Swapi, Asemahle; Akande, Joseph Olo un emi; Hosu, Yiseyon Sunday
A icle
Whea alue chains and e ical p ice ansmission in
Sou h A ica: A nonlinea au o eg essi e diagnos ic lag
bound app oach
Economies
P o ided in Coope a ion wi h:
MDPI – Mul idisciplina y Digi al Publishing Ins i u e, Basel
Sugges ed Ci a ion: Swapi, Asemahle; Akande, Joseph Olo un emi; Hosu, Yiseyon Sunday (2024) :
Whea alue chains and e ical p ice ansmission in Sou h A ica: A nonlinea au o eg essi e
diagnos ic lag bound app oach, Economies, ISSN 2227-7099, MDPI, Basel, Vol. 12, Iss. 12, pp. 1-21,
h ps://doi.o g/10.3390/economies12120340
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Ci a ion: Swapi, Asemahle, Joseph
Akande, and Yiseyon Sunday Hosu.
2024. Whea Value Chains and
Ve ical P ice T ansmission in Sou h
A ica: A Nonlinea Au o eg essi e
Diagnos ic Lag Bound App oach.
Economies 12: 340. h ps://doi.o g/
10.3390/economies12120340
Academic Edi o s: Richa d
John Robe s, José-Ma ía Mon e o,
Ma ía del Ca men Valls Ma ínez,
Vi iane Naimy and José
Manuel San os-Jaén
Recei ed: 4 Sep embe 2024
Re ised: 22 No embe 2024
Accep ed: 26 No embe 2024
Published: 12 Decembe 2024
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4.0/).
A icle
Whea Value Chains and Ve ical P ice T ansmission in
Sou h A ica: A Nonlinea Au o eg essi e Diagnos ic Lag
Bound App oach
Asemahle Swapi 1, Joseph Akande 2and Yiseyon Sunday Hosu 1,3,*
1Depa men o Business Managemen and Economics, Facul y o Economics and Financial Sciences, Wal e
Sisulu Uni e si y, P.B X1, M ha ha 5117, Sou h A ica; [email p o ec ed]
2Depa men o Accoun ing Science, Facul y o Economics and Financial Sciences, Wal e Sisulu Uni e si y,
P.B X1, M ha ha 5117, Sou h A ica; [email p o ec ed]
3Small Scale Ag i-Business Ru al Non a m En e p ises Resea ch Niche, Facul y o Economics and Financial
Sciences, Wal e Sisulu Uni e si y, P.B X1, M ha ha 5117, Sou h A ica
*Co espondence: [email p o ec ed]
Abs ac : This s udy examined he e ical ansmission o whea p ice among he main alue
chain, looking a he p icing beha iou o ce ain ole playe s in he whea p oduc ion/supply and
he dis ibu ion o b ead, which is a majo s aple ood consumed in Sou h A ica. A nonlinea
au o eg essi e dis ibu ed lag (NARDL) model was used o analyse he yea ly ime se ies da a o
he pe iod o 2000 o 2022. The esul s o he s a iona i y es showed ha all a iables we e o o de
one, I (1). The s udy used wo pai s, namely a mga e p ice and e ail p ice, and a mga e p ice
and wholesale p ice, o examine he exis ence o asymme y be ween hese p ices, wi h ain all and
empe a u e as con ol a iables. The esul s indica e he exis ence o a posi i e long- un asymme y
o 35.9% be ween he a mga e p ice o whea and e ail p ice o b ead, and 3.49% asymme y be ween
he a mga e p ice and wholesale p ice o whea . To de elop in o med policies on ood secu i y, his
s udy sugges s ha he go e nmen should enhance egula access o da a and sus ain i s moni o ing
and communica ion o ood p ice in o ma ion ac oss he whole coun y. Fo a me s, a policy on
p ice anspa ency can help hem o es ablish a public pla o m o sha e ma ke p ices, ensu ing ha
hey ecei e ai p ices. This pape also ecommends he p o ision o subsidies o whea a me s o
help he whea indus y, educe he cos o b ead p oduc ion, and make b ead mo e a o dable and
accessible o consume s.
Keywo ds: e ical p ice ansmission; a mga e p ice; wholesale p ice; e ail p ice; p ice asymme y
1. In oduc ion
The abili y o ma ke s o communica e p ice signals ho izon ally and e ically is
an essen ial aspec o many cu en economic ends (Deb e al. 2020). Due o ongoing
changes in he ma ke , p oduce s o ag icul u al commodi ies a e becoming mo e in-
e es ed in p ice ansmission (Rose and Papa as 2023). The exchange o p ice shocks
be ween manu ac u e s and e aile s illus a es e ical p ice ansmission, one way o
assessing he ups eam and downs eam implica ions o he linkages in a supply chain
(Rose and Papa as 2023). To be e unde s and how p ices, in e ac a di e en le els
o a ma ke ing chain, esea ch on e ical p ice ansmission p ocesses mus be done
(Ti aoui and Von C amon-Taubadel 2017).
Whea was in oduced o Sou h A ica in he middle o he 17 h cen u y, and by 1684,
whea p oduc ion was well es ablished in he Cape. Acco ding o K iel (2023), 75% o whea
in Sou h A ica is p oduced unde d yland condi ions and 25% unde i iga ion. The F ee
S a e (21%), No he n Cape (17%), and Wes e n Cape (42%) p oduce mos o Sou h A ica’s
whea . The emaining p o inces p oduce less. Sou h A ica is s ill he second-la ges
Economies 2024,12, 340. h ps://doi.o g/10.3390/economies12120340 h ps://www.mdpi.com/jou nal/economies
Economies 2024,12, 340 2 o 21
sub-Saha an whea supplie behind E hiopia by expo ing o nea by coun ies and ac ing
as a passage o ce eals b ough in om beyond he egion. I con inues o impo mo e
whea han i g ows because i equi es 40 o 50 pe cen o i s own equi emen s in impo s.
The annual yields o whea in Sou h A ica ange be ween 1.5 million and 3 million
me ic ons, wi h 2–2.5 ons/ha unde d yland bu no less han 5 ons/ha unde i iga ion.
