Following the establishment and approval of statutory measures as provided for by the Marketing of Agricultural Products Act, No. 47 of 1996 (MAP Act), industries through the administrator bodies oversee the implementation of various statutory measures (i.e. registration, records and returns, and levies). Although the former measures (registration, records and returns) are very important in the administration and inspection of the latter, this study focuses only on statutory levies paid by stakeholders depending on the nature of the industry. By definition, a statutory levy refers to a charge per unit of an agricultural commodity at any point in the marketing chain between the producer and the consumer, collected for specific functions such as export promotion and market development (EPMD), quality control, research, transformation, etc. (National Agricultural Marketing Council [NAMC] 2015).

Over the years, about 15% of the statutory levy expenditure has generally been allocated for EPMD, particularly for the citrus, deciduous fruits, fynbos (proteas), potato, table grapes, wine and winter cereals industries. Empirical literature (Hayakawa, Lee & Park 2014; Lederman, Olarreaga & Payton 2010; Olarreaga, Sperlich & Trachsel 2016) indicates that expenditure on export promotion fosters export growth; however, such studies focus on export promotion agencies (EPAs) and expenditure sourced from the government. In the case of South Africa, previous studies (Boonzaaier 2015; Mashabela & Vink 2008; Mather 2003; Ndou & Obi 2013; Van Rooney, Esterhuizen & Stroebel 2011) clearly articulate the factors influencing the competitiveness of some of the above-mentioned industries, but they do not address how statutory levy expenditure on EPMD impacts trade – most importantly how the impact varies across industries, let alone the overall social welfare impact on the economy.

Titus, Dada Samuel and Ajao (2013) tackled the subject of export promotion but focused on a comparative analysis of the various strategies used in a few countries (including South Africa). Jordaan (2011) provided industry case studies of the impact of generic promotional campaigns, but his study was only exploratory. Thus, this article differs from what the mentioned studies offer in a number of aspects, as shall be seen in the subsequent sections. Although the NAMC (2013, 2015) argues that stakeholders in the horticulture industries are certain that statutory levy expenditure on EPMD generates satisfactory returns on investment, there is no empirical evidence from any agricultural industry to support this assertion.

Moreover, in the case of the horticulture industries, it is not certain whether the generated returns from the investment translate into higher incomes, and ultimately social welfare improvement. Furthermore, even though industries may have measurement systems through which they may acknowledge returns to investment, it is challenging to provide proof beyond the basic anecdote that EPMD generates satisfactory returns at industrial, national or even social levels. Thus, there is a need to empirically reveal to stakeholders whether statutory levy expenditure on EPMD influences social welfare. In this article, therefore, we aim at (1) quantifying the impact of EPMD statutory levy expenditure on social welfare within the economy and (2) estimating the marginal returns generated per unit of EPMD statutory levy expenditure on social welfare.

This study is relevant given that the insights from this work may be used to support resource mobilisation efforts based on the empirical evidence on the return on investment from the various industries. This is the first study to make this undertaking, particularly in South Africa. The link between statutory levy expenditure on EPMD and social welfare is very important given that the ultimate purpose of EPMD initiatives is to achieve improved living standards of the citizens. Furthermore, it is in the NAMC’s interest to show the impact of statutory levies expenditure, and whether there is a justification for it for the society. The NAMC is the institution responsible for liaison between the industry and the Minister of Agriculture, Forestry and Fisheries on issues pertaining to statutory levies. It also has the broad mandate, as specified in the Marketing of Agricultural Products Act of 1996, to enhance foreign exchange earnings.

Since the introduction of levies during the mid-2000s, each industry through an administrative body collects the statutory levies that are used in accordance with stakeholders’ consensus. For the purpose of this article, we focus on the citrus, deciduous fruits, wine and table grapes industries, which introduced statutory levy collection in August 2004, October 2007 and November 2006, respectively (NAMC 2008). The NAMC compiles and disseminates the status of statutory levy incomes and expenditures through the annual statutory measures status report. Over a 10-year period (2006–2015), exports have increased as statutory levy expenditure on EPMD has also been increased (see Figure 1); however, this observation does not provide the needed empirical evidence. For the four industries (on average), about R43.8 million of the statutory levy income was used for EPMD while R20.8 billion worth of goods were exported (NAMC publications, TradeMap database). Although citrus exports destined for countries within the European Union faced a ban between 2013 and 2015, it is clear from Figure 1 that the ban seems not to have had a significant influence on South Africa’s export trend at a global perspective.¹

On average, the wine industry spent the most on EPMD (R24.3m), followed by deciduous fruits (R12m), citrus (R5m) and table grapes (R2.5m). Similarly, the wine industry registered most exports, valued at R6.4bn, followed by citrus (R6.2bn), table grapes (R4.2bn) and deciduous fruits (R4.1bn).

