FACTORS INFLUENCING INTERNAL AND EXTERNAL CREDIT RATIONING AMONG SMALL-SCALE FARM HOUSEHOLDS IN KWAZULU-NATAL

The Heckman two-stage procedure is used to identify and rank the determinants of internal and external credit rationing in rural households using data sourced from two districts in the former KwaZulu homeland. The results confirm international findings that high transaction costs faced by rural households limit their access to formal credit markets. Income and savings levels are significant determinants of the level of credit obtained, with savings acting as a substitute for credit. Better access to financial markets will require public investment in rural infrastructure, literacy and vocational training, and legal reform in order to lower transaction costs, improve income levels, and facilitate the efficient use of collateral. Savings lose their value as a source of information when lending institutions are distinct from savings institutions, and moveable assets carry high collateral-specific risk in the absence of an efficient judicial system.Agricultural Finance,

Symptoms of poverty within a group of land reform beneficiaries in the Midlands of KwaZulu-Natal: Analysis and policy recommendations

This study identifies different dimensions of poverty affecting the current and future well-being of households within a community of land reform beneficiaries in the Midlands of KwaZulu-Natal. A census survey of the beneficiary households was conducted in May 2002 to gather data on poverty indicators. Principal Component Analysis was used to construct an index of the standard of housing, which was then combined with variables measuring other symptoms of poverty (income, wealth and health) in a Cluster Analysis of the households. The analysis revealed five clusters representing four distinct groups of poverty; households relatively income and asset rich, households relatively income rich but asset poor, households relatively asset rich but income poor and households with the lowest incomes and assets. While income is an important indicator of current poverty, household wealth (measured in terms of saleable assets) indicates ability to cope with adverse shocks – a key issue as life expectancy is declining and old-age pensioners account for a large share of household income in the survey group. It is concluded that child welfare grants could be increased as pension earnings become less effective in combating the symptoms of poverty in this area. In addition, land reform grants may address poverty more effectively when used to purchase equity in joint ventures with commercial farmers than when used to purchase land that many of the beneficiaries cannot use or transact.Food Security and Poverty,

South Africa’s new Cooperatives Act: A missed opportunity for small farmers and land reform beneficiaries

Agricultural cooperatives are often viewed as appropriate vehicles to facilitate vertical coordination with, or horizontal integration between, small farmers who would otherwise be excluded from value-adding opportunities and discerning markets. In South Africa, renewed interest in development-oriented cooperatives saw the introduction of a new Cooperatives Act in 2005, along with support measures dedicated to ‘emerging’ cooperatives. This paper contends that the architects of the new Act discounted important trends in international legislation that would have made development-oriented cooperatives more versatile and given their members better access to capital and expertise through equity partnerships with private agribusiness firms. It is concluded that the new Act should be amended to admit non-patron investors as members, and to allow for non-redeemable and hence appreciable and tradable shares. Such innovations are emerging internationally, usually with a cap on non-patron voting power.Agricultural cooperatives, small farmers, new institutional economics, strategic partnerships, land reform beneficiaries,

Possible causes of poverty within a group of land reform beneficiaries in the midlands of KwaZulu-Natal: Analysis and policy recommendations

This study investigates possible causes of poverty afflicting a community of land reform beneficiaries in the Midlands of KwaZulu-Natal. The 38 beneficiary households had previously been clustered into four groups displaying different symptoms of poverty. Linear Discriminant Analysis was used first to distinguish households that were relatively income and asset "rich" from those that were relatively income and asset "poor", and second to distinguish households that were relatively income poor but "asset rich" from those relatively asset poor but "income rich". In the first analysis it was found that "rich" households could be distinguished from "poor" households using just two indicator variables; gender of the household head and family size. Larger, female-headed households have lower income and wealth per adult equivalent. In the second analysis, it was found that the "asset rich" had more human capital whereas the "income rich" owned vehicles and had fewer dependants per worker. Policy recommendations therefore point to education and vocational training - especially for women, better access to transport, jobs and banking facilities (to mobilise savings) in the long run, and improved and better targeting of social welfare grants for the chronically poor in the short run. These interventions are also expected to increase the demand for family planning and contraception, which in turn helps to reduce family sizes and the premature loss of breadwinners.Agricultural and Food Policy, Food Security and Poverty,

Secure land rental contracts and agricultural investment in two communal areas of KwaZulu-Natal

This study tests the hypothesis that an efficient rental market for cropland is a significant determinant of agricultural investment in the communal areas of KwaZulu-Natal. An efficient rental market creates an opportunity cost for under-utilisation, which tends to transfer resources to more effective users. The efficiency of a rental market is compromised by the presence of transaction costs that reduce returns for both lessees and lessors. Transaction costs include risk arising from a possible breach of the rental contract. Potential losses caused by a breach of contract can be reduced by introducing a credible third-party to witness the contract. Likewise, moral hazard can be reduced by contracting with trusted persons. Data from household surveys conducted in two communal areas of KwaZulu-Natal were used to estimate a regression model explaining levels of investment in crop production amongst tenant farmers. The results confirm that tenants invest more when they contract with friends or family, and if their contracts are formally witnessed by a credible third-party. Interventions that reduce potential losses caused by a breach of contract are therefore expected to promote market efficiency and investment in crop production. In the short-run, the Provincial Department of Agriculture should sanction rental contracts negotiated by lessors and lessees. Ultimately, legal reform that leads to predictable contract enforcement in the communal areas is required to improve market efficiency and levels of investment in agriculture.Customary institutions, insecure land tenure, rental market, transaction costs, moral hazard, crop production, Land Economics/Use,

ANALYSIS AND PREDICTION OF WATER TREATMENT COSTS AT THE DV HARRIS PLANT IN THE UMGENI CATCHMENT AREA.

