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Michigan State University (MSU) International Development Working Paper No 83, 2004: The effects of market reform on maize marketing margins in South Africa - An empirical study
2004
Lulama Ndibongo Traub and TS Jayne
Michigan State University (MSU)

Acknowledgements: MSU Agricultural Economics Web Site: http://www.aec.msu.edu/agecon/
MSU Food Security II Web Site: http://www.aec.msu.edu/agecon/fs2/index.htm


This report is published by the Department of Agricultural Economics and the Department of Economics, Michigan State University (MSU). Funding for this research was provided by the Food Security III Cooperative Agreement (GDG-A-00-02-00021-00) and the Rockefeller Foundation.

Lulama Ndibongo Traub and T.S. Jayne are, respectively, former Ph.D. candidate, and Professor, International Development, in the Department of Agricultural Economics, Michigan State University.

Executive summary

Prior to the reform of South Africa’s maize marketing system in 1997, maize meal prices and marketing margins for millers and retailers were among the highest in the Southern Africa region. This article determines the effect of market reform on the size of maize milling/retail margins in South Africa. Regression models of monthly milling/retail margins are run from the period May 1976 to September 2003. To assess the robustness of our findings, we estimate several different model specifications representing structural change, vary the sample period to examine the sensitivity of findings to unusual weather and market conditions in the region during the 2001-2003 period, and run the models using different estimation techniques, OLS with Newey-West robust estimators and Feasible General Least Squares.

In virtually all models, the results indicate that real maize milling/retailing margins in South Africa have increased even further since the deregulation of prices and reform of markets in 1997. Controlling for disturbances in weather, wages, exchange rate levels and volatility, inflation-adjusted margins accruing to millers and retailers has risen 29 to 42% between 1997 and 2003. Simulations indicate that the deregulation of maize meal prices has caused a 16 to 20% increase in the mean retail price of maize meal since 1997. Maize meal prices in South Africa remain the highest of all maize producing countries in the region, even though mean wholesale prices in South Africa are relatively low compared to its regional neighbors.

Unlike experiences in neighboring countries, the reform of the maize market in South Africa has not benefited consumers. Further investigation is needed on market concentration and possible entry barriers in South Africa’s maize marketing system, and the extent to which the factors leading to high maize meal prices in South Africa are adversely affecting consumers in the wider Southern Africa region.

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