Resea ch om a a ie y o ields, including plan b eeding, ag onomy, c op physiology, and
c op p o ec ion, has con ibu ed o he ise in whea p oduc ion’s e iciency, p oduc i i y,
and quali y o e ime. Howe e , p oduc ion has also been a ec ed by clima e change, such
as excessi e o lack o ain all and high empe a u es, which can lead o d ough s o e
he yea s. Acco ding o Pachau i e al. (2014), ising empe a u es, as well as ain all, a e
p ojec ed o lowe he p oduc ion o c ops such as whea , which will ha e a signi ican
nega i e impac on he coun y’s ood secu i y. I is es ima ed ha he whea business
con ibu es a ound ZAR 5 billion annually o he g oss alue o ag icul u al p oduce
(Mpha eng 2022).
S udies ha e been ca ied ou o examine p ice ela ionships be ween a m, wholesale,
and e ail ma ke s in Sou h A ica. A s udy by Mosese (2020) aimed o de e mine he
na u e o p ice ansmission in he Sou h A ican po a o ma ke . A s udy by Mandiz idza
(2013) a emp ed o ill he knowledge gap on he pe o mance o Limpopo P o ince’s
oma o ma ke s by examining e ical p ice linkages amongs successi e ma ke ing le els.
Mpha eng (2022) analysed he ansmission o wo ld whea p ices o he domes ic whea
ma ke in Sou h A ica in which hey ocused on wo ld p ices; hey sugges ed ha a s udy
on he e ical p ice ansmission o whea in Sou h A ica should be conduc ed. This s udy
aims o ill he gap, as sugges ed by Mpha eng (2022); by ocusing on domes ic p ices o
examine he p ice ansmission in he whea - o-b ead alue chain and i will use a nonlinea
au o eg essi e diagnos ic lag (NARDL) model.
S a is ics p o ided by he Depa men o Ag icul u e, Land Re o m and Ru al De el-
opmen in 2020 e ealed ha he o al annual p oduc ion o whea is gene ally less han he
domes ic consump ion equi emen s. The obse a ion p o ided a gene al indica ion ha
whea p oduc ion olumes a e on he decline while consump ion is con inually inc easing.
Du ing he ma ke ing yea 2018, he whea p oduc ion olume was abou 1.80 million ons
while he consump ion amoun ed o abou 3.23 million ons. This has le a de ici o abou
1.43 million ons o whea . Du ing 2018, whea p oduc ion inc eased by 19% compa ed o
he p e ious yea , 2017. O e he same pe iod, he local whea u iliza ion/consump ion
sligh ly inc eased by 1.3% om 3.19 million ons o 3.23 million ons. On a e age, Sou h
A ica p oduced only 56% o he coun y’s consump ion equi emen s o e he pas en-yea
pe iod (2009–2018), and he balance came om impo s.
The pu pose o his s udy is o examine he e ical p ice ansi ion o whea in Sou h
A ica, looking a he ansmission o whea a mga e p ices o whea wholesale p ices
o e ail p ices o b ead om he pe iod 2000 o 2022. The a ailabili y o da a was aken
in o conside a ion when deciding he pe iod ha he s udy used. Wi h a ew s udies
pe o med by o he au ho s ega ding he p ice ansmission o ag icul u al commodi ies,
he e ical p ice ansmission o whea in Sou h A ica was no ye pe o med; his led
o a decision o pe o m his esea ch. The objec i es o his pape include analysing he
long- un ela ionship be ween he whea a m p ice and he wholesale whea p ice and
e ail p ice, examining he asymme y be ween he a mga e p ice and e ail p ice, and
examining he asymme y be ween he a mga e p ice and wholesale p ice. The hypo heses
o his pape a e as ollows:
H1. The e is no long- un ela ionship be ween whea a mga e, wholesale, and e ail p ices.
H2. The e is no exis ence o p ice asymme y be ween he a mga e p ice and e ail p ice.
H3. The e is no exis ence o p ice asymme y be ween he wholesale p ice and a mga e p ice.
Economies 2024,12, 340 3 o 21
The objec i es o his esea ch we e achie ed unde he sec ion o es ima ion ech-
niques. The i s objec i e was achie ed by pe o ming a nonlinea bounds es o check
he exis ence o a long- un ela ionship be ween he h ee p ices ( a mga e p ice, wholesale
p ice, and e ail p ice). The second objec i e o his pape can be ound in he esul s o he
es ima es o he long- un coe icien s o he a mga e p ice o whea and he e ail p ice o
b ead. The las objec i e was a ained om he es ima es o he long- un coe icien s o he
a mga e p ice and wholesale p ice o whea .
2. Li e a u e Re iew
2.1. Theo e ical Li e a u e
2.1.1. Ma ke Powe Theo y
Acco ding o he ma ke powe heo y, companies me ge o educe ou pu o wo k
oge he o inc ease hei capaci y o de e mine p oduc p ices. Among he a gumen s
ha ha e been p o ided o accoun o asymme ic p ice mo emen s, he mos ci ed is he
p esence o ma ke powe in e ail and p ocessing indus ies (Bakucs e al. 2013). Gene ally,
i is expec ed ha downs eam ood en e p ises, able o exe ma ke powe , ansmi
p ice mo emen s ha h ea en hei ma ke ing ma gin as e han p ice mo emen s ha
imp o e i (Bakucs e al. 2013). Mo e speci ically, ma ke powe in downs eam sec o s may
a ec p ice ansmission by dep essing pu chasing p ices in ups eam sec o s below he
le el o a pe ec ly unc ioning ma ke and de e ing en y o os e ing exi . Fi ms wi h
ma ke powe can se p ices highe han in a ma ke wi h g ea e compe i ion (Vaidya 2023).
Consume p ices may inc ease as a esul , and his may sp ead ac oss he supply chain.
On he o he hand, i ms can also use hei ba gaining powe o nego ia e lowe p ices o
inpu s, esul ing in lowe p ices o p oduce s, and his can be passed on h oughou he
supply chain (Con o i 2004).
