QUALITY, PRICING AND THE PERFORMANCE OF THE WHEAT INDUSTRY IN SOUTH AFRICA

21 September 2015

Dr Johnny van der Merwe

Lecturer / Agricultural economics

(Prof HD van Schalkwyk and Dr PC Cloete)

So what motivated me to undertake this study?• We experienced a significant decline in wheat production,

especially since the abolishment of apartheid in 1994• At the same time:

– Yields increased significantly– Area dedicated to wheat production declined

significantly

Western Cape Eastern Free State

Performance of producers in major production areas declined

One argument was that South Africa wheat producers are simply not competitive enough to compete in the

international market

South Africa

AustraliaBrazil

International competitiveness (RTA index)• However, when the competitive status was analyzed, it was seen

that:– SA is the only country amongst its trading partners that exhibits a

uncompetitive unprocessed sector while also having a competitive semi-processed sector

What does this mean?

• Wheat is imported, processed and exported mostly to African countries.• Although the expansion of the African market is exciting, why has local

production rapidly declined and lost ground alongside its global competitors?

• The declining competitiveness of SA producers can be attributed to increasing costs and/or stagnant (declining) income.

• The concentrated on the income side of the equation which is dependable on two factors:– Yields– Price

• In a search for what can possibly be held accountable:– Bikker et al. (2007) showed that a country’s institutional

framework—or, in other words, the way in which an industry conducts business—will influence the competitiveness of that industry.

The Cultivar Release Criteria

• The Cultivar Release Criteria, which is a system that approves certain cultivars for commercial production (based on certain quality characteristics), can have an influence on both yields and prices received by producers.

• The fact that yield and quality of a cultivar are negatively correlated means that this system thus has the potential to influence the income and competitiveness of producers.

• This study therefore determined whether or not declining wheat production in South Africa can be attributed to the way in which this market conducts business.

Is the quality prescribed to producers justified?

• Quality is an essential part of the wheat industry and determines the kind and quality of product that can be produced.

• Thus, quality can't simply be disregarded for higher yields.• However, for the industry to be sustainable over the long term,

yields can't be disregarded.• It is essential that a balance between yield and quality is

found.

• It was therefore attempted in this study to find this balance.

• This was done by determining the quality that was used in the marketplace for all products and comparing it to the prescribed quality to producers.

• If these two did not match, the balance is regarded as off.

Quality prescribed to producers

• In order to determine the quality prescribed to producers, quality data was obtained from the cultivars that serves as biological standards in each production region.

• In order to correct for seasonal variations, the average quality over a 8 year period was used.

• Three comparisons were made to determine whether or not these qualities are justified or not:– Wheat quality standards compared to wheat quality supplied– Wheat quality standards compared to wheat flour quality– Wheat quality standards compared to the quality of price

determining wheat-importing countries

Release criteria standards as set to producers

 

6 year biological standard for Elands (dry land Northern Standard)

4 Year biological standard for SST806

(Irrigation)

4 Year biological standard for Kariega

(Southern Spring wheat)

Deviation allowed

Test       Min MaxKg/hl (clean) 80.39 81.74 81.73 -1.8  1000 kernel mass, g 32.37 37.93 41.38 -4 4Falling number, sec 350.20 443.57 427.33 -15%  Protein (12% mb) 13.02 12.46 12.48 -1%  Buhler Extraction 75.54 77.16 75.33 -1.50%  Colour (KJ 76) -2.20 -2.99 -3.13   1Mixogram          Peak time (SST 806)   2.46   -10% 20%Peak time (Elands) 3.07     -25% 15%Peak time (Kariega)     2.75 -25% 15%Farinogram          Absorption 63.17 62.01 62.45 -2.50% 2.50%Development time, min 5.58 5.46 5.92 -25% 25%Stability, min 9.93 7.56 10.87 -30% 10%Baking test 100g          Corrected volume, cm3 877.50 946.14 939.17 -10%  Alveogram          Strength, cm3 44.54 40.86 43.78 -20% 20%Stability, mm 100.71 78.49 83.83 -20% 20%Distensibility 92.69 121.00 117.10 -10% 20%P/L value 1.27 0.67 0.75 -25% 25%

Quality of wheat supplied to processors

The quality of imported wheat and locally produced wheat must be taken into account

