Promoting competitiveness in South African agriculture and agribusiness: The role of institutions

This paper considers private and public institutions that will help promote the competitiveness of commercial farms and agribusiness firms, and enhance the productivity of communal farmers and the competitiveness of emerging farmers in South Africa. Commercial agriculture and agribusiness are creating institutions (such as food safety standards and strategic partnerships), adopting existing private and public institutions (e.g. TQM, ISO 9000 and HACCP) or restructuring to add value to products and services, reduce costs and gain access to export markets. Government should focus its relatively scarce resources on providing physical and legal infrastructure (such as secure property rights and contract enforcement) to reduce transaction costs, including risk, so that markets work efficiently. A major challenge for local agricultural economists is to provide information about institutions that will promote the productive use of land in communal areas, and the competitiveness of emerging farmers on redistributed commercial farmland.Agribusiness, International Relations/Trade,

Use of information technology in South African agriculture

Rapid developments in information technology have exposed South African farmers to the potential benefits of using these technologies in farm decision-making. Use of computers on South African commercial farms is increasing, with three studies showing adoption rates of 48 percent (1993), 64 percent (1996) and 72 percent (1998). About 38 percent of computer users in a 1998 survey of commercial maize farmers had access to the Internet. Spreadsheets and financial management software are popular amongst commercial farmers, while use of Global Positioning Systems (GPS) and Geographic Information Systems (GIS) are being used more widely in South African agriculture. Small-scale farmers in developing areas rely mainly on government and private industry extension services for farm information.Farm Management, Research and Development/Tech Change/Emerging Technologies,

Impact of market deregulation on the competitiveness of commercial milk producers in East Griqualand: a unit cost ratio (UCR) analysis: 1983-2006

This study investigates the impact of dairy market deregulation on the competitiveness of milk producers who comprise the East Griqualand (EG) study group in KwaZulu-Natal and the Eastern Cape Province of South Africa. The study uses a microeconomic approach, the unit cost ratio (UCR) method of competitiveness analysis, to assess changes in the relative competitiveness of EG milk producers from 1983 – 2006. Findings of previous research indicate that dairy market deregulation in the 1980s and 1990s caused lower real milk producer prices, increased uncertainty and higher exit rates in the South African dairy industry. Results of the UCR analysis suggest that EG milk producers were not competitive based on the net local price received for milk but were competitive when dairy cattle trading income was included. This suggests that dairy cattle trading income played an important role in enhancing the profitability of EG dairy enterprises in the study period. Further UCR analysis revealed that the top one-third of EG milk producers were relatively competitive from 1983 – 2006 due to higher real milk prices and lower unit costs. A panel data study of individual EG milk producers could be used to identify other important factors affecting milk producer competitiveness over time.dairy market deregulation, East Griqualand milk producers, competitiveness, unit cost ratio analysis, Livestock Production/Industries,

Attributes of small-scale sugarcane contractors that influence their service quality in KwaZulu-Natal

The productivity of small-scale sugarcane contractors affects not only their own profitability and sustainability, but that of other stakeholders as well, such as the small-scale sugarcane farmers they contract to and the sugar mills they supply with sugarcane. This study examines the attributes of small-scale sugarcane contractors that affect their quality of service as perceived by small-scale sugarcane growers (SSGs). Information was obtained through interviews conducted with 114 contractors sampled in ten mill group areas in KwaZulu-Natal between September 2002 and July 2003. Further interviews were conducted in the same time period with SSGs for information on contractor service quality (transport and general service timeliness, meeting of daily rateable delivery requirements, low downtimes, good staff management, and minimal disagreements on service terms). Results show that factors affecting a contractor's perceived service quality include gender, training, the quality of information used (industry focused information sources such as the South African Sugar Association Experiment Station (SASEX) and the Ingede magazine, or general sources such as the radio), and sugarcane tonnage transported (size of business). Being a male contractor and having a larger business positively influence service rating as perceived by SSGs. The importance of the quality of information used and increased training levels highlights the need for the continual provision of relevant information and training for sugarcane contractors by extension services (government, SASEX and milling companies).Crop Production/Industries,

Factors influencing the long-term competitiveness of commercial milk producers: evidence from panel data in East Griqualand, South Africa

This study investigates factors influencing the long-term competitiveness of 11 commercial milk producers from East Griqualand (EG), South Africa using unbalanced panel data for the period 1990 to 2006. Results of a ridge regression analysis show that dairy herd size, the level of farm debt, annual production per cow, technology and policy changes over time, and the ratio of trading income to total milk income influence the long-term competitiveness of these milk producers. To enhance their competitiveness in a deregulated dairy market, relatively small and profitable EG milk producers should consider increasing their herd sizes, as the importance of herd size in explaining competitiveness suggests that size economies exist. All EG milk producers should consider utilising more pasture- and forage-based production systems to lower feed costs and select dairy cattle of superior genetic merit to improve milk yields on pasture.Commercial milk production, competitiveness, panel data, Production Economics,

