Regional development effects of a free market for sugar in South Africa

In a free market for sugar it is estimated that the area under sugar‐cane would decrease by 49 per cent and labour employment by 26 per cent relative to the single‐price policy which was in operation until 30 April 1985. Sugar‐cane would be produced in areas of comparative advantage, namely the Eastern Transvaal, Zululand high and low rainfall areas, the North Coast, Indian and Mangete areas and KwaZulu. The domestic equilibrium sucrose price is estimated to be about 9 per cent below the price under the single‐price policy and 17 per cent below the A‐pool producers’ price under the present two‐tier price scheme.

Full irrigation water tariffs have a considerable impact on enterprise mix. Farmers would shift from sugar‐cane to higher return crops or leave land fallow if they perceived the risk to be too high. Land values would fall in irrigation areas and increase in dryland areas.

Results are obtained from a regional linear programming model which incorporates negative sloping demand functions for crops, limited substitution in demand between crops, positive sloping labour supply functions and variance/ covariance risk matrices.