Test Category

8 year weighted average

Kg/hl (clean) P 78.552881000 kernel mass, g S 36.64716Falling number, sec P 378.1353Protein (12% mb) P 11.82807Buhler Extraction P 74.23473Colour (KJ 76) P -1.44645Break flour yield S  Mixogram    Peak time (SST 806) P 3.100418Peak time (Elands) P  Peak time (Kariega) P  Farinogram    Absorption P 60.66004Development time, min S 3.471057Stability, min S 7.28852Baking test 100g    Corrected volume, cm3 P 824.0242Dough characteristics P  Alveogram    Strength, cm3 P 37.69983Stability, mm S 91.86261Distensibility S 87.02302P/L value P 1.248978

Quality of wheat supplied to processors

 Release criteria bracket for Northern

Dry Land Cultivars (Elands)Release criteria bracket for

Irrigation (SST806)

Release criteria bracket for Kariega (Cape

Spring)Test Min Max Min Max Min MaxKg/hl (clean) 78.59   79.94   79.93  1000 kernel mass, g 28.37 36.37 33.93 41.93 37.38 45.38Falling number, sec 297.67   377.04   363.23  Protein (12% mb) 12.02   11.46   11.48  Buhler Extraction 74.41   76.00   74.20  Colour (KJ 76)   -1.20   -1.99   -2.13Mixogram            Peak time (SST 806)     2.21 2.95    Peak time (Elands) 2.30 3.53        Peak time (Kariega)         2.06 3.16Farinogram            Absorption 61.59 64.75 60.46 63.56 60.89 64.01Development time, min 4.19 6.98 4.09 6.82 4.44 7.40Stability, min 6.95 10.92 5.29 8.31 7.61 11.95Baking test 100g            Corrected volume, cm3 789.75   851.53   845.25  Alveogram            Strength, cm3 35.64 53.45 32.69 49.03 35.03 52.54Stability, mm 80.57 120.85 62.79 94.18 67.07 100.60Distensibility 83.42 111.23 108.90 145.20 105.39 140.52P/L value 0.95 1.58 0.50 0.83 0.56 0.94

Quality of wheat supplied to processors

 

Proposed bracket for Dry Land Northern Standard

(Elands) based on SA quality demand

Proposed bracket for Irrigation cultivars (SST806) based on

SA quality demand

Proposed bracket for Cape Spring Wheat (Kariega) based

on SA quality demandTest Min Max Min Max Min MaxKg/hl (clean) -1.84   -3.19   -3.18  1000 kernel mass, g -4.00 4.28 -4.00 4.00 -4.73 4.00Falling number, sec -15.00%   -15.00%   -15.00%  Protein (12% mb) -1.19%   -1.00%   -1.00%  Buhler Extraction -1.73%   -3.79%   -1.50%  Colour (KJ 76)   1.00   1.54   1.69Break flour yield            Mixogram            Peak time (SST 806)     10.00% 26.18%    Peak time (Elands) -25.00% 15.00%        Peak time (Kariega)         -25.00% 15.00%Farinogram            Absorption -3.97% 2.50% -2.50% 2.50% -2.87% 2.50%Development time, min -37.79% 25.00% -36.39% 25.00% -41.33% 25.00%Stability, min -30.00% 10.00% -30.00% 10.00% -32.93% 10.00%Baking test 100g            Corrected volume, cm3 -10.00%   -12.91%   -12.26%  Dough characteristics            Alveogram            Strength, cm3 -20.00% 20.00% -20.00% 20.00% -20.00% 20.00%Stability, mm -20.00% 20.00% -20.00% 20.00% -20.00% 20.00%Distensibility -10.00% 20.00% -28.08% 20.00% -25.68% 20.00%P/L value -25.00% 25.00% -25.00% 87.21% -25.00% 66.16%

Quality of wheat supplied to consumers

A survey was done across the country to test flour quality supplied to consumers

Test Category

South African flour 

qualityKg/hl (clean) P 78.551000 kernel mass, g S 36.65Falling number, sec P 378.14Protein (12% mb) P 10.8Buhler Extraction P 74.23Colour (KJ 76) P -1.45Break flour yield S  Mixogram    Peak time (SST 806) P 3.3Peak time (Elands) P 3.3Peak time (Kariega) P 3.3Farinogram    Absorption P 62.6Development time, min S 4.5Stability, min S 8.3Baking test 100g    Corrected volume, cm3 P 816Dough characteristics P  Alveogram    Strength, cm3 P 50.9Stability, mm S 128.3Distensibility S 73.1P/L value P 2

