Estimation of sorghum supply elasticity in South Africa

Abstract

Studies have indicated that sorghum hectares in South Africa have been decreasing over the past decades. This has resulted in a huge importation of the grain sorghum by the country. This study was undertaken due to sorghum production variability in South Africa. The objectives of this study were to estimate elasticity of sorghum production to changes in price and non-price factors, as well as estimating the short-run and long-run sorghum price elasticity. The study used time series data spanning from 1998 to 2016. This data was obtained from the abstracts of agricultural statistics and verified by South African Grain Information Services. Variance Error Correction Model (VECM) was employed to address both objectives. A number of diagnostic tests were performed to ensure that the study does not produce spurious regression results. This study estimated sorghum supply elasticity using two dependent variables being the area and yield response functions as model one and two respectively. The results have shown that area response function was found to be a robust model as most of the variables were significant, responsive and elastic. Maize price as a competing crop of sorghum negatively influenced the area allocation; however, the remaining variables positively influenced the area allocation in the long-run. In this model, all variables were statistically significant at 10% and 1% in the short and long-run respectively. In the yield function, most of the variables were insignificant, not responsive and inelastic, therefore, this model was found not to be robust and hence not adopted. Thus, it was concluded that sorghum output in South Africa is less sensitive to changes in price and nonprice factors. The findings further indicated that error correction term for area was -1.55 and -1.30 for yield response function. This indicated that the two models were able to revert to equilibrium. Therefore, it was concluded that the area response function was more robust, while the yield response function was not. Furthermore, it was concluded that sorghum production was more responsive to area allocation than yield function. Based on the findings, the study recommends that amongst other methods to enhance sorghum output, producers could use improved varieties or hybrids, as this action would result in allocation of more land to sorghum production, following price change.