Expenditure elasticities for rural households in the Embo ward, Umbumbulu, KwaZulu-Natal

Household consumption patterns were investigated to determine the impact of an income shock on household expenditure and to establish the potential for demand-led growth in a rural area of KwaZulu-Natal. Household consumption data were collected from sample households in the Embo ward of Umbumbulu, KwaZulu-Natal during October 2004 and March 2005. Budget shares and expenditure elasticities were estimated for household consumption categories for the two study periods, allowing for a comparison of expenditure elasticities between the two seasons. Results suggest that expenditure elasticities for consumer expendables, durables and transport were highly elastic, while expenditure elasticities for the aggregate food category were negative (October) and highly inelastic (March). Analysis of the expenditure categories of tradable and non-tradable goods and services showed expenditure on tradable non-farm goods and services to have the greatest potential for demand-led growth with expenditure elasticities of 2.88 and 2.91, respectively. The category of non-tradable non-farm goods and services was not statistically significant for both periods and the category non-tradable farm goods and services was not statistically significant for October. A seasonal difference in expenditure patterns was apparent, suggesting that responses to income changes vary at different times of the year.Expenditure elasticities, demand-led growth, Umbumbulu region, KwaZulu-Natal, Consumer/Household Economics,

Efficacy of collateral types used by financial intermediaries in KwaZulu-Natal

Collateral is an important incentive device used by lenders to encourage loan repayment. However, collateral must have secure and transferable title, it must be marketable, have low lender liquidation costs and lenders must be able to attach the collateral. Study results for rural and micro-enterprise finance institutions in KwaZulu-Natal showed that assets such as vehicles and equipment were not effective as collateral due to high costs in attaching the asset. Cessions on crops were often constrained by flaws in collection mechanisms. Secure and transferable property rights were important preconditions for land to have value as collateral. Collateral substitutes such as joint liability mechanisms were less effective when lending to large farmer groups (30-60 members) compared with small groups (4-6 individuals) of micro-entrepreneurs operating in urban areas.Agricultural Finance,

Assessing the efficacy of a South African microlender's loan screening mechanism

Bivariate probit analysis was used to assess the efficacy of a South African microlender’s loan screening process. This micro-lender grants short-term cash loans to individuals who are employed and earning a fixed salary. Loan applicants with more stable incomes, who are contactable via telephone or post, who are employed in less risky business sectors, who have more disposable income relative to debt, and who have had a good credit history with other lenders, are more likely to be accepted. None of the factors with a significant effect on the loan screening decision could explain subsequent loan default by accepted applicants. The microlender may have screened out very risky clients and accepted a riskier, profitable pool of loan applicants with risk being controlled through effective monitoring. This is important where tangible collateral is unavailable and where the risk must be acceptable to commercial lenders wanting to link up with profitable micro-lenders.Financial Economics,

Marketing Methods and Income Generation amongst Small-Scale Farmers in Two Communal Areas of Kwazulu-Natal, South Africa

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, 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 KwaZulu-Natal, South Africa, 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, and having sizeable allocated land and off-farm income can be expected to generate higher crop income. Investment in public goods such as roads, telecommunications and an efficient legal system (to uphold commercial contracts), and farmer support services (extension, marketing information and research) would likely 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.Farm Management,

Determinants of the demand for regular farm labour in South Africa, 1960-2002

This paper estimates long-run price (wage) elasticities of demand for regular farm labour in South Africa using both Ordinary Least Squares (OLS) regression and a Two-stage Least Squares (2SLS) simultaneous-equation model for the period 1960-2002. Both models include a piecewise interactive slope dummy variable with 1991 as the threshold year to reflect South African (SA) commercial farmers’ expectations that farm labour costs would increase as new labour legislation was introduced from the early 1990s onwards. The long-run price (wage) elasticity of demand for regular farm labour in South Africa during 1960-1990 was estimated as -0.25 for OLS and -0.23 for 2SLS regression, respectively. For the period 1991-2002, this elasticity estimate rose to -1.32 and -1.34 for OLS and 2SLS regression, respectively. These results suggest that a marked structural decline in the demand for regular labour has occurred since 1991 that raises questions about the appropriateness of labour laws and minimum wage legislation that have increased the cost of regular farm labour in South Africa.Regular farm labour, SA agriculture, price (wage) elasticities of demand, Farm Management, Labor and Human Capital,