Quality of wheat supplied to consumers

 

Release criteria bracket for Northern Dry Land Cultivars

(Elands)Release criteria bracket for

Irrigation (SST806)Release criteria bracket for

Kariega (Cape Spring)Test Min Max Min Max Min MaxKg/hl (clean) 78.59   79.94   79.93  1000 kernel mass, g 28.37 36.37 33.93 41.93 37.38 45.38Falling number, sec 297.67   377.04   363.23  Protein (12% mb) 12.02   11.46   11.48  Buhler Extraction 74.41   76.00   74.20  Colour (KJ 76)   -1.20   -1.99   -2.13Mixogram            Peak time (SST 806)     2.21 2.95    Peak time (Elands) 2.30 3.53        Peak time (Kariega)         2.06 3.16Farinogram            Absorption 61.59 64.75 60.46 63.56 60.89 64.01Development time, min 4.19 6.98 4.09 6.82 4.44 7.40Stability, min 6.95 10.92 5.29 8.31 7.61 11.95Baking test 100g            Corrected volume, cm3 789.75   851.53   845.25  Alveogram            Strength, cm3 35.64 53.45 32.69 49.03 35.03 52.54Stability, mm 80.57 120.85 62.79 94.18 67.07 100.60Distensibility 83.42 111.23 108.90 145.20 105.39 140.52P/L value 0.95 1.58 0.50 0.83 0.56 0.94

Quality of wheat supplied to consumers

 

Proposed bracket for Dry Land Northern Standard (Elands) based

on SA wheat flour quality

Proposed bracket for Irrigation cultivars (SST806) based on SA

wheat flour quality

Proposed bracket for Cape Spring Wheat (Kariega) based on SA wheat

flour quality

Test Min Max Min Max Min Max

Kg/hl (clean) -1.84   -3.19   -3.18  

1000 kernel mass, g -4.00 4.28 -4.00 4.00 -4.73 4.00

Falling number, sec -15.00%   -15.00%   -15.00%  

Protein (12% mb) -2.22   -1.66   -1.68  

Buhler Extraction -1.73%   -3.79%   -1.50%  

Colour (KJ 76)   1.00   1.54   1.69

Break flour yield            

Mixogram            

Peak time (SST 806)     10.00% 34.30%    

Peak time (Elands) -25.00% 15.00%        

Peak time (Kariega)         -25.00% 20.00%

Farinogram            

Absorption -2.50% 2.50% -2.50% 2.50% -2.50% 2.50%

Development time, min -25.00% 25.00% -25.00% 25.00% -25.00% 25.00%

Stability, min -30.00% 10.00% -30.00% 10.00% -30.00% 10.00%

Baking test 100g            

Corrected volume, cm3 -10.00%   -13.76%   -13.11%  

Dough characteristics            

Alveogram            

Strength, cm3 -20.00% 20.00% -20.00% 24.58% -20.00% 20.00%

Stability, mm (P-value) -20.00% 27.39% -20.00% 63.47% -20.00% 53.04%

Distensibility (L-value) -21.13% 20.00% -39.59% 20.00% -37.57% 20.00%

P/L value -25.00% 57.89% -25.00% 199.79% -25.00% 166.08%

Quality of wheat determining local prices

An hedonic price model was used to determine the factors that has a significant impact on local prices

• Argentina• Brazil• Germany• Ukraine

Test Category

Average quality of wheat from countries that have an effect on 

SA pricesKg/hl (clean) P 78.511000 kernel mass, g S 36.20Falling number, sec P 373.48Protein (12% mb) P 11.59Buhler Extraction P 73.74Colour (KJ 76) P -0.67Break flour yield S  Mixogram    Peak time (SST 806) P 3.69Peak time (Elands) P 3.69Peak time (Kariega) P 3.69Farinogram    Absorption P 60.36Development time, min S 2.08Stability, min S 5.39Baking test 100g    Corrected volume, cm3 P 749.44Dough characteristics P  Alveogram    Strength, cm3 P 36.41Stability, mm S 107.89Distensibility S 61.27P/L value P 1.95