2.1.2. Theo y o Asymme ic In o ma ion
The economic heo y o asymme ic in o ma ion was de eloped by h ee economis s,
namely Ake lo , Spence, and S igli z, in he 1970s and 1980s as a plausible explana ion o
ma ke ailu es (Ross 2022). The heo y p oposes ha an imbalance o in o ma ion be ween
buye s and selle s can lead o ma ke ailu e (Ross 2022). Asymme y in in o ma ion has a
big impac on ag icul u al commodi y p ices. Businesses may ha e asymme ic knowledge
abou u u e pe iod p ices, ha es , o o he pe inen a iables in a lo o ag icul u al
ma ke s (Pe lo and Rausse 1993). This in o ma ional inequali y may esul in ma ke
powe and he capaci y o se p ices, which may ha e an impac on dis ibu ion and wel a e.
Businesses ha own ma ke powe in p ocessing o expo ing indus ies, o ins ance, a e
p obably mo e knowledgeable han o he agen s, and hey can u ilise his knowledge o
boos hei ma ke powe in subsequen ansac ions. When p ice in o ma ion was gi en
o a me s in he con ex o ag icul u al ansac ions, like he sale o c ops om a me s
o ade s, a e age ma gins ea ned by ade s did no change, sugges ing ha he e was
in o ma ion asymme y abou p ices p esen in hese ansac ions (Mi a e al. 2012).
2.2. Empi ical Li e a u e
This sec ion p esen s he analysis o empi ical li e a u e by o he schola s using
di e en me hodologies in di e en coun ies wi h he objec i e o iden i ying gaps ha
exis and o he po en ial a iables.
A s udy by Rezi is (2019) in es iga ed p ice ansmission in he Finnish dai y sec o
and a nonlinea ARDL model was applied o mon hly p ice da a o analyse e ical p ice
ansmission among a m and e ail ma ke s o a a ie y o dai y p oduc s in Finland.
Hillen (2021) used de ailed p ice da a on a m ga e, wholesale, expo , and e ail le els,
and hey applied asymme ic ec o au o eg ession and ec o e o co ec ion models o
s udy e ical p ice ansmission in Swiss dai y and cheese chains. A s udy by A ida e al.
(2023) empi ically measu ed and analysed he long- un ela ionship and asymme ic p ice
ansmission o he ice ma ke in Aceh P o ince, Indonesia. The s udy used a se ies o
Economies 2024,12, 340 4 o 21
econome ic echniques comp ising coin eg a ion, causali y, and he E o Co ec ion Model
(ECM) o in es iga e he esea ch objec i es. The esul s o all o he s udies men ioned
p esen he exis ence o a posi i e long- un asymme y be ween p ices.
A ew s udies ega ding p ice ansmission ha e been conduc ed in Sou h A ica.
In a s udy by Ramoshaba (2019), a p ice ansmission mechanism is desc ibed wi h an
ag icul u al p oduc wi hin he dai y indus y, which is pas eu ised liquid milk. The VECM
esul s showed asymme ic p ice ansmission, implying ha e aile s and p ocesso s eac
quicke o p ice inc eases han o p ice dec ease. P ice moni o ing policy is sugges ed o
p o ec he consume s om un ai p ices passed on by he e aile s. A s udy by Mosese
(2020) aimed o de e mine he na u e o p ice ansmission in he Sou h A ican po a o
ma ke . The s udy made use o he E o Co ec ion Model and he G ange Causali y
es . The Empi ical esul s e eal he exis ence o p ice asymme y in he Sou h A ican
po a o alue chain. Fu he mo e, he esul s show ha e ail p ices a e mo e esponsi e o
p oduce p ice inc eases han hey a e o p oduce p ice declines.
Mpha eng (2022) used he a e age weekly whea p ices o he mon hs o Janua y
2010 h ough Decembe 2019 o e alua e how changes in global whea p ices a ec ed Sou h
A ica’s domes ic whea ma ke . The goals o he s udy a e o apply he E o Co ec ion
Model o de e mine how a he ansmission o global whea p ices o domes ic p ices
in Sou h A ica akes place and o es ablish he ex en o he coin eg a ion—long- e m
ela ionship—be ween he wo a iables. The indings e i ied ha , o e ime, Sou h
A ica’s domes ic ma ke e en ually ecei es a ansmission o global whea p ices. The
esul s also show ha domes ic whea p ices we e ound o ha e a ela i ely low a e o
co ec ions o modi ica ions owa ds equilib ium condi ions. Mo e esea ch is ad ised by
he s udy, wi h a ocus on he e ical p ice ansmission om whea o whea - lou and
o he whea -based i ems including ce eals and b ead.
2.3. Whea - o-B ead Value Chain in Sou h A ica
Sou h A ica’s whea indus y plays a i al ole in he na ion’s ag icul u al economy
and con ibu es signi ican ly o ood secu i y. Whea is g own p ima ily in he wes e n
pa s o Sou h A ica, while a me s in he no he n egions expe ience a compe i i e
disad an age due o p icing based on he Rand on ein g ain ma ke in Gau eng (Midgley
2016). E en hough whea is one o Sou h A ica’s op c ops, he coun y emains a
ne impo e , wi h impo s luc ua ing a ound 1.4 million o 1.8 million onnes annually
(Ma ohlang Mohlo sane e al. 2018). A e whea is ha es ed, ac i i ies ha a e done o
i in ol e milling and p oducing whea lou , b an, and meal. Bake y p oduc s accoun
o a subs an ial sha e o he e ail p ice o b ead ollowing he de egula ion o he whea
indus y (Abdelaziz e al. 2022). The whea - o-b ead alue chain is illus a ed in Figu e 1.
Figu e 1abo e shows he p ocess o how whea is ans e ed om a mga e o e-
ail/consume . The e a e se e al ypes o s o age acili ies o whea , all o which also s o e
impo ed whea . Subsequen ly, he whea is aken o milling i ms whe e i is con e ed o
whea lou . This lou is hen used in baking, such as o b ead, olls, ozen dough, and
o he whea -based goods like ce eals, pas a, and biscui s. A iny p opo ion o low-quali y
whea is used o make animal eed (Midgley 2016). The milling, baking, and e ail indus ies
a e he key playe s in he alue chain.
