The Welfare Impacts of Domestic and International Agricultural Efficiency Gains – A South African Case Study

A large proportion of the on-going reductions in global food prices are attributable to the efficiency gains associated with various ‘green revolutions’. Unfortunately the welfare gains associated with such productivity growth are unevenly distributed, with many African states reaping relatively few benefits. One possible reason for this is the failure of African agriculture to retain its relative competitiveness in global agricultural and food markets, and hence, the welfare gains associated with reductions in consumer prices are largely offset by the welfare losses associated with reductions in producer prices. The analyses reported in this paper explore how changes in domestic and international agricultural efficiency will impact upon the welfare of households and the profitability of agricultural and food industries in South Africa. The results are generated from a computable general equilibrium (CGE) model for South Africa with highly disaggregated food and agricultural sectors. The scenarios reported focus on three dimensions of domestic technology change; changes in the efficiencies with which intermediate inputs, primary inputs and land are used, and one international dimension; changes in the world prices of agricultural and food products. The results indicate that both domestic and international efficiency gains have positive net welfare effects for South Africa. In the case of domestic efficiency gains the net benefit is marginally greater, mainly because of the smaller negative welfare consequences for domestic producers. This can be explained by domestic producers’ increased penetration of export markets, which offsets the negative welfare effects associated with a reduction in producer prices. The paper concludes with an assessment of the differential impacts upon the agronomic regions of South Africa and the different household types. These results suggest that while the distribution of the consumer benefits is biased towards poorer households, the distribution of the producer benefits is biased towards relatively richer agricultural areas.