Quality of wheat determining local prices

 Release criteria bracket for Northern

Dry Land Cultivars (Elands)Release criteria bracket for Irrigation

(SST806)Release criteria bracket for Kariega

(Cape Spring)

Test Min Max Min Max Min Max

Kg/hl (clean) 78.59   79.94   79.93  

1000 kernel mass, g 28.37 36.37 33.93 41.93 37.38 45.38

Falling number, sec 297.67   377.04   363.23  

Protein (12% mb) 12.02   11.46   11.48  

Buhler Extraction 74.41   76.00   74.20  

Colour (KJ 76)   -1.20   -1.99   -2.13

Mixogram            

Peak time (SST 806)     2.21 2.95    

Peak time (Elands) 2.30 3.53        

Peak time (Kariega)         2.06 3.16

Farinogram            

Absorption 61.59 64.75 60.46 63.56 60.89 64.01

Development time, min 4.19 6.98 4.09 6.82 4.44 7.40

Stability, min 6.95 10.92 5.29 8.31 7.61 11.95

Baking test 100g            

Corrected volume, cm3 789.75   851.53   845.25  

Alveogram            

Strength, cm3 35.64 53.45 32.69 49.03 35.03 52.54

Stability, mm 80.57 120.85 62.79 94.18 67.07 100.60

Distensibility 83.42 111.23 108.90 145.20 105.39 140.52

P/L value 0.95 1.58 0.50 0.83 0.56 0.94

Quality of wheat determining local prices

 

Proposed bracket for Dry Land Northern Standard (Elands) based

on imported wheat quality

Proposed bracket for Irrigation cultivars (SST806) based on

imported wheat quality

Proposed bracket for Cape Spring Wheat (Kariega) based on imported wheat

qualityTest Min Max Min Max Min MaxKg/hl (clean) -1.88   -3.23   -3.22  1000 kernel mass, g -4.00 4.00 -4.00 4.00 -5.17 4.00Falling number, sec -15.00%   -15.80%   -15.00%  Protein (12% mb) -1.43   -1.00   1.00  Buhler Extraction -2.38%   -4.43%   -2.11%  Colour (KJ 76)   1.53   2.32   2.46Mixogram            Peak time (SST 806)     -10.00% 20.00%    Peak time (Elands) -25.00% 20.20%        Peak time (Kariega)         -25.00% 34.18%Farinogram            Absorption -4.44% 2.50% -2.66% 2.50% -3.34% 2.50%Development time, min -62.78% 25.00% -61.94% 25.00% -64.89% 25.00%Stability, min -45.67% 10.00% -30.00% 10.00% -50.35% 10.00%Baking test 100g            Corrected volume, cm3 -14.59%   -20.79%   -20.20%  Alveogram            Strength, cm3 -20.00% 20.00% -20.00% 20.00% -20.00% 20.00%Stability, mm (P-value) -20.00% 20.00% -20.00% 37.46% -20.00% 28.70%Distensibility (L-value) -33.90% 20.00% -49.36% 20.00% -47.68% 20.00%P/L value -25.00% 35.07% -25.00% 192.41% -25.00% 159.53%

So what?

• This was then compared to previously rejected cultivars and their corresponding yields.

• This enabled the study to quantify the impact on productivity (yields).

• Based on the yields of cultivars that could have been accepted had standards been relaxed to within reasonable limits, wheat production could have been increased by at least 12.8 percent.

• From the results of the sensitivity analysis, (comparing the yields of the “new” cultivars and subtracting 20 percent yield to the commercial yields in each production region) it was concluded that an estimated increase in production of 19.03 percent can even be expected.

• Thus, by bringing the regulations for the release of new cultivars simply into line with quality used by the market, the productivity and competitiveness of producers will be improved substantially (between 12% and 20%).

• When applying a DLP Farm Level Model, it was found that this equated to an estimated loss in NFI of between R606 million and R920 million per annum.

• The following question however must be asked:

Why is local production quality standards set so strict?

– This enables wheat buyers (which is highly concentrated) to obtain high quality South African wheat at the lowest price globally.

– Additionally it allows them to still have the desired quality by mixing local and imported wheat.

It is essential for improved wheat production competitiveness that prices

are linked to quality for not only for locally produced wheat but for

imported wheat as well.– Allow lower qualities (higher yields) and/or

– Pay a higher price for higher quality local wheat

Thank you