The Effects of Market Reform on Maize Marketing Margins in South Africa

October 1, 2004 - Author: Lulama Ndibongo Traub and T.S. Jayne

IDWP 83. Lulama Ndibongo Traub and T.S. Jayne. 2004. 50 pp.The Effects of Market Reform on Maize Marketing Margins in South Africa

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.

Tags: idwp, south africa


Authors

Thomas Jayne

Thomas Jayne
jayne@msu.edu


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