An estimation of the aggregate wheat supply function for Zimbabwe M.Sc. Thesis Knowledge Gweru February 2019 i An estimation of the aggregate wheat supply function for Zimbabwe Knowledge Gweru February 2019 M.Sc. Thesis Agricultural Economics and Rural Policy Group Wageningen University Supervisor: dr. J.H.M. (Jack) Peerlings ii Table of Contents Abstract ....................................................................................................................................... i Acknowledgements .................................................................................................................... ii Abbreviations ............................................................................................................................ iii Chapter 1: Introduction ........................................................................................................... 1 Background and problem statement ........................................................................................ 1 Research Objective and questions ........................................................................................... 1 Research Questions ................................................................................................................. 1 Organization of thesis .............................................................................................................. 2 Chapter 2: Wheat ..................................................................................................................... 3 Introduction ............................................................................................................................. 3 2.1 Overview of Agriculture ................................................................................................... 3 2.2 Wheat sub-sector ............................................................................................................... 5 2.3 Policy issues .................................................................................................................... 10 Chapter 3: Theory .................................................................................................................. 13 Introduction ........................................................................................................................... 13 3.1 Conceptual Framework ................................................................................................... 13 3.2 Analytical technique ........................................................................................................ 14 3.4 Profit maximisation ......................................................................................................... 14 3.5 Price equations ................................................................................................................ 16 Chapter 4 - Data ...................................................................................................................... 18 Introduction ........................................................................................................................... 18 4.1 Data Sources .................................................................................................................... 18 4.2 Data.................................................................................................................................. 18 4.3 Description of variables ................................................................................................... 19 Chapter 5: Empirical Model and Estimation ...................................................................... 22 Introduction ........................................................................................................................... 22 5.1 Empirical Model .............................................................................................................. 22 5.2 Estimation ........................................................................................................................ 25 Chapter 6: Results .................................................................................................................. 26 Introduction ........................................................................................................................... 26 6.1 Stationarity testing results ............................................................................................... 26 iii 6.2 Chow-test results ............................................................................................................. 27 6.3 Wheat supply response results ......................................................................................... 28 6.4 Diagnostic tests ................................................................................................................ 29 6.5 Short and long-run price elasticities estimates ................................................................ 31 Chapter 7: Discussion and Conclusion ................................................................................. 33 Introduction ........................................................................................................................... 33 7.1 Major Findings ................................................................................................................ 33 7.2 Conclusion ....................................................................................................................... 35 7.3 Critical reflection and possible solutions ........................................................................ 35 References ............................................................................................................................... 37 Appendices .............................................................................................................................. 45 Appendix C: Soil status in Zimbabwe ................................................................................... 45 Appendix D: Water availability............................................................................................. 47 Appendix E: Money supply ................................................................................................... 48 iv List of tables Table 2.1: Natural Regions of Zimbabwe and Farming Systems in each Region ..................... 4 Table 2.2: Land distribution in Zimbabwe ................................................................................. 5 Table 4.1: Variables ................................................................................................................. 18 Table 4.2: Correlation matrix ................................................................................................... 19 Table 6.1: ADF stationarity testing results before differencing. .............................................. 26 Table 6.2: ADF stationarity testing results at first differences ................................................ 27 Table 6.3: F-test results ............................................................................................................ 27 Table 6.4: Regression results for wheat output response from 1965-2018 .............................. 28 Table 6.5: Diagnostic tests results ............................................................................................ 29 Table 6.6: Correlation matrix after first differencing. .............................................................. 30 Table 6.7: Short and long-run price elasticities........................................................................ 32 Table A-1: Zimbabwe Wheat production, Consumption, Imports, Acreage, Yield /ha and Exports ..................................................................................................................................... 42 Table C-1:Soil classification in Zimbabwe .............................................................................. 45 v List of figures Figure 2.2: Wheat cropping calendar ........................................................................................ 6 Figure 2.3: Wheat value chain in Zimbabwe. ........................................................................... 7 Figure 2.4: Wheat production (%) by province in 2017. ........................................................... 8 Figure 2.5: Wheat production and consumption trend from 1960 to 2018.. .............................. 9 Figure 3.1: Factors affecting wheat supply and impacts of improved wheat supply. .............. 13 Figure 6.1: No sign of heteroscedasticity ................................................................................. 31 Figure 6.2: Residuals are normally distributed ........................................................................ 31 Figure 7.1:Wheat acreage trend from 1965 to 2018................................................................. 33 Figure B-1: Plots of the variables at levels, but in logarithms..................................................43 Figure C-1: Soil map of Zimbabwe ......................................................................................... 46 Figure D-2:Water catchment areas in Zimbabwe .................................................................... 47 vi Abstract Wheat is the second most strategic food crop in Zimbabwe after maize. The main wheat products include wheat flour and wheat bran. Wheat flour is the most used ingredient for