Smallholder irrigators and the role of markets: a new institutional approach

English: There is growing evidence that many smallholder farmers can benefit from market-oriented agriculture. However, high transaction costs are a barrier to accessing the markets. Poor households are also often ill-equipped to respond to rapidly changing market conditions. In some cases they have seen old production strategies undermined by new competition, without being able to take advantage of the new opportunities provided by liberalisation policies such as the deregulation of agricultural markets in South Africa. According to literature market access in developing countries cannot be explained by conventional neo-classical economics and requires an institutional analysis. Using primary data collected from six smallholder irrigation schemes, this study tackles the smallholder performance problem from several angles. Firstly, the role of market access in influencing the success potential is explored. Secondly the role and nature of factors that influence market access are investigated. The investigation focuses on the role that institutions can play in improving both performance in general and market access in particular. The study uses cluster analysis, principal component analysis and principal component regression techniques to perform the analysis. As expected, market access was found to be one of the significant factors influencing the success potential of smallholder irrigation projects. Other significant variables included access to information, training, transport, extension and planning. The most significant components influencing market access were found to be physical access to markets, farmer skills and the nature of access to markets.The issues of importance when it comes to market access raised in this study are institutional in nature. The study provides a reference framework for assessing potential success in smallholder farm management. The study also reveals the embedded institutional deficiencies that need to be addressed to achieve a well functioning agricultural sector.Institutions have a critical role in reducing costs and can have an influence on the development and organisation of economic activity. The results call for a revisit of the policies and institutional framework, and enriching them with information on the factors that affect performance as found in this study. An innovative policy making process is necessary to support smallholder agriculture beyond the farm gate.