South Africa’s industries in the agricultural sector spend some of the statutory levy income on export promotion and market development (EPMD) activities. Some industries argue that statutory levy expenditure on EPMD activities generates satisfactory returns on investment but empirical evidence is yet to be presented to support the argument. Hence, this study filled this gap by building a unique data set based on statutory levy expenditure on EPMD for four industries (citrus, deciduous fruits, table grapes and wine) and used econometric analysis to assess the impact of EPMD on social welfare over a 10-year period (2006–2015). Furthermore, we estimated the returns generated on social welfare per rand of statutory levy expenditure. In the analysis, we controlled for unobserved heterogeneity, multicollinearity and reverse causality. The results suggest that statutory levy expenditure on EPMD has a statistically significant positive impact on social welfare across the four industries. On average, a unit increase in statutory levy expenditure on EPMD leads to an improvement in social welfare ranging between 0.2% and 0.4% depending on the industry. In addition, the results suggest that 1 rand spent on EPMD for the four industries in question, on average, generates a US$26 worth of improvement in social welfare. Conclusively, statutory levy expenditure on EPMD played a key role in enhancing social welfare improvement. Therefore, there is a need to mobilise more resources to facilitate the EPMD initiative into new markets and products for the industries.
Following the establishment and approval of statutory measures as provided for by the
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
Titus, Dada Samuel and Ajao (
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
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
Exports and statutory levy expenditure on export promotion and market development by industries. (X) denotes exports.
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),
Annual growth rate of per capita gross domestic product (GDP) and total statutory levy expenditure on export promotion and market development of the four industries.
Despite the growing body of literature about the role of EPAs in enhancing exports (Gil, Llorca & Serrano
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
Summary statistics per quarter of a calendar year.
Description | Pooled mean ( |
Citrus ( |
Deciduous fruits ( |
Table grapes ( |
Wine ( |
---|---|---|---|---|---|
Statutory levy expenditure on EPMD (R million) | 2.74 (2.85) | 1.25 (0.83) | 3.01 (1.97) | 0.62 (0.22) | 6.07 (3.22) |
GDP per capita (constant 2010 US$) | 1863.15 (39.12) | 1863.15 (39.12) | 1863.15 (39.12) | 1863.15 (39.12) | 1863.15 (39.12) |
Note: Standard deviations are in parenthesis.
EPMD, export promotion and market development; GDP, gross domestic product.
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.
Adjusted
Variable | Adjusted t statistic | p-value | Remark |
---|---|---|---|
EPMD statutory levy expenditure (LnLevy) | -1.8136 |
0.0349 | Accept Ho at 5% and 10% levels |
Social welfare (LnAgrK) | -1.9795 |
0.0239 | Accept Ho at 5% and 10% levels |
EPMD, export promotion and market development.
denote significance at 5% level
In this article, we take cognisance of earlier works by Mashabela and Vink (
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
ln (
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.
ln (
where
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
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.
Pooled results from the estimation of Equation 1 are provided in
Average impact of export promotion and market development levies on social welfare for the four industries (static models).
Social welfare (LnKapito) | OLS (n = 160) | Poisson (n = 160) |
---|---|---|
EPMD |
0.008 |
0.001 |
Citrus ban |
0.019 |
0.003 |
Intercept | 7.421 |
2.00 |
R2 | 0.198 | - |
Wald chi2 | - | 110.61 |
Pseudo R2 | - | 0.000 |
Fit of the model (Goodness-of-fit chi2) | - | 0.008 |
Note: EUBAN is a dummy relating to the ban on South Africa’s citrus exports to the EU during the CBS outbreak in the country.
EPMD, export promotion and market development; OLS, ordinary least squares.
denote significance at 1% level.
Results of dynamic models presented in
Average impact of export promotion and market development levies on social welfare for the four industries (dynamic model).
Social welfare (LnKapito) | OLS ( |
Poisson ( |
---|---|---|
EPMD |
0.002 |
0.0002 |
EPMD previous period |
0.005 |
0.001 |
Citrus ban |
0.018 |
0.002 |
Intercept | 7.429 |
2.01 |
0.192 | - | |
Wald chi2 | - | 107.97 |
Pseudo |
- | 0.000 |
Fit of the model (goodness-of-fit chi2) | - | 0.007 |
Note: EUBAN is a dummy relating to the ban on South Africa’s citrus exports to the EU during the CBS outbreak in the country.
