Title page for ETD etd-10162007-111447


Document Type Master's Dissertation
Author Jordaan, Daniel du Plessis Scheepers
Email danie.jordaan@up.ac.za
URN etd-10162007-111447
Document Title A critical analysis of the South African mohair marketing system in the evolving global agribusiness environment
Degree MSc (Agric)
Department Agricultural Economics, Extension and Rural Development
Supervisor
Advisor Name Title
Prof J F Kirsten
Keywords
  • South African mohair
  • marketing systems
Date 2005-12-05
Availability unrestricted
Abstract
The primary marketing of South African mohair has been the topic of much discussion and it has become a contentious issue since producer prices became unusually unstable, producer returns increasingly uncertain, and production consequently began declining. This dissertation has aimed to structure these discussions and issues and to critically analyse the South African mohair marketing system in the evolving global agribusiness environment.

It is widely documented that the intangible attributes of products are growing in importance as retailers and consumers become increasingly interested in and concerned about safety, provenance, welfare, society and sustainability. Marketing systems are consequently compelled to convey not only objective but also subjective product quality attributes. Mohair is an exclusive product with niche market appeal and the central question of this dissertation is whether mohair is inherently suited to the current fifty-five year old commodity-based marketing system in a marketing environment that requires marketing systems to convey far more information than commodity-based systems do. This, in effect, boils down to the question whether the mohair clip can be considered a commodity or a niche product.

Historically, mohair has been considered a commodity and the marketing system for mohair has been structured accordingly. Mohair is, however, one of the scarcer animal fibres globally, diverse in its physical properties and is suitable for use in many products all of which have different market and demand characteristics. It is therefore argued that mohair currently boasts with the characteristics of a product despite its historical development as a commodity.

Mohair’s unit type (whether it is a product or a commodity) informs two theoretical frameworks used to determine an appropriate governance structure for the exchange between producers and processors. Both these frameworks reveal that the exchange between mohair producers and processors should be governed by more intensively coordinated governance structures than the current spot market. This is in accordance with global trends where there is a shift away from open market trading to more stringent coordination of the supply chain. In view of this it is proposed that the spot market, which this dissertation contends to be a “value bottleneck” in some instances, be augmented by a number of hybrid governance structures like long term contracts, cooperation agreements or some form of vertical ownership to offer additional exchange structures, where necessary, to transmit all of mohair’s attributes more effectively between producers and processors and ultimately the whole mohair supply chain when required to do so. It is proposed that these additional options should function in tandem with the current spot market which continues to be a critical exchange mechanism for mohair that is used as a generic input to the production of multi-purpose blended fibres where price and availability are the major determinants of demand and not the type of fibre or its intangible attributes. In such instances the conveyance of any attributes other than price and quantity (within the respective classing standards) is superfluous and a spot market to facilitate the exchange would suffice since it provides sufficient coordination control for the specific transaction.

The discontinued or diluted use of a spot market as proposed is, however, not without pitfalls. The spot market price for mohair is the only public price forming mechanism. If the use of the spot market were to be discontinued or diluted there would be no reliable yardstick to use for negotiating prices for mohair that is exchanged by means of other governance structures and alternative mechanisms would need to be developed to determine such prices.

In an attempt to keep up with global trends in agricultural marketing a South African mohair producer group recently established an “innovative” approach to the marketing of mohair. This innovation in marketing is, however, not quite complete although the producer group have instinctively made huge strides in the right direction. The producer group also continues to make use of a spot market to exchange their niche quality mohair, resulting in relatively high transaction costs that could be reduced by more coordinated governance structures.

Over and above the theoretical arguments to this effect, mohair producers are also demanding vertical coordination structures that require increased levels of coordination to govern the exchange between themselves and mohair processors. The implementation of such strategies would be best undertaken by brokers or producer groups given the superior levels of trust that producers have expressed in brokers and the fact that the levels of transaction costs are the lowest between parties where the greatest levels of trust are exhibited.

The inefficiencies created by an inappropriate or incomplete marketing system for South African mohair are expected to lead to a loss of consumer value and a loss of potential profit throughout the mohair supply chain. In anticipation of the ever changing, and now consumer driven agricultural marketing environment the South African mohair industry would therefore be well advised to collectively consider and to encourage the creation of exchange mechanisms that offer greater coordination within the mohair supply chain to function in tandem with the current spot market exchange mechanism and to embrace these developments in a practical and mutually inclusive manner to the benefit of the whole South African mohair industry – a challenge that would compel the industry to shake off its reputation as a sluggish adapter to the dynamic changes in world markets.

© University of Pretoria

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