AGRICULTURAL EXPORTS RISE
8.7 CONCLUSION
CHAPTER 9 WOMEN’S ECONOMIC WELL-BEING
9.1 INTRODUCTION
9.2 BACKGROUND TO THE STUDY
9.3 THEORETICAL MODEL
9.4 SURVEY DATA
9.5 GENERAL CHARACTERISTICS OF SURVEY RESPONDENTS
9.6 SPECIFIC SURVEY RESULTS
9.7 AUTONOMY
9.8 CONCLUSION
CHAPTER 10 SUMMARY AND CONCLUSION
10.1 INTRODUCTION
10.2 IMPACTS OF FULL TRADE LIBERALISATION: VARYING FACTOR MOBILITY
10.3 IMPACTS RELATED TO PRODUCTIVITY INCREASE (FDI)
10.4 IMPACTS RELATED TO THE DOHA ROUND
10.5 SUGGESTIONS FOR FURTHER RESEARCH
REFERENCES
