Wheat Value Chains and Vertical Price Transmission in South Africa: A Nonlinear Autoregressive Diagnostic Lag Bound Approach

This study examined the vertical transmission of wheat price among the main value chain, looking at the pricing behaviour of certain role players in the wheat production/supply and the distribution of bread, which is a major staple food consumed in South Africa. A nonlinear autoregressive distributed lag (NARDL) model was used to analyse the yearly time series data for the period of 2000 to 2022. The results of the stationarity test showed that all variables were of order one, I (1). The study used two pairs, namely farmgate price and retail price, and farmgate price and wholesale price, to examine the existence of asymmetry between these prices, with rainfall and temperature as control variables. The results indicate the existence of a positive long-run asymmetry of 35.9% between the farmgate price of wheat and retail price of bread, and 3.49% asymmetry between the farmgate price and wholesale price of wheat. To develop informed policies on food security, this study suggests that the government should enhance regular access to data and sustain its monitoring and communication of food price information across the whole country. For farmers, a policy on price transparency can help them to establish a public platform to share market prices, ensuring that they receive fair prices. This paper also recommends the provision of subsidies for wheat farmers to help the wheat industry, reduce the cost of bread production, and make bread more affordable and accessible for consumers.