Analysing the relationship between government expenditure in agriculture, the value of agricultural production, and other selected variables in South Africa for the period 1983-2019

Abstract

Agricultural production measures the performance and efficiency of a country’s agricultural sector. The state of agricultural production can be assessed through the value of agricultural production, which is a product of agricultural gross production and output prices in monetary terms. The study examines the relationship between the value of agricultural production, government spending on agriculture, and other selected variables. Annual data for the value of agricultural production, government expenditure in agriculture, consumer price index, average annual rainfall, food import value, and population from 1983 to 2019 were collected from different sources and were used in the analysis for this study. The Johansen cointegration test was used to determine the existence of a long-run relationship between the value of agricultural production and selected variables by using both the trace and eigenvalue tests. The results indicated that there is a long run relationship among the variables. The study further used the Granger causality test to check the causality between the value of agricultural production and government expenditure in agriculture. The results show that there is no causal effect between the two variables. Lastly, the study used a Vector autoregressive (VAR) model to determine the relationship between the value of agricultural production and selected variables. The results of the VAR model indicated that government expenditure on agriculture, average annual rainfall, food import value, and population positively affect the value of agricultural production. The study also found that the consumer price index negatively affects the value of agricultural production. The study recommends that the government increase its spending on the agricultural sector, which could be in the form of research investment in technologies such as climate-smart agricultural technologies. Additionally, the study recommends that policymakers should review the monetary policy of South Africa to ensure price stability and prevent inflation. Lastly, the study recommends that the South African government should discourage imports and encourage South African agricultural producers to produce more major imported food products.