Factors influencing the competitiveness of the South African wheat industry: a hedonic price model

Abstract

The South African wheat industry has been under severe pressure in recent years. Prescribed high wheat quality, which is enforced via cultivar release criteria, is believed to have negatively influenced the productivity and competitiveness of producers. The main hypothesis is that producers deliver lower yields because of high quality requirements and are not compensated for this high quality since prices are still determined by the lowest import parity price. Whether or not this is actually the case must be determined, firstly, by identifying the factors that influence the price of wheat, and secondly, by identifying the factors that do not influence the price of wheat but nevertheless have an adverse effect on producers' productivity. In this study, a hedonic price model, built on the premise that price is a function of all the characteristics that the product possesses, is used to precisely determine the factors that impact - or otherwise - on price levels in the South African wheat industry. The authors apply the hedonic price model using a three-step process to obtain the best-fitting model for the available data. The results reveal that variations in price are mainly a function of Colour, P/L, Defects and Fall, and that these factors should form the basis of the prescribed quality to producers. By knowing the wheat characteristics that must be included in, and excluded from, the release criteria (prescribed quality) system, producers will be able to produce goods that positively impact their productivity as well as their competitiveness