Estimation of supply response and elasticities of broiler meat in South Africa

Abstract

This study examined the nexus between broiler supply and macro- economic variables such as price and non-price factors over the period 2010 to 2021. Low-cost chicken products have entered the market as a result of trade agreements and market conditions, putting downward pressure on local pricing and reducing market share for South African producers. South African broiler meat producers have been unable to propel the industry forward. Thus, the main aim of the study was to estimate the supply response and price elasticity of broiler producers in South Africa. Secondary data used in this study were obtained from the South African Poultry Association (SAPA) and the South African Reserve Bank (SARB). Data on broiler supply, broiler imports and exports, broiler feed price index, and weighted average broiler price were obtained from the South African Poultry Association (SAPA). Data on the nominal exchange rate were obtained from the South African Reserve Bank. Econometric techniques of ARDL were used to analyse broiler supply as an dependent variable, while the log of broiler imports (lbim), exports (lbex), broiler feed price index (lbpi), log of weighted average broiler price, (labp) and nominal exchange rate (ner) and (D) dummy (diseases) are the explanatory variables. These variables were integrated into distinct orders, in a combination of both I (0), I(1), order which made the ARDL cointegration technique the preferred model for analysis. In identifying variables that affect the supply response of broiler producers, the study found that Weighted average broiler price, (labp) was the only variable that was significant at (p<0,005) in the long run but inelastic at 0.3417 in the long run. The other variables were found to be insignificant. The p- values for the independent variables were found as follows; Broiler feed price index, (0.982) broiler imports (0.524) and exports (0.640), a nominal exchange rate (0.598) and disease (0,976) which indicate that these variables as individuals have no significant effect on the supply of broilers in the long run. However, diseases were found to be significant, with a p-value of 0,020 in the short run. This indicates that diseases have a significant effect on the supply of broilers in the short run. Collectively, all these variables (log of broiler imports (lbim), exports (lbex), broiler feed price index (lbpi) and nominal exchange rate (ner) have a significant effect on the supply of broilers in the short run with a p-value of 0.020. The study found that the previous supply of the broiler significantly at (p<0,005), decreases the current supply of broilers in the short run by 0.7225. The study found that broiler price elasticity of supply is 0.3417 in the long run, but -0.1026 in the short run is not significant in the short run. In either period, the elasticity of broiler price in relation to the supply of the broiler is inelastic in the long run. This implies that a 1% increase in the price of the broiler results in a less proportionate increase in the supply of the broiler. The supply response of broiler producers is mainly affected by the price of the broiler and also by non-price factors collectively. The study recommends that the Department of Agriculture, Land Reform and Rural Development, South African Reserve Bank and Department of Trade, Industry and Competition should strengthen their efforts in stabilising broiler meat prices, as broiler meat is the cheapest source of protein and it is affordable by many poor households in South Africa. Department of Agriculture, Land Reform and Rural Development should ensure that necessary reforms in the poultry industry are realised through the implementstion of the poultry master plan.