Distortions to incentives in South African agriculture: A case study of the wheat industry

Abstract

This study estimates the policy distortions faced by agricultural producers. In addition to an aggregate distortion estimation, a disaggregated approach to measuring distortions to individual agents’ incentives in a vertical value chain is seminally applied in the South African context, using the wheat industry as a case study. The results of the study highlight the opposing incentives faced by primary agricultural producers depending on the trade status of their commodity. It is recommended that policy makers and market regulators thus consider the implicit impact of the long-term depreciation of the South African rand on agricultural producers’ incentives, while also focusing on the phasing out of inter-industry distortion differences in order to realize potential efficiency gains.