Gerald F. Ortmann

Agricultural Cooperatives I: History, Theory and Problems

Abstract This paper presents the principles of cooperation and briefly describes the history and development of agricultural cooperatives in developed and less-developed countries, with particular emphasis on South Africa. A new Cooperatives Act, based on international principles of cooperation, was promulgated in South Africa in August 2005. The theory of cooperatives, and new institutional economics theory (NIE) (including transaction cost economics, agency theory and property rights theory) and its applicability to the cooperative organizational form, are also presented, as are the inherent problems of conventional cooperatives, namely free-rider, horizon, portfolio, control and influence cost problems caused by vaguely defined property rights. An analysis of the future of cooperatives in general, based on a NIE approach, suggests a life cycle for cooperatives (formation, growth, reorganization or exit) as they adapt to a changing economic environment characterized by technological change, industrialization of agriculture and growing individualism.

Agricultural cooperatives II: Can they facilitate access of small-scale farmers in South Africa to input and product markets?

Abstract The objective of this research is to investigate whether agricultural cooperatives can facilitate smallholder farmer access to input and product markets. Farmers in two case study communal areas of KwaZulu-Natal face high transaction costs as reflected primarily in their low levels of education and literacy, lack of market information, insecure property rights, poor road and communication infrastructure, and long distances to markets. Analysis of the reasons why cooperatives were originally established in various parts of the world suggests that most of the causes (such as poverty, market failure and high transaction costs) also apply to the study farmers, as do the seven international principles of cooperation. Smallholder farmers in both case study regions have the potential to grow high-value crops such as vegetables, fruit and cut flowers. In the supply chain from farm to market, the optimum boundary for each organization involved in the chain (e.g. cooperative and investor-oriented firm) depends on the minimum operational and transaction costs for each business.

Transaction costs and crop marketing in the communal areas of Impendle and Swayimana, KwaZulu-Natal

High transaction costs are detrimental to the efficient operation or existence of markets for inputs and outputs. The cost of information and the costs associated with the search for trade partners, the distance to formal markets and contract enforcement are likely to influence the marketing of food crops. This study hypothesises that the level of income generated from food-crop sales by small-scale farmers in the Impendle and Swayimana districts of KwaZuluNatal is influenced by transaction costs and certain household and farm characteristics. Regression analysis shows that the depth of marketing methods is significantly influenced by transaction cost proxies, such as cooperation with large commercial farmers and ownership of means of transport. Results from a block-recursive regression analysis show that the level of crop income generated is determined by the depth of marketing methods, the size of allocated arable land and off-farm income. Households with lower transaction costs, sizeable allocated land and off-farm income can be expected to generate higher income from food crops. Investment in public goods such as roads, telecommunications and an efficient legal system (to uphold commercial contracts), as well as farmer support services (input supply, extension, marketing information and research), would probably raise farm and non-farm income by reducing transaction costs. This would increase the effective demand for locally produced goods and services, thus contributing to rural employment and livelihoods within rural communal areas.

Research on agri-food supply chains in southern Africa involving small-scale farmers : current status and future possibilities

Abstract The main objective of this article is to review the research by agricultural economists over the past decade on linking smallholder farmers to agri-food supply chains in Southern Africa, and to consider international and local urban trends in the development of such supply chains. The research reviewed covers the constraints placed by transaction costs on access by smallholder farmers to input and product markets; the potential role of contracting in linking smallholders to agribusiness firms; linking smallholders to supermarkets; equity-share schemes; the role of trust in a business relationship; promoting investment in smallholder agriculture by developing rental markets in communal areas; and the role of collective action (e.g., the formation of cooperatives, investor-owned firms or trusts) in promoting access to input and product markets. The development of alternative food networks in urban areas, which face a growing influx of poor people, could provide opportunities for smallholders, as individuals or groups, to supply the communities with the products and services they desire.

Institutional and governance factors influencing the performance of selected smallholder agricultural cooperatives in KwaZulu-Natal

Abstract This paper evaluates the impact of institutional and governance factors on the performance of 10 smallholder agricultural cooperatives in KwaZulu-Natal (KZN). Five of the cooperatives grow and market vegetables, three produce and market poultry, one is a beef production cooperative and another operates a bakery. The results of a cluster analysis suggest that the performance of the selected smallholder cooperatives is influenced by institutional and governance problems. Institutional problems give rise to low levels of equity and debt capital, reliance on government funding, low levels of investment, and subsequent loss of members. Governance problems are strongly linked to the absence of secret ballot, low levels of education, lack of production and management skills training, weak marketing arrangements and consequent low returns to members as patrons or investors. The conclusion is that appropriate institutional arrangements and good governance are important to the performance of enterprises initiated by groups of smallholders. South Africas new Cooperatives Act prevents smallholder cooperatives from adopting good institutional arrangements. Alternative ownership structures such as close corporations and private companies offer better institutional arrangements and opportunities for equity-sharing partnerships.

