Is there justification for levy expenditure on export promotion in the agricultural sector in South Africa?

South Africa’s industries in the agricultural sector spend some of the statutory levy income on export promotion activities. Some industries argue that levy expenditure on export promotion activities generates satisfactory returns on investment but empirical evidence is yet to be presented to support the argument. Hence, this study fills this gap by building a unique dataset based on levy expenditure on export promotion for four industries (citrus, deciduous fruits, table grapes and wine) and using econometric analysis to assess the impact of export promotion on exports, net agricultural income and social welfare over a ten years’ period (2006-2015). Furthermore, we estimate the returns generated on exports, agricultural net income and social welfare per Rand of levy expenditure on exports, net agricultural income and social welfare. In the analysis, we control for unobserved heterogeneity, multi-collinearity and reverse causality. Results suggest that levy expenditure on export promotion has a statistically significant positive impact on exports, net income and social welfare across all industries. On average, a unit increase in levy expenditure on export promotion leads to an increase in exports by 7.3 percent (table grapes and deciduous fruits), 5.6 percent (wine), 5.25 percent (citrus). For agricultural net income, a unit increase in levy expenditure on export promotion is on average associated with a 7.5 percent, 4.9 percent, 4.3 percent and 3.6 percent increase for table grapes, citrus, wine and deciduous fruits, respectively. Across all industries, the range of social welfare improvement lies between 0.2 percent and 0.4 percent per unit increase in levy expenditure on export promotion. Furthermore, results suggest that one Rand spent on export promotion for the four industries in question on average generates a R404 increase in exports, R39 of additional agricultural net income and a US$26 worth of improvement in social welfare. All in all, levy expenditure on export promotion plays a key role in fostering exports, agricultural net income and social welfare improvement. Policy wise, there is need for mobilization of more resources to facilitate the export promotion initiative into new markets and products for the industries.


Other Titles:
Is there justification for levy expenditure on export promotion in the agricultural sector in South Africa?
Issue Date:
Jun 02 2017
Publication Type:
Working or Discussion Paper
Language:
English
Total Pages:
24
JEL Codes:
F13; F14; F15
Series Statement:
NAMC/WP/2017/01




 Record created 2017-07-03, last modified 2017-08-29


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