Agriculture Reference
In-Depth Information
7.3.10 Profitability of the maize industry
The results indicate that the maize enterprise was not financially viable when examined
from the standpoint of the individual farmer who grew maize in the Swazi Nation Land. As
Table 7.8 shows, a high negative profit was realized during the study period. This situation
probably arises from the high domestic costs of production which mean that gross margins
remain low despite higher domestic prices for maize. The market prices for labour are those
based on the national minimum wage legislation. One reason for this is that costs are higher
than revenues, leading to production losses. Since the private profitability parameter is also
a measure of competitiveness, it can be concluded that the maize industry of Swaziland is
not competitive.
The above finding is quite serious because, despite a general down-scaling of subsidies in
recent times, farmers still receive considerable support from the Government of Swaziland.
For instance, there are still some subsidies on the use of farm machineries as is obvious from
the disaggregation of the production costs in Table 7.8. As the enterprise budget shows
(Table 7.8), farm machineries like dryers, tractors and shellers which are hired from the
Ministry of Agriculture, come at an average subsidy of about 60%. Another indication of
the extent of subsidization of local costs of maize production is given by the large difference
between the private domestic costs, at SZL 780, and the social domestic costs, estimated
at SZL 2,028 per tonne of maize. The high social costs of maize production also mean that
the industry's value adding to foreign exchange earnings is almost negligible. This element
was assessed by calculating the domestic resource costs (DRC) which gave a value of 6.44
(Table 7.10). As is well known, DRC>1 implies that the industry is using up more resources
by producing locally. According to Monke and Pearson (1989), the DRC serves as a proxy
measure for social profits. Its high positive value therefore implies that the industry is
socially unprofitable.
Table 7.10. PAM ratios for the Swaziland maize industry.
1
Private cost ratio
1.74
Domestic resource cost ratio
6.44
Nominal protection coefficient on tradable outputs
1.29
Nominal protection coefficient on tradable inputs
1.22
Effective protection coefficient
1.42
Profitability coefficient
0.19
Subsidy ratio to producers
1.62
1
Authors' calculations.
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