Modelling supply response and volatility of Swakara pelts in Namibia

Karakul, production, trend, autoregressive distributed lag, and sustainability

Abstract

The karakul industry has been experiencing a continuous decline in the number of pelts supplied since the late 1970s. This decline is speculated to be a result of the anti-fur movement. Coincidently, throughout the years, the price of Karakul pelts is seen to increase. This abnormal mismatch in supply and demand has challenged economic theory which explains that price increases should increase supply. This paper uses time-series data from 1960 to 2019 to model supply response and volatility in the karakul industry. The dataset was tested for unit root and an autoregressive distributed lag model was run to examine the extent to which the local production of Swakara pelts responds to the supply determinants. Pelt supply lagged one year, cost of production, average pelt producer price, average mutton producer price yield, and the exchange rate has significant implications on the current pelt supply. The influence of the anti-fur movement, however, equally has a significant relationship. The results indicated high volatility between all variables with social awareness being the outlier. The global anti-fur movement has played a large role, that Namibian farmers reduced their Karakul stock.  Since 2012, nationally but also globally, prices of all pelt and fur are on a continuous decline which points to a “dying” industry. The survival of the Namibian pelt industry requires further research on the global demand, adjustments of some legislation, and supported production incentives for farmer welfare.