With regard to social welfare as measured by per capita gross domestic product (GDP), Figure 2 reveals that annual growth in per capita GDP ranged between −3% (2009) and 4% (2007). As discussed in detail by Van den Bergh and Antal (2014), we take cognisance of the critics of using per capita GDP as a social welfare measure; however, in the absence of a unanimously agreed upon credible alternative, per capita GDP was used as a proxy. The alternative indicators of social welfare, including the Index of Sustainable Economic Welfare (ISEW) (Daly & Cobb 1989) and the Sustainable Benefit Index (SBI) (Lawn & Sanders 1999), are also based on GDP corrections and are currently only available for developed economies (Kubiszewski et al. 2013). Another set of social welfare indicators also derived from GDP with a focus on environmental externalities and natural resource depletion is the sustainable GDP. Hueting’s Sustainable National Income (SNI) being the most known was only developed for the Netherlands (Gerlagh et al. 2002). Other categories of indicators include the Genuine Savings (GS) and composite indexes such as the Human Development Index (HDI). Pillarisetti (2005) reckons that the GS is an imperfect social welfare indicator while Dasgupta (2001) argues that the HDI is limited to covering all the relevant types of capital; hence, it does not provide useful information to address concerns over time. On the other hand, annual growth rate in total statutory levy expenditure on EPMD across the citrus, deciduous fruits, table grapes and wine industries highly fluctuated over the 10-year period. The highest growth rate of 69.2% was registered between 2008 and 2009, while the lowest (−18.7%) was between 2006 and 2007, with an overall mean annual rate of 20.3%. At industry level, all industries had positive annual growth rates in statutory levy expenditure on EPMD, that is, deciduous fruits (43.9%), citrus (38.9%), wine (25.5%) and table grapes (24.6%).

Despite the growing body of literature about the role of EPAs in enhancing exports (Gil, Llorca & Serrano 2008; Hayakawa et al. 2014; Lederman, Olarreaga & Payton 2009; Lederman et al. 2010; Martincus & Carballo 2008; Olarreaga et al. 2016) and literature based on firm-level analysis (Jalali 2012; Schminke & Van Biesebroeck 2013; Martincus & Carballo 2008;), no literature directly relating to social welfare (per capita GDP) and EPMD has been come across. Existing literature used various indicators to capture the role of EPAs while employing either firm-level data (Lederman, Olarreaga & Zavala 2016; Martincus & Carballo 2010; Schminke & Van Biesebroeck 2013; Van Biesebroeck, Konings & Martincus 2016; Martincus & Carballo 2008) or aggregated data (Hayakawa et al. 2014; Rose 2007). With the exception of Keesing and Singer (1990, 1992), who criticise the performance of EPAs in developing economies, later studies generally suggest that EPAs boost exports and that money spent on promotional activities generates some returns. However, there is very scanty literature focusing on South Africa, especially at industry level while addressing the aspect of social welfare.

The study focused on four industries, namely citrus, wine, table grapes and deciduous fruits. A data set of statutory levy expenditure on EPMD was generated from statutory measures survey reports compiled by the NAMC. Data on per capita GDP (constant 2010 US$) were obtained from the World Bank’s Development Indicators (WBDI) database for a 10-year period (2006–2015). As discussed earlier, despite the fact that it is not supported by macroeconomic theory (Van den Bergh & Antal 2014),² per capita GDP was used as a proxy for social welfare. Although statutory levy expenditure on EPMD was aggregated at annual level, equal distribution among the quarters throughout the year was assumed, hence divided by four to obtain data sets at quarterly level. This gave rise to 160 pooled observations and 40 observations for each industry. A summary of the descriptive statistics is presented in Table 1.

On average, the four industries (citrus, deciduous fruits, table grapes and wine) used R10.9m worth of statutory levy expenditure for EPMD per quarter (about R43.8m a year), while exports worth R5198m were collectively exported per quarter. The mean value for per capita GDP is representative of the entire economy per quarter. Unlike firm-level data, aggregated data are advantageous given that they provide a clear illustration of how EPMD impacts economic growth at various levels. Furthermore, the International Trade Centre (ITC 2016) urges that firm-level data are severely affected by the problem of selection bias; thus, we directly use aggregated data to circumnavigate the mentioned drawbacks associated with firm-level data.