Promoting the competitiveness of South African agriculture in a dynamic economic and political environment

Abstract South African (SA) farmers are faced with a dynamic global economic and trade environment caused by the liberalisation of international markets and rapid advances in information and communication technologies In addition to dealing with the deregulation of domestic agricultural markets in the 1990s, SA farmers also have to adapt to a dynamic political environment and other challenges, including land reform, AgriBEE, new labour legislation and minimum wages, property taxes, skills levies, uncertain water rights, HIV/Aids, a volatile exchange rate, and high transport and communication costs. The main factors that will help promote the competitiveness of SA farmers, and the agricultural sector in general, include good governance at all levels of government and industry, institutional innovations for commercial and small-scale farmers, improving the quality of (school) education (particularly in mathematics and science) and skills training, promoting research in agriculture, and farmers adopting new technologies. Government should focus its relatively scarce resources on providing physical infrastructure (especially improved transport and communication infrastructure) and legal infrastructure (secure property rights and contract enforcement) to reduce transaction costs, including risk, so that markets for products and resources work more efficiently; relax restrictive labour laws; reduce uncertainty regarding land claims, AgriBEE and the rural land tax; improve efficiency in disbursing LRAD grants to approved projects; reduce crime rates; and promote education, agricultural R&D and skills training.

Rural livelihood diversity to manage economic shocks: Evidence from south-east Zimbabwe

Abstract Livelihood strategies used by households and individuals in rural communities are shaped by human, natural, financial, social and physical capital resources that can be accessed. The ability to diversify livelihoods depends on asset portfolios and the economic shocks that rural households face. The main objective of this paper is to improve understanding of rural livelihood challenges in south-east Zimbabwe and how households in this area diversify livelihoods to cope with these challenges. A cluster analysis of 200 households surveyed in 2008 in the Chiredzi district identified five distinct livelihood strategies: (1) subsistence smallholders/ unskilled workers; (2) subsistence smallholders/nontimber forestry products (NTFPs) harvesters; (3) crop production and NTFPs extraction integrators; (4) commercial smallholders with regular off-farm employment; and (5) specialised commercial livestock producers. Multinomial logit model results showed that the level of education of the household head, value of physical assets, cattle numbers and income, remittances, NTFP income and economic shocks were the main determinants of these livelihood choices. There is also some evidence that those households that were statistically significantly affected by HIV/AIDS shock practised distresspush diversification by harvesting NTFPs. These results suggest that policymakers need to advise rural households on how to improve their risk management capacities, and move from geographically untargeted investments in livelihood assets to a more integrated approach adapted to the asset bases of individual households.

Factors influencing adoption and intensity of adoption of orange flesh sweetpotato varieties: evidence from an extension intervention in Nyanza and Western province, Kenya

This study applied logit and logit transformed regression to examine factors affecting the adoption of orange flesh sweet-potatoes (OFSP), and intensity of such adoption, by a representative sample of 340 farmers in the Busia and Rachuonyo districts of Kenya in 2009. The study also investigated whether participation in a value chain extension intervention programme increased these farmers’ likelihood of adopting OFSP. The results suggest that the district where the farmer comes from, knowledge on value addition and nutritional benefits, and availability of vines were the key factors for adoption. The results also suggest that participation in a value chain extension programme enhanced the probability of adoption. Factors affecting intensity of adoption were site, value addition, vines availability, level of commercialization and having a child of up to five years.

The impact of food aid on maize prices and production in Swaziland

Abstract The objective of the study was to provide empirical evidence on whether food aid leads to depressed domestic maize prices and reduced maize production in subsequent years in Swaziland. The lack of empirical evidence has often resulted in premature negative conclusions about the impact of food aid on Swazilands maize industry. The study used secondary national data from 1985 to 2006. Variables used in the statistical analysis included quantity of cereal food aid; quantity of commercial maize imports; quantity of locally produced maize; official maize producer price; open market maize producer price; fertilizer price; fuel price; rainfall; and total area planted to maize. The impact of food aid was measured using the reduced form market equilibrium model consisting of maize quantity and maize producer price functions, estimated simultaneously through the two-stage least squares (2SLS) method. Analytical results revealed that food aid received by Swaziland does not lower prices of domestic maize and has no significant negative effect on the quantity of maize produced in subsequent seasons.

Some Aspects of Agricultural Vulnerability to Climate Change in the KwaZulu-Natal Midlands, South Africa: A Systematic Review

Abstract The present study uses a systematic review method to document the extent of agricultural vulnerability to climate change (CC) in the midlands region of KwaZulu-Natal, South Africa. With regard to exposure, the CC detection literature suggests that the region is a hotspot of CC, and most climate model projections show warming and wetting trends towards the end of the 21st century. The sensitivity of farming systems is high due to high population density, large share of small-scale farmers, low rate of irrigation, and susceptibility to land degradation. The highly diversified cropping portfolios in the region are the major sources of resilience. The adaptive capacity is compromised by lack of access to public infrastructure, lower liquidity and income prospects, rural exodus, skills shortage, and limited inter-household cooperation. Policymakers should, therefore, devise a regional CC communication strategy, promote crop diversification and irrigation water governance, and mainstream CC adaptation in the rural development objectives.