The e a e some challenges ha a e aced by he whea - o-b ead alue chain in Sou h
A ica. The i s one is clima e isks whe e ame s a e inc easingly exposed o clima e
a iabili y and change, pu ing hem a isk inancially wi hou adequa e suppo o pa -
ne ships wi h ins i u ions and go e nmen (Midgley 2016). The second one is he shi
owa ds impo dependence, as wi h local p oduc ion unable o mee demand, he e is
a g owing end owa d inc eased whea impo s, po en ially leading o highe cos s o
bo h p oduce s and consume s (Midgley 2016). Consume s ha e el he e ec s in he o m
o highe p icing o basic whea -based commodi ies like b ead. The e aile may ecei e
a signi ican po ion o he mille - o- e ail ma gin. Re aile s appea o espond as e o
Economies 2024,12, 340 5 o 21
shocks ha s e ch hei ma ke ma gins han o hose ha squeeze hem, which is linked
o he ood ma ke chain’s an i-compe i i e na u e.
Figu e 1. Whea - o-b ead alue chain. Sou ce: Au ho ’s own d awing.
2.4. Whea and B ead P ices in Sou h A ica
Fa mga e p icing is de e mined only a e a c op has been ha es ed and he ag i-
cul u al p oduce has sold hei excess. The a e age anspo di e ence and handling
expenses a e sub ac ed om he SAFEX spo p ice o a i e a he p oduce p ice o whea
in Sou h A ica. D ough and a ha sh win e can ha m c ops, which lowe s ou pu and
d i es up cos s (Pe inge 2022). The wholesale p ice is he ma ke p ice o he commodi y
ha includes he demand and supply as well as he expec ed demand and supply o he
commodi y. Since i includes addi ional expenses like anspo a ion, ma ke ing, s o age,
and he p o i ma gin o he pa icipa ing companies, he ma ke p ice is o en g ea e han
he a mga e p ice. Fo Sou h A ica, whea impo s esul in he luc ua ion o local p ices
because o e ec s such as global whea p ice mo emen s and changes in he alue o he
Sou h A ican cu ency, which is a and, as well as he a ia ions in anspo a ion cos s.
This is one eason why he e migh be p ice changes o whea p oduc s in he domes ic
economy. A sizable po ion o Sou h A ica’s popula ion is li ing in po e y and apidly
u banizing. The consump ion o eady- o-ea ood inc eases as ci ies g ow. The majo i y
(70–80%) o he whea lou p oduced in Sou h A ica is used o make b ead, making i he
mos signi ican p oduc in he baking indus y (Mpha eng 2022). Acco ding o es ima es
om he Depa men o Ag icul u e, Land Re o m and Ru al De elopmen (2020), he
na ion consumes 2.8 billion loa es o b ead annually, o 62 loa es pe pe son. The cos o
whea , manu ac u ing cos s, and anspo a ion cos s a e only a ew o he a iables ha
migh a ec b ead p ices in Sou h A ica.
Figu e 2p o ides he luc ua ion o whea p ices (a a mga e and wholesale) and
b ead p ices (a e ail le el) in Sou h A ica, om he pe iod o 2000 o 2022.
Whea p ices a he a mga e le el inc eased om 55.9% in 2000 o 78.2% in 2002.
F om 2003 o 2005, he p oduce p ice o whea dec eased om 74.6% o 55%, espec i ely.
Acco ding o Theunissen (2005), in 2002 and 2003, he p o i ma gin o whea was high,
a e which i d opped in 2004 and 2005. Al hough he p ice pe on had d opped in 2005,
he bigges eason o he loss in p o i abili y was he ac ha he e was a lowe yield
due o he d ough . In 2007, he p ices hen ose by 149.9% bu ell by 93.1% o a pal y
93.1 pe cen wo yea s la e . I was 10% be e based on he whea p oduc ion calcula ion
agains an inc ease o 10% ela i e o he i e-yea a e age o 1.91 million ons (2002/2003
o 2006/2007 seasons), which was indica i e ha his season’s inal ha es was highe
Economies 2024,12, 340 6 o 21
han wha has been ha es ed ecen ly—in he p eceding season—which means he e will
be mo e ce eal ha yea han he p e ious (Win e Ce eal T us 2007).
Figu e 2. Fa mga e p ice o whea , wholesale p ice o whea , and e ail p ice o b ead in Sou h A ica
om 2000 o 2022. Sou ce: Au ho ’s own d awing.
In 2009, a mga e whea p ices we e 93.1%; hen, hey showed an inc easing end up
un il 2016, when hey we e he highes a 200.1%. In 2015–2016, he e we e d ough s in
Sou h A ica, and high po e y le els could ha e impac ed he inc ease in whea p ices.
The e was a d as ic dec ease in a mga e p ices om being 199.2% in 2019 o 122.42%
in 2020. This was caused by a decline in plan ed a eas, and wi h less han 2 million
ons annually, Sou h A ica’s whea p oduc ion ell by abou 50%. Wi h 1.5 million ons
ha es ed, he whea c op o 2019–20 is he smalles since de egula ion in 1997. Whea
p ices hen inc eased be ween 2020 and 2022, om 122.4% o 128.57%, espec i ely; his is
because whea p oduc ion in Sou h A ica inc eased by app oxima ely 2.3 million me ic
ons compa ed o 2020.
The ma ke whea p ices in 2000 we e 50.59% and hey inc eased o 65.22% in 2002.
In 2006, he pe cen age o whea p ices we e 63.23% and hey inc eased o 115.23% in
2008 and hen dec eased o 71.2% in 2010. The o al p oduc ion o whea in 2008 was no
su icien o mee he domes ic equi emen s; he e o e, Sou h A ica had o impo he
emainde o mee he domes ic consump ion, and his esul ed in an inc ease in whea
p ices. Excep o 2010, when 2.9 million ons we e used o e all, whea consump ion has
always been abo e 3 million ons annually (Mpha eng 2022). The pe cen age o whea
p ices was 84.39% in 2011 which u he inc eased o 94.29% in 2016. F om 2018 o 2022,
he pe cen age whea p ices inc eased om 77.47% o 109.4%, espec i ely. The inc ease
in whea p ices be ween 2019 and 2020 was caused by an inc ease in he local demand o
whea . Since hen, he whea p ice has shown an inc easing end; his is because o whea
p ices in Sou h A ica eaching a eco d high due o p ice ends in he in e na ional ma ke
and domes ic exchange a e mo emen s (Oma jee 2022).
