Econometric analysis of supply response among beef farmers in Botswana

Abstract

The cattle (especially beef) industry in Botswana has traditionally played an important role in the country’s economy, with significant contributions to Gross Domestic Product (GDP), exports, and employment, as well as playing an important role in social and cultural spheres. Agriculture contributes about 2.3 % of GDP, out of which 70% - 80% is attributable to cattle production. By 2004, beef exports amounted to P284m, approximately 1.7% of total exports of P16.2 billion. In recent years, however, there have been signs of decline and stagnation, especially in the beef export subsector, with adverse implications for the viability of cattle farming in the country, and more generally for rural livelihoods. Botswana’s beef subsector has not fulfilled its potential as a contributor to economic growth and development, especially in the rural areas. The BMC has never been able to meet its quota of 19 000 tonnes of beef to the European Union (EU), despite being cushioned by the Continuo agreement against price competition from more efficient beef producers like Brazil. With the above background, the study was undertaken to examine the supply response of beef farmers in Botswana to various economic (e.g. prices) and non-economic [e.g. rainfall, technology and inventory (cattle population)] factors. This study used historical data on Botswana’s beef subsector for the period 1993 to 2005, and Nerlove’s partial adjustment model was used for the empirical analysis of the data. The results of the study revealed that Botswana beef farmers respond positively to price incentives and time trend (proxy for technology), and negatively to all other variables. Elasticities of supply showed that cattle supply is elastic with respect to variations in producer price and almost unit elastic to changes in cattle inventory. However, the response to shocks in other variables included in the model was inelastic. Short run price elasticity of supply is 1.511 whereas long run price elasticity is 10.57, a clear sign that pricing can be employed as a strategy to enhance beef production in Botswana. The speed of adjustment however, was relatively very low at 14% per period. This slow adjustment perhaps tells us that Botswana farmers, who are predominantly subsistence farmers, may not be having enough capacity (in terms of resources and technology) to immediately increase production when economic environment improves in their favour. Based on the results it is recommended that price increase be adopted as a strategy for improving cattle supply. Extension services need to be strengthened with a view of promoting cattle farming as a commercial activity. Current technology of using communal grazing and indigenous breeds need to be improved. It is also recommended that studies be conducted to determine the suitability of technology that is at the disposal of the farmers. Lastly Botswana government needs to come up with a strategy by which farmers can change from their attitude of oxen production to weaner production.