Market reform, contestability and determinants of the Maize Board-Miller marketing margin in the South African maize industry.
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Date
1996
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Abstract
The dissertation analyses market reform in the South African Maize Industry at two levels.
Firstly, aspects of the theory of contestable markets are used to analyze maize grain marketing
reform and identify what measures are appropriate to promote contestability (ease of entry and
exit, and potential rather than actual competition as a means of constraining uncompetitive
behaviour). A brief history of the South African Maize industry since 1931 shows a highly
regulated grain marketing system which lacked contestability. Recent amendments to the
Maize Marketing Scheme such as abolition of controlled prices for maize products at
retail/merchant (1960) and wholesale/milling (1971) levels; movement away from limited
registration of maize processors (1977); and abolition of the statutory single channel fixed
price pool scheme and storage control allowing "free" trade within the domestic market
(1995), promote market contestability. Contestability can be further enhanced by reduction
of sunk costs through possible on-farm storage and handling facilities (bunker storage, plastic
tunnels, steel and concrete silos) and the leasing of existing silo space (possible excess capacity
and alternative uses) by producers and maize traders. The maintenance of some statutory
powers for the Maize Board (single channel exports, compulsory registration and levy
payments) still limits contestability.
Secondly, the determinants of the Maize Board - Miller (MBM) marketing margin between
1977 - 1993 (period defined by data limitations) are identified using Ordinary Least Squares
(OLS), Three Stage Least Squares (3SLS) and Principal Component Analysis. The MBM
margin was positively related to miller market power (proxied by industry conjectural
elasticity), the real miller maize meal selling price, real variable processing costs, and a change
in Maize Board maize grain pricing policy after 1987 (export losses reflected in low real net
producer maize price). The estimated conjectural elasticity was low, indicating competitive
conditions, although concentration ratios indicate entrenched, but falling, market power. The
main component of the Maize Board-Miller (MBM) marketing margin for 1977 - 1993 was
variable processing costs. The real consumer price of maize could be reduced via lower real
processing costs of maize meal, possibly with the removal of fixed administered prices of
inputs (like electricity) and moderation of real wage demands in negotiations between trade
unions and millers. Foreign exchange and import controls may, however, raise input costs if
the Rand should continue to weaken. The increased number of "bosmeulens" (small mills not
registered with the Maize Board and using relatively inexpensive technology not having
substantial sunk investment) entering the market means that mill sunk costs may be less of a
deterrent to entry in future. The 1987 Maize Board pricing policy change captured the effect
of input price risk on the MBM margin indicating a significant effect of past maize pricing
policies on this margin. The Maize Milling Industry appears to be competitive (low industry
conjectural elasticity) over the study period, although the oligopoly component still contributes
significantly to the MBM margin. Miller market power may possibly be exerted on other
products (e.g. wheat) as white maize may be seen as a loss leader. This interrelationship
between maize and other grains in processing is an area for future research.
Description
Thesis (M.Sc.Agric.)-University of Natal, Pietermaritzburg, 1996.
Keywords
Corn--South Africa--Marketing., Corn industry--South Africa., Corn--Economic aspects--South Africa., Theses--Agricultural economics.