B ead p ice pe cen age dec eased om 70.71% in 2000 o 67.78% in 2003. In 2006, he
pe cen age o b ead p ices ose om 74.92% o 95.13% in 2009. Acco ding o an a icle by
Relie web (2007), in impo ing poo na ions, like Sou h A ica, he combina ion o inc eased
expo p ices and sky ocke ing eigh a es in 2007 d o e up domes ic p ices o b ead and
o he s aple goods. The yea -on-yea consume p ice index o ood in 2008 inc eased. The
pe cen age o he e ail p ice o b ead was 95.13% in 2009, and i dec eased o 91.57% in
2010. Sou h A ica has been consuming mo e han 3 million ons o whea annually, bu in
2010 i was eco ded a 2.9 million ons; his dec ease in he consump ion o whea means
ha he e was a dec ease in he p oduc ion o b ead. A e his dec ease, he pe cen age in
Economies 2024,12, 340 7 o 21
b ead p ices s a ed inc easing up o 108.56% in 2016, hen dec eased o 99.17% in 2018 and
hen inc eased up o 103.58% in 2022. Acco ding o da a, Sou h A ica’s a e age annual
inc ease in consume ood p ices o he i s 11 mon hs o 2021 was 6.5%, up om 4.6% in
2020. The inc ease in he headline consume ood p ice in la ion has been mos ly suppo ed
by i ems om he ca ego y o ood in la ion, such as “b ead and ce eals”. When he p ice
o whea and whea p oduc s (such as b ead) inc eased, he Sou h A ican go e nmen was
unable o ake he same ac ion o mi iga e he e ec s o ising cos s on i s popula ion as
hey did in 2022 in esponse o ising oil p ices.
3. Resea ch Me hodology
3.1. Me hodological Design
This pape applied a posi i is esea ch philosophy, which means ha he s udy is
limi ed o objec i e da a collec ion and in e p e a ion. The indings unde his esea ch phi-
losophy a e ypically measu ed and obse able. Pu in ano he way, posi i is philosophy
main ains ha p oblems can be sol ed h ough accu a e measu emen and da a analysis,
pa icula ly ega ding nume ical da a (Jansen 2023). The ime se ies esea ch design which
he s udy ollowed was he explana o y analysis, which a emp s o unde s and he da a
and he ela ionships wi hin i , as well as cause and e ec . This pape used a quan i a i e
esea ch app oach, which in ol es ga he ing and analysing nume ical da a o explain,
o ecas , o egula e ele an occu ences.
As his pape ocused on he whea - o-b ead alue chain in Sou h A ica, i used yea ly
da a om he pe iod 2000 o 2022 and he eason o he choice o his pe iod is ha he
da a o one o he a iables, which is he a m p ice o whea , is only a ailable om 2000
(a ailable a Sou h A ica: p oduce p ice index o whea 2000–2019 (S a is a, published
by Cowling (2023)). Da a o a mga e p ices (whea p oduce p ice) we e collec ed om
S a is a. Da a o wholesale p ices (whea ma ke p ices) and e ail p ices (whi e b ead
p ice) we e sou ced om he Sou h A ican G ain In o ma ion Se ice (SAGIS); his is
because SAGIS is a go e nmen - un pla o m, ensu ing ha da a comes di ec ly om
sou ces, educing he isk o bias and manipula ion. Da a o he na ional a e age ain all
and empe a u e (minimum and maximum) we e sou ced om Sou h A ican Wea he
Se ices (SAWS).
3.2. The Es ima ed Model
This pape uses nonlinea au o eg essi e dis ibu ed lag (NARDL) o es ima e he
model. NARDL p oposes an expanded nonlinea e sion o he linea ARDL model. Ben
Abdallah e al. (2020) indica es in hei s udy he ad an ages o using NARDL such as ha
e e y a iable does no need o ha e he same in eg a ion o de . E en wi h iny samples,
he NARDL model allows o assessing asymme ies and coin eg a ion dynamics. The
NARDL model allows o he simul aneous de e mina ion o bo h sho - and long-nonlinea
in e ac ions, which is necessa y o achie e he goals o he s udy.
This model was used by Ben Abdallah e al. (2020) in hei s udy o ind he e ec s o
ood p ice on mac oeconomic a iables and es he hypo hesis o asymme ic p ice ans-
mission be ween a me s and e aile s, whe e hei explica i e a iable was he a mga e
p ice o aw milk and he independen a iables we e di e en p ices o milk p oduc s.
They i s de eloped a long- un equa ion, gi en as ollows:
lny =α0+α+lnx+
+α−
2lnx−
+ε (1)
whe e
lny
e e s o he na u al loga i hm o he dai y p oduc s o be analysed, and
α
= (
a0
,
a+
1
,
a−
2
) is a coin eg a ing ec o o ec o o long- un pa ame e s o be es ima ed.
Equa ion (1) was hen adjus ed o apply o his esea ch and o achie e he i s objec i e o
he s udy.
RP =a0+a+FP+
+a−
2FP−
+a+
3WSP+
+a−
4WSP−
+ε (2)
Economies 2024,12, 340 8 o 21
Compa ing Equa ions (1) and (2),
lny
is eplaced wi h
RP
because he dependen
a iable o his equa ion is e ail p ice, and he dependen a iables a e a mga e p ice
(FP ) and wholesale p ice (WSP ).
