Profit efficiency of small- and medium-scale maize milling enterprises in South Africa

Abstract

Despite the reported large margins between producer prices for maize and retail prices for maize meal and the fact that maize meal is a staple food for most of the South African population, there have been only limited investments in small- and medium-scale maize milling in South Africa since the deregulation of the maize markets. The apparent failure of small- and medium-scale maize millers to emerge and compete effectively in the maize milling industry in South Africa raises questions about their scale and level of efficiency. Against this background, this paper analyses the profit efficiency of these enterprises, using a translog stochastic profit frontier model. Findings from the profit efficiency analysis show an average profit efficiency score of 80.6 per cent for the small-scale mills and 87.4 per cent for the medium-scale mills. There is therefore a significant unexplored potential in these categories of mills.

Keywords:

• Small- and medium-scale maize millers
• profit efficiency analyses
• South Africa

The authors acknowledge the Deutscher Akademischer Austausch Dienst, Bonn, Germany for a Fellowship, the National Research Foundation, South Africa for providing financial support for data collection, and the University of Agriculture, Makurdi, Nigeria for study leave.

Notes

¹Milling/retailing margins are defined as the difference between the retail price of maize meal and the price at which millers purchase maize, after accounting for extraction rates and the value of by-products of the milling process (Food Price Monitoring Committee [FPMC], 2003).

²Samp is dried corn kernels that have been stamped and chopped until broken but not as fine as maize meal or maize rice. The coating around the kernel loosens and is removed during the pounding and stamping process.

³Prior to estimation, both the costs of inputs and profits are normalised by the costs of maize meal to impose linear homogeneity in the profit function.