Analysing wheat price volatility in South Africa from 1996 to 2015

Abstract

In South Africa, the import of wheat exceeds its domestic production. The research aimed to examine the fluctuations in wheat prices within the country and evaluate the factors contributing to these price variations during the specified study period. This study used yearly data for wheat price, rainfall, temperature, and total production from 1996 to 2015. Climate conditions, power cuts, price fluctuations, and an increase in population pose a huge danger to the production of goods and services. To determine the volatility of wheat prices in South Africa from 1996 to 2015 and to identify and analyse the determinants (price, rainfall, temperature, and total production) of wheat price volatility in the South African market, where two primary objectives were used in this study. The Johansen cointegration test was employed to investigate the possible long-term correlation between wheat price and variables including rainfall, temperature, and total production. Both trace and eigenvalue tests were conducted, and the cointegration results were positive, indicating a sustained connection among the variables over an extended period. As a result, the study's findings indicate that there is a long-term association among wheat price, rainfall, temperature, and total production, affirming the presence of cointegration among these variables. Rainfall has a positive impact while temperature and total production hurt the price of wheat, on average, ceteris paribus based on the VECM results. In this study, the positive coefficients for temperature and wheat total production were 7.472087 and 0.005639, respectively, showing that in the long run, increasing temperature and total production levels were associated with declining wheat prices or decreasing temperature, and total production is associated with increasing wheat price. The study proposes that the government of South Africa implement subsidies to address high price volatilities and promote wheat production, considering the high consumption of wheat that is used to produce bread and is a staple food. Subsidies can help stabilise prices and ensure a reliable supply of wheat. Additionally, the study suggests that accessible information on wheat market dynamics, including prices and production technologies, should be provided to farmers to facilitate informed decision-making and encourage higher wheat production.