In he ollowing Equa ions (3) and (4),
lnx+
and
lnx−
a e pa ial sums o posi i e and
nega i e changes in lnx which designs he loga i hm o he independen a iable (x).
lnx+
=
∑
i=1
∆lnx+
=
∑
i=1
max(∆lnx , 0)(3)
lnx−
=
∑
i=1
∆lnx−
=
∑
i=1
min(∆lnx , 0)(4)
Thei NARDL model was exp essed as ollows:
lny =β0+β1lny −1+β+
2lnPPRM+
−1+β−
3lnPPRM−
−1+∑p
i=1ω1i∆y −1
+∑q
i=0ω2i∆lnPPRM+
+∑m
i=oω3i∆lnPPRM−
+ε (5)
whe e
β+
2=−β1/a+
1
and
β−
2=−β1/α+
2
.p,q, and ma e lag o de s o dependen and inde-
penden a iables,
ε
is he e o co ec ion e m o he NARDL model;
∑p
i=1ω
1
i
,
∑q
i=0ω2i
,
and
∑m
i=oω3i
a e he coe icien s o sho - un asymme ic coin eg a ion models;
∑q
i=0ω2i
,
and
∑m
i=oω3i
a e he posi i e and nega i e coe icien s, espec i ely, o he exogenous
a iable; and ∑p
i=1ω1ia e coe icien s o lagged dependen a iables.
Fa mga e- o-wholesale and a mga e- o- e ail p ice ansmission a e he wo le els a
which his s udy examined p ice asymme y. The sec ion ha ollows p esen s he NARDL
model ha was used in his in es iga ion.
(i)
Fa mga e- o- e ail p ice ansmission
Equa ion (5) is hen adjus ed o apply o his esea ch, and he new equa ion o
a m- o-whea p ice ansmission is gi en as ollows:
lnRP =β0+β1lnRP −1+β+
2lnFP+
−1+β−
3lnFP−
−1+∑p
i=1ω1i∆RP −1
+∑q
i=0ω2i∆lnFP+
+∑m
i=oω3i∆lnFP−
+ε (6)
Compa ing Equa ions (5) and (6),
y
is eplaced wi h
RP
because he dependen
a iable o his equa ion is e ail p ice (RP); PPRM ( he p oduce p ice o aw milk) is
emo ed; and FP ( a mga e p ice) is added as an independen a iable.
(ii)
Fa mga e- o-wholesale p ice ansmission
lnFP =β0+β1lnFP −1+β+
2lnWSP+
−1+β−
3lnFP−
−1+∑p
i=1ω1i∆FP −1
+∑q
i=0ω2i∆lnWSP+
+∑m
i=oω3i∆lnWSP−
+ε (7)
Fo his equa ion, FP ( a mga e p ice) is he dependen a iable and WSP (whole-sale
p ice) is he independen a iable.
3.3. Va iable Desc ip ion
Each a iable is desc ibed below, and he expec a ion o hei ela ionships is men-
ioned o each equa ion/model.
FP
e e s o he a mga e p ice o whea du ing pe iod ( ). The a mga e p ice o
whea e e s o he p ice ha a me s ecei e o hei whea c ops. This p ice can a y
depending on ac o s such as loca ion, supply and demand, and go e nmen policies.
WSP
e e s o he wholesale p ice o whea . The wholesale p ice o whea e e s o
he p ice a which whea is sold in bulk o e aile s, p ocesso s, and o he buye s. This p ice
can a y depending on ac o s such as loca ion, supply and demand, and he quali y o
he whea .
Economies 2024,12, 340 15 o 21
and long- un a iables, and he e u n o equilib ium. The s a is ical signi icance o he
adjus men speed, which is
−
0.92, is es ablished by he p- alue being less han 5% o he
signi icance le el. This cla i ies ha any sho - e m imbalances will be ixed du ing he i s
pe iod and will be adjus ed back o equilib ium a 92% o hese imbalances.
Table 8b p esen s he sho - un equa ion o he a mga e p ice (LFP), wholesale p ice
(LWSP), ain all (LRAINFALL), and empe a u e (LTEMP), whe e LFP is he dependen
a iable. F om he able abo e, i is shown ha a uni inc ease in wholesale p ices is
associa ed wi h a 1.79% inc ease in a mga e p ices, and he esul s a e signi ican a 1%,
which means ha he e is a posi i e ela ionship be ween wholesale p ices and a mga e
p ices. The esponse o a mga e p ices o nega i e changes in wholesale p ices is nega i e,
meaning ha a uni dec ease in wholesale p ice is associa ed wi h a 3.47% inc ease in a m-
ga e p ices; hese esul s a e signi ican because he p- alue is less han he 5% signi icance
le el, and he e is an exis ence o asymme y be ween he a mga e p ice o whea and
wholesale p ice o whea .
A uni inc ease in ain all esul s in a 0.07% dec ease in a mga e p ices, hese esul s
a e insigni ican because he p- alue is g ea e han he 5% signi icance le el. A uni
dec ease in ain all esul s in a 2.01% inc ease in a mga e p ices, hese esul s a e signi ican
because he p- alue is less han he 5% signi icance le el and he ela ionship is nega i e.
A uni inc ease in empe a u e esul s in a 12.56% inc ease in a mga e p ices and hese
esul s a e insigni ican because he p- alue is g ea e han he 5% signi icance le el and
he ela ionship is nega i e.
As he p- alue is below he 5% signi icance le el, he adjus men speed, which is
−
0.34,
is s a is ically signi ican . This cla i ies ha any sho - e m imbalances will be ixed du ing
he i s pe iod and will be es o ed back o equilib ium a 34% o hese imbalances.
4.7. Diagnos ic Tes s
Diagnos ic es s a e used o help iden i y issues like dynamic, omi ed a iables, non-
cons an e o s, non-linea i y, and long memo y s uc u es (Seka 2010). The es s ha a e
used in his sec ion a e es s o no mali y, se ial co ela ion, and he e oskedas ici y. The
conclusion o each es is based on i s null hypo hesis,
H0
, and whe he i is accep ed o
ejec ed. Table 9a,b p esen s he esul s o he diagnos ic es s o each pai .
Table 9. (a) Diagnos ic esul s: a mga e p ice and e ail p ice. (b) Diagnos ic esul s: a mga e p ice
and wholesale p ice.
