An Estimation of Price and Non Price Factors Affecting Maize Supply Response in Zimbabwe

Gwara, Simon (2011) An Estimation of Price and Non Price Factors Affecting Maize Supply Response in Zimbabwe. Masters thesis, University of Zimbabwe.

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Maize is the staple food crop of Zimbabwe and therefore plays an important role in achieving national food security goals. In the past 30 years, the country has experienced both a decline and unstable production in maize. Efforts by government to stabilize maize production seem not to have worked very well as this problem persists. The poor understanding of the maize supply response factors may partly explains this failure as efforts maybe directed at inappropriate/ ineffective factors. This study aims to develop and quantify econometrically a maize supply response model for Zimbabwe. The study evaluated the responsiveness of maize supply to its price and non price determinants. A more recent and appropriate error correction model (ECM) was applied on time series data covering a period 1980-2007 to avoid unrealistic assumptions of the traditional partial adjustment models. To deal with the expected problems associated with time series data the study adopted several diagnostic tests. In addition, Granger’s Wald test was used to assess the direction of causality between variables. After making all necessary transformation on the variables, a supply response function was then estimated using the ECM which offers a means of obtaining consistent yet distinct estimates for both short run and long run elasticities. The results show that the elasticity for the price of maize was not significant although positively related to maize output. This finding is exceptional in that most results from previous studies show own prices to significantly affect output. Therefore, the finding implies that pricing policy alone is a blunt instrument for increasing maize supply in Zimbabwe. Credit allocation, fertilizer use, rainfall, consumption and area under maize were found to significantly affect the responsiveness of maize supply. The elasticity for credit estimated at -0.06, was significantly inelastic and unexpectedly negative. A possible reason for this is that these were merely reported allocations and the actual expenditure might not have taken place. For consumption—not included in previous studies—the study found it to have a significant effect on output in the short run with a very elastic coefficient estimated at 9.6. The results also show that there were instances were prices continued to go up above the transaction costs even when imports continued to increase. This finding is unexpected given a simple arbitrage argument. Given the findings, the study recommends policies that focus more on non price factors as a means of doing away with the conventional strong emphasis on price factors as a means of stabilising maize production. The study also recommends that trade policies should be completely liberalised to allow physical arbitrage to bring prices to their pareto efficient levels.

Item Type: Thesis (Masters)
Uncontrolled Keywords: Maize Supply Response, Unit Root, Co-integration, Error Correction Mechanism
Subjects: S Agriculture > S Agriculture (General)
Divisions: Africana
Depositing User: Geoffrey Obatsa
Date Deposited: 06 Apr 2018 11:45
Last Modified: 06 Apr 2018 11:45

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