Economic analysis of crop production in Lesotho : a household-based programming approach.

Abstract

Agriculture in Lesotho is a key sector and a major source of employment within the country, with approximately 85 percent of the population living in rural areas. Crop farming is characterised by a high proportion of subsistence farming with most production being kept for home consumption. Lesotho's agriculture has shown declining production despite government intervention in the form of area-based development projects and massive international aid. Approximately 40 percent of Lesotho's male labour force is, at any time, engaged in employment in the Republic of South Africa (RSA) as migrants. Migrant workers' remittances account for approximately 50 percent of GNP. Agriculture as the main source of income has decreased substantially while dependence on migrants' remittances and foreign aid has increased. The purpose of this study is to identify factors affecting crop production in Lesotho and to analyse different economic policies on resource allocation. The study applies household economics theory which recognises the fact that most farm households in developing countries are deficit producers and as such are engaged in both production and consumption, this being the situation in Lesotho. The purpose of the study was achieved by using a mathematical programming model to predict responses to several economic policies. The programming model aggregates enterprise levels for four representative household types to form a sector model. Representative farm households were selected using principal component and cluster analyses. Aggregate resource levels in each household type were computed as the product of the representative (mean) household resource levels and the estimated number of households in the group. Data were obtained from a sample survey of 160 crop producing households located in northern Lowlands and Foothills of Lesotho. To account for risk, a linear approximation of the gain-confidence limit (E,L) criterion suggested by Baumol (1963) was used. Risk aversion coefficients were estimated independently for each representative household by simulating its observed enterprise mix. To account for differences in wage earning potentials, offer wage rates were estimated for all household members not wage employed. Offer wage models predicted that men have a higher wage earning potential than women. Results of the offer wage models indicate that people wage employed within Lesotho are relatively more educated than those employed as migrants in RSA. For those wage employed within Lesotho women tend to be more educated than men. Several economic policies were simulated and results compared with the base solution. Most of the policies examined focus on maize prices because maize is the most important staple food in Lesotho and changes in its price are expected to affect rural households' resource allocation and welfare. Results from a household-based programming model indicate that even though agriculture is the key sector in Lesotho, Basotho households are more responsive to consumer than producer prices. This is attributed to the fact that the majority of rural households are net consumers of maize. Deregulation of the RSA maize marketing system is expected to lead to lower maize import prices which is simulated to increase household welfare as the majority of households are net consumers of maize. This deregulation is also expected to result in reduction in maize production in Lesotho and increased wheat production and fallow land. There is an increase in maize imports, a decrease in maize self-sufficiency but households' affordability to purchase maize improves thus enhancing food security. A simulated increase of 10 percent in maize producer prices with maize consumer prices held constant, does not have any effect on crop production. Simulations of the model indicate that maize producer prices have to be increased by over 100 percent in order for households to produce maize for market purposes. This shows that most of agricultural production in Lesotho will remain for subsistence even under relatively high maize prices. A reduction in workers wage employed in RSA and Lesotho is simulated to have little impact on crop production but has a significant negative impact on household welfare. An interest rate subsidy aimed at farmers operating under the Food Self-Sufficiency Programme (FSSP) has almost no effect on household welfare and leads to an increase in FSSP maize production and this results in minimal increases in total maize production. Results also indicate that land rental arrangements can lead to increased production but transaction costs exceed the rental value and this has resulted in the non-existence of a land rental market in Lesotho.