(a)
Tes Null Hypo hesis T-S a is ics P obabili y Resul s
B eusch–God ey LM es The e is no co ela ion 1.23 0.38 The e is no co ela ion
Ja que–Be a es (JB)
Residuals a e no mally dis ibu ed
0.35 0.83 No mally dis ibu ed
B eusch–Pagan–God ey The e is homoscedas ici y 1.76 0.25 The e is homoscedas ici y
Whi e No he e oscedas ici y 0.51 No he e oscedas ici y
(b)
Tes Null Hypo hesis T-S a is ics P obabili y Resul s
B eusch–God ey LM es The e is no co ela ion 0.0462 0.9567 The e is no co ela ion
Ja que–Be a es (JB)
Residuals a e no mally dis ibu ed
3.4477 0.1783 No mally dis ibu ed
B eusch–Pagan–God ey The e is homoscedas ici y 0.2553 0.9716 The e is homoscedas ici y
Whi e No he e oscedas ici y 1.4586 0.4262 No he e oscedas ici y
Sou ce: Au ho ’s compu a ion.
The diagnos ic es o he pai o a mga e p ice and e ail p ice is gi en in Table 9a.
The B eusch–God ey LM es , a co ela ion es , yields a p- alue o 0.38, o e he 5%
signi icance le el. In o he wo ds, he null hypo hesis— ha he e is no co ela ion—is
accep ed. The null hypo hesis is accep ed, and he esiduals a e no mally dis ibu ed i
he p- alue o he no mali y es is highe han he 5% signi icance le el. Gi en ha he
Economies 2024,12, 340 16 o 21
B eusch–Pagan–God ey es ’s p- alue is highe han he 5% signi icance le el, he null
hypo hesis— ha homoscedas ici y exis s—is accep ed. The null hypo hesis ha he e is no
he e oscedas ici y is accep ed when he Whi e es , he inal diagnos ic es , yields a p- alue
la ge han he 5% signi icance le el.
The diagnos ic es o he pai o a mga e p ice and wholesale p ice is gi en in
Table 9b. The B eusch–God ey LM es , which measu es co ela ion, yields a p- alue
highe han he 5% signi icance le el. In o he wo ds, he null hypo hesis— ha he e is no
co ela ion—is accep ed. The null hypo hesis is accep ed, and he esiduals a e no mally
dis ibu ed i he p- alue o he no mali y es is highe han he 5% signi icance le el.
Gi en ha he B eusch–Pagan–God ey es ’s p- alue is highe han he 5% signi icance
le el, he null hypo hesis— ha homoscedas ici y exis s—is accep ed. The null hypo hesis
ha he e is no he e oscedas ici y is accep ed when he Whi e es , he inal diagnos ic es ,
yields a p- alue la ge han he 5% signi icance le el.
4.8. S abili y Tes
This pape employed wo ecu si e es s which in ol e he CUSUM es and CUSUM
o squa es o check he model as o whe he i is good o no . The s abili y es o bo h
pai s is gi en in he igu es below (Figu es 3–6).
Figu e 3. CUSUM es — a mga e p ice and e ail p ice. Sou ce: Au ho ’s own compu a ion.
The CUSUM line is in be ween he 5% signi icance le el, meaning ha he se ies is
s able, which is good o he model.
The CUSUM o squa e line is in be ween he 5% signi icance le el, meaning ha he
se ies is s able, which is good o he model.
The CUSUM line is in be ween he 5% signi icance le el, meaning ha he se ies is
s able, which is good o he model.
The CUSUM o squa e line is in be ween he 5% signi icance le el, meaning ha he
se ies is s able, which is good o he model.
Economies 2024,12, 340 17 o 21
Figu e 4. CUSUM o Squa es es — a mga e p ice and e ail p ice. Sou ce: Au ho ’s own compu a ion.
Figu e 5. CUSUM es — a mga e p ice and wholesale p ice. Sou ce: Au ho ’s own compu a ion.
Economies 2024,12, 340 18 o 21
Figu e 6. CUSUM o Squa es es — a mga e p ice and wholesale p ice. Sou ce: Au ho ’s own
compu a ion.
5. Conclusions and Recommenda ions
This pape can be ela ed o he p ice heo y, which s a es ha o ood and ag icul u al
i ems, supply shocks ha e a g ea e impac on p ice o ma ion han demand shocks, his
is because demand ends o be s eady due o es ablished consump ion habi s (Mgale and
Yan 2020). The o he heo y ha he pape can be ela ed o is he cos pass- h ough heo y,
which s a es ha each ma ke adjus s i s p ices o he p oduc s o se ices p o ided o mee
he adjus men s o i s own cos s. The exis ence o p ice asymme y be ween whea a mga e
p ice, he wholesale p ice o whea , and he e ail p ice o b ead can be ela ed o bo h
heo ies. The a m p ices o whea , which is he main ing edien o making b ead, depend
on he p oduc ion o whea ; i he e is mo e supply, hen he p ices will be less, and i he e
is less supply, he p ices will be mo e. These p ice changes can a ec e aile s because i
will no be easy o hem o jus change he p ices o b ead a he same ime ha he p ice o
whea changes, and he e o e his will a ec consume s. Go e nmen subsidies can assis
in his ma e because i he e is a lowe supply o whea , a me s will no quickly change
hei p ices. Howe e , his does no a ec he wholesale s because he ma gin be ween he
a mga e p ice and wholesale p ice o whea is ela i ely small, and he a me s ecei e a
ai sha e o he inal p ice paid by consume s. P ice heo y also assumes ha consume s
and p oduce s beha e a ionally o maximise hei indi idual u ili y and p o i s.
Ma ke in e en ion can imp o e ma ke e iciency and add ess asymme ic in o -
ma ion h ough a ious measu es. Asymme ic in o ma ion can be add essed h ough
in o ma ion- ela ed in e en ions. This can be by equi ing i ms o disclose ele an in-
o ma ion, enabling in es o s and consume s o make in o med decisions, and p o iding
in o ma ion, such as ma ke da a and esea ch, also helps educe in o ma ion asymme y.
Regula o y in e en ions a e ano he c ucial ool o add ess asymme ic in o ma ion, by
ce i ica ing common s anda ds, ensu ing ma ke pa icipan s mee minimum equi e-
men s, and by e i ying ma ke pa icipan s’ c edibili y h ough licencing and acc edi a ion
mechanisms and en o cing mechanisms such as penal ies o non-compliance. E ec i e
implemen a ion equi es collabo a ion among egula o y bodies, ins i u ions, and ma ke
pa icipan s. By le e aging echnology, educa ion, and economic incen i es, Sou h A ica
can p omo e a mo e anspa en and e icien ma ke .