This paper has two objectives: first, to identify the main contaminants responsible for high treatment costs in the Umgeni catchment area, and second, to predict treatment costs from observed levels of contaminants. A partial adjustment model of treatment costs is estimated for the DV Harris plant, which draws water from Midmar Dam, using ordinary least squares regression and principal component analysis. The model highlights important policy issues and explains 61% of the variation in chemical treatment costs. Environmental contaminants have a marked impact on treatment costs. Treatment costs increase when levels of alkalinity, sodium and turbidity fall. Conversely, costs rise with higher levels of dissolved oxygen and water stability. Paradoxically, clean water - typical of Midmar Dam - is expensive to treat. Treatment costs also rise when concentrations of the algae, Chlorella, decline. Apparently the level of Chlorella varies inversely with the level of other, more harmful, contaminants.Resource /Energy Economics and Policy,

Farmland transfers in KwaZulu-Natal, 1997-2003: A focus on land redistribution including restitution

Census surveys of land transactions show that 203,300 hectares of KwaZulu-Natal's commercial farmland transferred to previously disadvantaged South Africans over the period 1997-2003. This represents 3.8 per cent of the farmland originally available for redistribution in 1994. The annual rate of land redistribution in the province fell from a peak of 1.06 per cent in 2002 to 0.41 per cent in 2003, following an increase in the real price of farmland. Transactions financed only with government grants accounted for almost one-half of the redistributed farmland. However, the quality of farmland financed with grants awarded under government's land redistribution programme was poor relative to that financed privately. The LRAD programme introduced in 2001 improved government's contribution to land reform, attracting private capital and expertise into the process. Unfortunately, the number of transactions financed with a combination of LRAD grants and mortgage loans fell from 14 in 2002 to just six in 2003. It is recommended that all reputable banks (and not just the Land Bank) should be allowed to approve LRAD grants for eligible clients. Previously disadvantaged women gained less land, and much less land wealth, than did their male counterparts. Somewhat surprisingly, women were well represented in transactions financed by Ithala Finance and Investment Corporation to establish emerging sugarcane farmers. However, the same was not true of clients financed by the Land Bank.Land Economics/Use,

Rural economic growth linkages and small scale poultry production: A survey of producers in KwaZulu-Natal

This study analyses survey data gathered from small and large poultry producers in the rural areas of KwaZulu-Natal, and highlights factors constraining the impact of commercial poultry production on the local economy. It was found that small-scale poultry production has the ability to initiate economic growth through the "export" of its products and to draw under-utilised resources such as labour into production. The impact of the subsequent multiplier effect is most likely strongest in the non-tradable, non-agricultural sector. Alleviating constraints for a large number of small enterprises is expected to impact more positively on the rural economy than if a few larger enterprises were encouraged to grow bigger. The descriptive results suggest that small producers face much higher transaction costs than larger producers. Government policies should focus on absorbing some of these transaction costs to nurture economic growth in the rural areas of KwaZulu-Natal, i.e. by improving education, physical infrastructure and technology transfer through extension. Other important interventions include the provision of mentoring and training services for new managers including institution, legal and financial management instruction.Livestock Production/Industries,

An empirical analysis of factors affecting the productivity of livestock in southern Botswana

This study attempts to identify factors responsible for differences in the productivity of cattle managed by private and communal livestock farmers in the southern region of Botswana during 1999/2000. Sample survey data are used to estimate the parameters of a block recursive regression model. Some of the equations postulated in the model are estimated with two-stage least squares (2SLS) to account for likely correlation between endogenous explanatory variables and the error term. The results show that (a) respondents with secure land tenure (private farms) and larger herds use more agricultural credit than do those who rely on open access communal grazing to raise cattle; (b) secure tenure and higher levels of liquidity from long-term credit and off-farm wage remittances promote investment in fixed improvements to land; (c) liquidity from short-term credit and wage remittances supports expenditure on operating inputs; and (d) herd productivity increases with greater investment in operating inputs and fixed improvements, and is therefore positively (but indirectly) influenced by secure land tenure. It can be inferred that government should (a) uphold private property rights to land where they already exist; (b) privatise open access grazing to individual owner-operators where this is politically, socially and economically feasible; and (c) where privatisation to individuals is not feasible, government should encourage users to convert the grazing into common property by subsidising the transaction costs of defining user groups and the boundaries of their resources, and of negotiating and enforcing rules limiting individual use of common property. This first-step in a gradual shift towards private property might be followed by a conversion of user-groups into non-user groups organised along the lines of investor-owned firms where members exchange use rights for benefits rights.Productivity Analysis,

Loan products to manage liquidity stress when broad-based black empowerment enterprises invest in productive assets

Investments in productive assets by broad-based black economic empowerment (BEE) enterprises in South Africa (SA) during the 1990s have been constrained, in part, by a lack of access to capital. Even if capital can be sourced, BEE businesses often face a liquidity problem, as conventional, equally amortized loan repayment plans do not take into account the size and timing of investment returns, or there are lags in the adjustment of management to such new investments. This paper describes five alternative loan products to the conventional equally amortized loan: the single payment non-amortized loan; the decreasing payment loan; the partial payment loan; the graduated payment loan; and the deferred payment loan. Recent SA experience with the graduated payment loan and the deferred payment loan suggests that there is scope to alleviate the liquidity problem if a wholesaler of funds can offer such terms to private banks and venture capital investors who then on-lend to finance BEE asset investments that are otherwise considered relatively high credit risks. This would shift the liquidity problem away from the client to the wholesaler of the funds, but requires access to capital at favourable interest rates. Such capital could be sourced from empowerment funds earmarked by the private sector, donors and government.Financial Economics,