New institutional economic analysis of emerging irrigation farmers' food value chains
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Date
2012
Authors
Jordaan, Henry
Journal Title
Journal ISSN
Volume Title
Publisher
University of the Free State
Abstract
The main objective of this research was to develop and apply an integrated framework that will allow researchers to comprehensively investigate agri-food chains within which emerging farmers operate to identify potential leverage points that will contribute towards improving the financial performance and hence the livelihoods of emerging farmers. An integrated value chain (VC)-New Institutional Economics (NIE)-Structure-Conduct-Performance (SCP) framework was developed to allow for considering the constraints associated with institutional failure, high transaction costs, and the lack of support structures that typically exclude emerging farmers from participating in commercial agri-food chains, but also vertical coordination and collective action that contribute to the successful participation of emerging farmers in commercial agrifood chains. The integrated VC-NIE-SCP framework allows for a comprehensive analysis of the behaviour and performance of emerging farmers in their social, physical and institutional environment. The integrated VC-NIE-SCP framework was applied to the case of emerging raisin producers from Eksteenskuil who export raisins via the fairtrade initiative. Correctly aligned incentives through the Fairtrade initiative (price premium for good quality raisins) incentivised the farmers to comply with the strict rules of Fairtrade, but also to establish additional rules by registering the EAC to improve their ability to meet the strict rules and regulations of the fairtrade initiative. The incentives through fairtrade also incentivised the support structures to actively support the farmers to comply with the strict rules and regulations. Support structures, especially the board of directors of EAC, play a major role in the operations of the farmers from Eksteenskuil in the fairtrade value chain. Correctly aligned incentives thus have a major influence on the behaviour of the farmers and other role-players that may support them to meet the strict requirements of participating in commercial agri-food chains. The technical and cost efficiency levels of the respondents were examined to gain insight into their current performance and the scope for improving their performance in their current technology set. A cash flow optimisation model was also developed to model the potential impact of recommended changes on the financial performance of the farmers from Eksteenskuil. The results show that there is major scope to improve the financial performance of the raisin producers from Eksteenskuil by improving the levels of efficiency with which they use their production inputs. The current incentive structure, however, is not conducive to improving the efficiency levels of the farmers. The lack of secure land tenure means that the farmers do not have the primary incentive to invest in their land. Insecure tenure also contributes to the lack of cash flow which is central to most of the stumbling blocks that constrain the behaviour, and hence the performance, of emerging farmers. Land tenure reform has to be concluded promptly to contribute to an enabling environment for emerging farmers to allow them to improve their livelihoods through irrigated agriculture. Emerging farmers need effective support, extension and education to successfully operate in the liberalised market environment. Providing such support to emerging farmers, however, should not be the sole responsibility of government. The private sector has a major contribution to make in this regard. Key role-players in agri-food chains exhibit the necessary skills to successfully operate in the chain. Government should rather focus on creating incentives for such role-players to get involved with emerging farmers to develop the necessary skills of the farmers. Correctly aligned incentives that create a vested interest for such firms in the performance of emerging farmers may convince the private sector to effectively support the farmers. Such a vested interest may convince the key role-players to enter into vertical coordinated relationships (i.e. strategic alliances) with emerging farmers, giving farmers access to the accompanying benefits of effective support, and a ready market for their produce. Government then can focus on meeting its responsibility of providing the farmers with an enabling environment. The main conclusion from this research is that the integrated VC-NIE-SCP framework provides a holistic approach to identify workable solutions that may improve the financial performance of emerging farmers, and hence the livelihoods of emerging farmers. By understanding the social and institutional dynamics in the system within which the emerging farmers operate, the incentive structure can be adjusted accordingly to effectively guide the behaviour of all parties involved to contribute towards the successful participation by emerging farmers in the mainstream of the economy. Each case, however, needs to be assessed comprehensively to ensure that recommendations will optimise the benefits for the farmers under consideration.
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Keywords
Thesis (Ph.D. (Agricultural Economics))--University of the Free State, 2012, Agriculture -- Economic aspects, Irrigation farming -- Economic aspects