Economies 2024,12, 340 19 o 21
The indings o his s udy indica ed ha he e is an exis ence o long- un and sho - un
asymme y be ween he whea a m p ice and he e ail p ice o b ead and be ween he
whea a mga e p ice and wholesale p ice o whea . The ela ionship be ween whea p ice
and e ail p ice is posi i e, and he ela ionship be ween a mga e p ice and wholesale p ice
is nega i e. Howe e , he esul s o he ela ionship be ween he a mga e p ice o whea
and wholesale p ice do no con o m o he expec a ions o he s udy, which was a posi i e
ela ionship be ween hese p ices. The exis ence o asymme y be ween he a mga e p ice
and e ail p ice in Sou h A ica can be caused by mul iple ac o s such as ma ke ing ma gins,
alue-added p ocesses, axes and le ies, p o i ma gins, and seasonali y, o men ion a ew.
The exis ence o asymme y be ween a mga e p ice and wholesale p ice can be caused by
ma ke powe , in o ma ion asymme y, ansac ion cos s, and impe ec p ice ansmission.
The Sou h A ican go e nmen policy ha has a signi ican impac on he p ice o
whea and b ead is he ade policy. T ade policy is a go e nmen ’s s a egy conce ning
in e na ional ade, including he egula ion o impo s and expo s, and he p o ec ion o
domes ic indus ies. Many coun ies p o ide subsidies o hei whea a me s, while Sou h
A ica does no . The policy also s a es ha he Sou h A ican go e nmen has imposed
a i s on impo ed whea o p o ec domes ic p oduce s, bu his can inc ease he cos o
whea o consume s. The go e nmen ’s decision on subsidies, a i s, and ade ag eemen s
can impac he p o i abili y o whea a ming, he cos o whea o consume s, and he
o e all a ailabili y o b ead. Fo he go e nmen o be able o make well-in o med decisions
ega ding ood secu i y, his s udy sugges s ha i accele a es i s e o s o ack ood p ices
ac oss he na ion. Ano he ecommenda ion made by he s udy is he p o ision o subsidies
o whea a me s o help he whea indus y educe he cos o b ead p oduc ion and make
b ead mo e a o dable and accessible o consume s.
The Sus ainable De elopmen Goals (SDGs) ha he s udy aims o achie e a e as ollows:
Ze o hunge —ensu ing access o sa e, nu i ious, and su icien ood such as b ead.
Decen wo k and economic g ow h—p omo ing ai p ices o whea a me s and
suppo ing sus ainable ag icul u e.
Reduced inequali ies— educing he gap be ween he p oduce p ice o whea , whole-
sale p ice o whea , and he e ail p ice o b ead, ensu ing ai e u ns o a me s and
wholesale s, and a o dable b ead o consume s.
Pa ne ship o he goals—collabo a ion wi h s akeholde s, including go e nmen ,
a me s, wholesale s, and consume s o add ess p ice asymme y and ensu e a sus ainable
ood sys em.
Howe e , i will no be easy o implemen hese de elopmen s; he e could be chal-
lenges aced. One o he bigges challenges would be he in e en ion o go e nmen by
p o iding subsidies o he a me s, as he economy o Sou h A ica is no pe o ming well,
bu hope ully i will be included in he nex budge speech. The indings o he s udy a e
he exis ence o asymme y be ween he a mga e p ice o whea , wholesale p ice o whea ,
and e ail p ice o b ead. Howe e , he s udy did no en u e comp ehensi ely in o he
unde lying causes o he p ice asymme y in Sou h A ica; his is an a ea ha equi es
u he esea ch. Since his pape is mainly ocused on inding he asymme y be ween
p ices, u he esea ch on he ela ionship be ween he p ices ( he a mga e p ice o whea ,
wholesale p ice o whea , and e ail p ice o b ead) can also be conduc ed, as i was no
eally speci ied in he analysis and indings. Fu he esea ch on he ela ionship be ween
p ices can be done wi h o wi hou he con ol a iables men ioned in his s udy ( ain all
and empe a u e).
Au ho Con ibu ions: Concep ualiza ion—J.A. and Y.S.H.; Me hodology, da a cu a ion and da a
analysis—A.S.; Valida ion—J.A. and Y.S.H.; W i ing—o iginal d a p epa a ion; A.S.; W i ing
−
e iew
and edi ing—A.S. and Y.S.H.; Visualisa ion—A.S. and Y.S.H.; Supe ision—J.A. and Y.S.H.; P ojec
adminis a ion—A.S.; unding acquisi ion, Y.S.H. All au ho s ha e ead and ag eed o he published
e sion o he manusc ip .
Economies 2024,12, 340 20 o 21
Funding: This esea ch did no ecei e ex e nal unding, he ins i u ion, Wal e Sisulu Uni e si y,
will p o ide he unding.
In o med Consen S a emen : No Applicable.
Da a A ailabili y S a emen : Da a o a m p ice o whea in Sou h A ica a ailable a h ps://www.
s a is a.com/s a is ics/1135803/p oduce -p ice-index-o -whea -in-sou h-a ica/ (5 Ma ch 2024).
Da a o wholesale p ice o whea and e ail p ice o b ead in Sou h A ica a ailable a : h ps:
//www.sagis.o g.za/his o ical%20p ices%20local.h ml (5 Ma ch 2024). Da a o Tempe a u e and
Rain all in Sou h A ica was enqui ed om he Sou h A ican Wea he Se ice, o which hey s a ed
ha i canno be sha ed wi h o he esea che s.
Con lic s o In e es : The au ho s deca e no con lic o in e es .
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Disclaime /Publishe ’s No e: The s a emen s, opinions and da a con ained in all publica ions a e solely hose o he indi idual
au ho (s) and con ibu o (s) and no o MDPI and/o he edi o (s). MDPI and/o he edi o (s) disclaim esponsibili y o any inju y o
people o p ope y esul ing om any ideas, me hods, ins uc ions o p oduc s e e ed o in he con en .
