The South African Bio ethanol blend mandate and its implications on regional agricultural markets and welfare

The paper aims to analyse the potential impact of South African Biothanol Blend mandate on SACU region’s maize and sugar production (referred to as bioethanol crops commodities), trade and overall welfare outcomes. The study has been necessitated by the importance of maize as a staple food for the Southern African region and the importance of sugar to some of the SACU countries’ economies especially that of Swaziland. The simulation experiment has been an artificial decrease in cereal and sugar cane output in South Africa due to their diversion to bioethanol production, with a corresponding increase in petroleum output by a factor proportional to the blend mandate in place. This simulation has been undertaken using the GTAP7 model and database. Simulations results show that South African production of bioethanol and its blending to fuel will not result in major negative welfare changes in South Africa. However, production of bieothanol from maize negatively affects the rest of SACU member states in terms of welfare outcome and cereal prices. On the other hand, South Africa experience the most welfare benefits from maize based bioethanol. Production of bioethanol from sugar cane improves welfare in the rest of SACU region, such welfare envisaged to accumulate more to Swaziland, one of the region’s major low cost sugar producer and exporter. Bioethanol crops commodities industry output and trade changes for the rest of SACU member states trend with the level of commitment of that commodity in the South African bioethanol production and blending programme as expected.