Agricultural supply response and price risk of maize and sorghum in South Africa

Abstract

The study used the Autoregressive Distributed Lag-Error Correction Model (ARDL-ECM) approach to estimate the responsiveness of South African maize and sorghum producers to price risk, price incentives and non-price incentives. The price risk variable was incorporated in the supply models to examine its impact on maize and sorghum production decisions. The study used annual historical time series data of 49 observations for the period 1970 to 2018 was used in the analysis. The empirical results reveal that maize and sorghum producers' response to own price is reasonably low. The study further shows that both maize and sorghum crops demonstrate a high speed of adjustment to the long-run equilibrium, which means that in the event of a shock to the system, grain output will quickly re-establish itself at a faster rate. The findings underscore the relevance of price risk in determining production output in South Africa.