When using time series data, it is important to ascertain if the statistical properties of the series such as mean, variance, autocorrelation, etc., are constant over time. The Levin–Lin–Chu (LLC) (2002) test with trend option was used to test for unit roots given that the panels were balanced, the number of periods outweighed the number of panels and the panel series increased over time. We tested the hypothesis that the series follow a unit root process. Table 2 indicates that we cannot reject the null hypotheses that the natural logs of statutory levy expenditure on EPMD and social welfare (per capita GDP) exhibit unit roots but at various levels of significance. Thus, conventional estimation techniques were appropriate to use.

In this article, we take cognisance of earlier works by Mashabela and Vink (2008), Van Rooney, Esterhuizen and Stroebel (2011), Ndou and Obi (2013) and Boonzaaier (2015), who noted that export competitiveness of the wine, citrus, deciduous fruits and table grape industries is influenced by a number of factors, including inadequately educated workforce, poor infrastructure, lack of trust in the political system, high transportation costs, to mention but a few. In concurrence with Ward and Hogan (2009) and Jordaan (2011), who urge that it is challenging to evaluate the impact of promotional programmes owing to a number of other drivers that influence demand, we limit our independent variables to only two. Additionally, limiting the variables was owing to perfect multicollinearity of the variables mentioned in the earlier studies with statutory levy expenditure on EPMD. Thus, the specified models were restricted to capturing the effects of EPMD and the incidence of export ban that was sanctioned on South Africa’s citrus exports to the European Union (EU) because of the citrus black spot (CBS) outbreak in the country. The EU’s ban on South Africa’s citrus exports into their market was severely felt by South African farmers between November 2013 and 2015 (DAFF 2013; EU 2013).

An econometric evaluation of the impact of – and returns to – EPMD expenditure on social welfare was done using a panel data framework at two levels, that is, at industry level and when the four industries are aggregated (pooled). The panel data set is advantageous given that it controls the unobserved heterogeneity over time (ITC 2016; Olarreaga et al. 2016). This is referred to as the reverse causality problem. To overcome the reverse causality problem associated with statutory levy expenditure on EPMD and social welfare, lagged variable of statutory levy expenditure on EPMD was used in the model. To capture the effect of EPMD using statutory levies on social welfare, a linear model was used based on pooled data (Equation 1).

A country’s economic size has a causal relationship with exports; therefore, inclusion of GDP as a proxy for size may lead to endogeneity bias. Thus, population was introduced in the model used given that it has no direct relationship with exports but because of serial correlation, it was also dropped. Equation 2 represents industry specific models.

where Kapito and Levy denote the log of social welfare and statutory levy expenditure on EPMD, respectively. The subscripts i, q and t represent industry, quarter and year, respectively, while ɛ is the error term. EUBAN is a dummy relating to the ban on South Africa’s citrus exports to the EU during the CBS outbreak in the country. The dummy variable equals 1 if the industry encountered an export ban in the international markets and 0 otherwise. The dummy addresses the question of whether EPMD had a role to play during such critical times. The α₁ is the coefficient of interest capturing the effects of EPMD using statutory levies on social welfare. It is defined as an elasticity associated with a unit increase in statutory levy expenditure on EPMD.

To avoid solely relying on the simplistic ordinary least squares (OLS) linear regression analysis which is anchored on strong linearity assumptions, we also used Poisson model estimation techniques. The Poisson model assumes that the mean and variance of the errors are equal. Poisson models are advantageous over OLS linear regression models in a sense that they can deal with zero values and discrete distributions, among others. To some extent, ordinary linear regressions identify with Poisson models, except that with the latter, error terms are assumed not to follow a normal distribution, and it models the natural log of the response variable as a function of the coefficients (Gardner, Mulvey & Shaw 1995; Long 1997). Although the lagged natural log of statutory levy expenditure was earlier presented as a control for the unobserved heterogeneity, it was also used to capture the benefits of EPMD initiatives over time given that such benefits accrue after a plausible period (Olarreaga et al. 2016). Hence, models with the lagged variable are described as the dynamic models and were estimated for each of the equations (1 and 2).

To estimate the marginal returns generated per rand of statutory levy expenditure on social welfare, we obtained the derivative of each equation with respect to the log of statutory levy expenditure on EPMD and the corresponding elasticities were computed at the mean values. For the dynamic models, the marginal returns were calculated as the sum of the products of the coefficients of log statutory levy expenditure on EPMD elasticities and the mean values. This was done both at pooled and specific industry levels.