Implications of deregulated wheat market for the Western Cape Province: Evaluation with the aid of a spatial model

The deregulation of the single channel marketing system for wheat poses new challenges toproducers and advisors in the Western Cape Province. This deregulation is simultaneouswith a number of other changes in the socio-political, economic, marketing and technologicalenvironments. In facing these challenges it is necessary to incorporate such diverse trends asglobalisation and individualisation within a single framework.In the first part of this paper the development of a model, combining spatial data, resourceattributes, crop characteristics and financial/economic data in an interactive model isdescribed. This is followed in the second part by the evaluation of the impact of certainmacro-economic variables on farm-level enterprises. This is done with the aid of sixscenarios. It was found that, under certain specific conditions (i.e. low international wheatprice, zero tariff protection and 40 percent of production being exported), wheat productionin the Western Cape is unprofitable. However, if an import tariff on wheat of 30 percent (fob,ad valorem) is introduced and the marketing mix is changed to only 20 percent of localproduction being exported, then ceteris paribus, wheat can be profitably produced on 68percent of the area. This allows the opportunity for structural adjustments and cost reducingpractices. If the cost of production is lowered by 20 percent and the import tariff removed,then, ceteris paribus, wheat can be profitably produced on 59 percent of the area. Even moreimportant than the results from the scenarios is the fact that a methodology was developedthrough which the impact of macro-economic variables on farm level profitability can beinvestigated. As this methodology allows for the identification of specific areas or farms thatwill be adversely affected, specific remedial measures can be implemented. This methodologywill be an important tool in the hands of decision-makers.