EPMD, export promotion and market development; OLS, ordinary least squares.
denote significance at 10% level.
Results in
Average impact of export promotion and market development levies on social welfare (US$), by industry (2006–2015).
Variables | Citrus | Deciduous fruits | Table grapes | Wine | ||||
---|---|---|---|---|---|---|---|---|
Static | Dynamic | Static | Dynamic | Static | Dynamic | Static | Dynamic | |
EPMD (LnLevy) | 0.003*** |
0.002*** |
0.002*** |
-0.0001 |
0.004*** |
0.0002 |
0.003*** |
0.002** |
Previous EPMD (LgLnLevy) | - | 0.001* |
- | 0.002** |
- | 0.003*** |
- | 0.001 |
Citrus ban (EUBAN) | 0.001*** |
0.001** |
- | - | - | - | - | - |
Intercept | 1.979*** |
1.980*** |
1.991*** |
1.993*** |
1.970*** |
1.972*** |
1.969*** |
1.971*** |
Wald chi2 | 50.63 | 50.98 | 23.46 | 26.68 | 9.58 | 14.47 | 48.62 | 53.88 |
Pseudo |
0.000 | 0.000 | 0.000 | 0.000 | 0.000 | 0.000 | 0.000 | 0.000 |
Log pseudolikelihood | -77.578 | -75.641 | -77.578 | -75.641 | -77.578 | -75.641 | -77.578 | -75.641 |
Note: Results based on the static model imply that parameter estimates are fixed for all the period considered in the analysis, while results based on the dynamic model mean that parameter estimates can change over time. EUBAN is a dummy relating to the ban on South Africa’s citrus exports to the EU during the CBS outbreak in the country.
*, ** and *** denote significance at 10%, 5% and 1% levels, respectively.
EPMD, export promotion and market development
With regard to the returns to investment, pooled results provided in
Returns to social welfare per R1 of statutory levy expenditure on export promotion and market development.
Variable | Pooled | Citrus | Deciduous fruits | Table grapes | Wine | |||||
---|---|---|---|---|---|---|---|---|---|---|
Static | Dynamic | Static | Dynamic | Static | Dynamic | Static | Dynamic | Static | Dynamic | |
Social welfare |
26 | - | 75 | 509 | 52 | 50 | 89.43 | 82 | 93 | 73 |
Note: Results based on the static model imply that parameter estimates are fixed for all the period considered in the analysis, while results based on the dynamic model mean that parameter estimates can change over time.
Measured as GDP per capita at constant 2010 US$ while blanks imply insignificant marginal elasticities, hence left out.
Estimates suggest that the citrus industry generates the highest returns on social welfare per rand spent on EPMD, followed by the table grapes industry, wine industry and the deciduous fruits industry, respectively. The variations in the returns across industries on the various components of the economy are attributable to the various industry characteristics as well as the EPMD activities undertaken by the different industries.
Statutory levy expenditure on EPMD plays a critical role in improving the social welfare of South Africans. In terms of returns generated from statutory levy expenditure on EPMD, the citrus industry delivers the highest returns to social welfare per rand spent, followed by the wine and table grapes industries. Conclusively, the impact on and returns to social welfare of EPMD based on statutory levy expenditure varies across industries because of the differing industry characteristics. Policy wise, it is important to mobilise more resources to facilitate the EPMD initiative for citrus, deciduous fruits, table grapes and wine industries. For future research, there is a need to evaluate the other industries (i.e. cotton, fynbos and potatoes) which also use levies for EPMD activities.
The authors acknowledge the input provided by participants at the 55th annual conference of the Agricultural Economics Association of South Africa (AEASA) in 2017, a seminar held at the Western Cape Department of Agriculture (2017). The authors also acknowledge helpful comments from Justin Chadwick of the Citrus Growers Association (CGA).
We declare that we have no financial or personal relationships that may have inappropriately influenced us in writing this article.
M.H.L. was the project leader and made conceptual contributions and data analysis. B.N., N.M. and Y.X.P. were responsible for data collection, while S.N. made contributions towards the concept and discussion of results.
HORTGRO services, Citrus Growers’ Association (CGA), SA Table Grape industry, and Wines of South Africa (WOSA).
See Van den Bergh and Antal (2014) for the detailed reasons and a list of respected economists who discredit the use of GDP-based measures as indicators of social welfare.