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MAINSTREAMING OF SMALLHOLDER IRRIGATORS:
THE CASE OF 'fAUNG IRRIGATION SCHEME, NORTH
WEST, SOUTH AFRICA
by
JACOBUS PETRUS KLOPPER
Submitted in partial fulfilment of the
requirements for the degree of
MSc (Agric)
in the
Department of Agricultural Economics
Faculty of Agriculture and Natural Sciences
University of the Free State
Bloemfontein, South Africa
December 2009
uni\jsr5i~~it V:?J1d;S
vri?~~~3.2t
'BLOr).~·FCN·rr;.H~
ACKNOWLEDGEMENTS
The accomplishment of this work has been a result of various contributions from a
number of people. I am very grateful to all of them.
Firstly, I would like to thank my promoter Prof. Herman van Schalkwyk, Dean of the
Faculty of Natural and Agricultural Sciences for his continued guidance,
encouragement throughout the conducting of this study and for scrupulous critiquing
of earlier versions of this work. I would also like to thank Nicolaas Kotze for his
invaluable input in various aspects of this study and for continued motivation.
I would like to thank all my colleagues in the Department of Agricultural Economics
with some of whom I developed very special friendships even beyond academia.
Your unwavering support during the course of this study has greatly influenced the
outcome at hand. Ms Lorinda Rust (in t.he Dean's Office), Prof. Johan Willemse,
Mrs. Louise Hoffman and Mrs. Annely Minnaar (in the Department of Agricultural
Economics) have continuously provided solutions and support for difficult situations
dunng this period.
I would like to thank all the farmers in the irrigation schemes where I collected data
for this study, for being willing to share their information. I am also very grateful for
the support of the extension officers who assisted me during this time. Special thanks
to Mr. Gawie Kotze and Mr. Burrie Erasmus for all the information supplied from
SABMiller.
Thanking my family and all my friends who have been a source of encouragement in
tiresome times. This study is dedicated to all the people I love and who play a
significant role in my life. Finally, I would like to thank God Almighty who gives us
strength and who is trusted not to let us suffer more than we can handle.
Koot Klopper
Bloemfontein, South Africa
December 2009
ii
MAINSTREAMING OF SMALLHOLDER IRRIGATORS: THE CASE OF
TAUNG IRRIGATION SCHEME, NORTH WEST, SOUTH AFRICA
by
JACOBUS PETRUS KLOPPER
Degree: MSc (Agric)
Department: Agricultural Economics
Promoter: Prof. H.D. van Schalkwyk
ABSTRACT
The majority of emerging farmers live in the former homelands where the former
apartheid regime enveloped them, and it is these farmers that need to be mainstreamed
into the economy. To be mainstreamed into the growing economy of South Africa,
these farmers will need to overcome many challenges.
Small-scale agriculture m South Africa is associated with non-productivity and
commercially unviable agriculture. The situation is complex and is largely
attributable to the fact that South African small-scale agriculture has a history of
generating dependency. Farmers (especially those based in the large former
homeland irrigation schemes) have become accustomed to the profound support
provided by the parastatal organisations that managed most of the irrigation schemes
in the country. The Taung irrigation scheme is no exception.
Literature highlights constraints from an institutional and technical viewpoint faced
by small-scale farmers. The issue of contract farming is explored as a means of
overcoming all the constraints.
Using primary data collected from the Taung irrigation scheme, this study points out
the factors that have an influence on the success potential of small-scale farmers. The
iii
investigation focuses on the role of private sector involvement and the role they play
in helping small-scale farmers improve success potential and thus mainstreaming
them in to the South African economy. The study uses cluster analysis and principal
component analysis techniques to perform the analysis.
The main components that have the most significant influence on success potential are
highl ighted and discussed thoroughly. The issues of importance raised in this study
are institutional and technical in nature. Thus, the continued collaboration between
small-scale farmers, government and private sector is needed to ensure sustainable
successful development. The study provides a reference framework for assessing
potential success in smallholder farm management. The study also reveals the
embedded institutional and technical 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.
iv
MAINSTREAMING OF SMALLHOLDER IRRIGA TORS: THE CASE OF
TAUNG IRRIGATION SCHEME, NORTH WEST, SOUTH AFRICA
deur
JACOBUSPETRUSKLOPPER
Graad: MSs (Agric)
Departement: Agricultural Economics
Studieleier: Prof. H.D. van Schalkwyk
UITTREKSEL
Die meerderheid van opkomende boere konvergeer in die voormalige tuislande waar
die voormalige apartheids regering hul geplaas het, en dit is hierdie boere wat in die
hoofstroom ekonomie geïnkorporeer moet word.
Kleinboer landbou in Suid Afrika word geasossieer met onproduktiwiteit en
onvolhoubare komersieële landbou. Dit is 'n komplekse situasie en kan grootliks
toegeskryf word aan die feit dat Suid Afrikaanse kleinboer landbou 'n geskiedenis het
om afhanklikheid te genereer. Boere (veral die gebasseer in die voormalige tuisland
besproeiing skemas) het gewoond geraak aan die volgehoue ondersteuning deur
regerings geafiliëerde organisasies wat meeste van die besproeiingskemas in die land
bestuur het. Die Taung besproeiingskema is geen uitsondering nie.
Literatuur lig die beperkinge vanuit 'n institutionele en tegniese oogpunt uit wat
kleinboere in die gesig staar. Daar word gefokus op die kwessie van kontrak boerdery
as 'n moontlikheid om beperkinge te oorkom.
Deur gebruik te maak van primêre data wat by die Taung besproeiingskema
ingesamel is, lig die studie faktore wat 'n invloed op sukses potensiaal van kleinboere
het uit. In die ondersoek word klem gelê op die rol van private instansies en die rol
wat hulle speel om kleinboere se sukses potensiaal te verbeter en hul dus in die
v
hoofstroom ekonomie van Suid Afrika te inkorporeer. Die analise is voltooi deur
gebruik te maak van 'n klusteranalise en analise van die hoofkomponente.
Die hoofkomponente wat die grootste invloed op sukses potensiaal het word uitgelig
en deuglik bespreek. Belangrike kwessies wat in hierdie studie uitgelig is is
institusioneel en tegnies van aard. Dus is die volgehoue samewerking tussen
kleinboere, die regering en private instansies nodig vir suksesvolle ontwikkeling. Die
studie verskaf 'n verwysingsraamwerk vir die bepaling van potensiële sukses met
kleinboerbestuur. Terselfdertyd lê dit ook die ingeboude institusionele tekortkominge
bloot waaraan aandag geskenk sal moet word om 'n landbousektor daar te stel wat
goed funksioneer.
Instellings speel 'n belangrike rol in die verlaging van koste en kan dus 'n uitwerking
hê op die ontwikkeling en organisasie van ekonomiese aktiwiteite. Die resultate
dikteer dat daar weer gekyk sal moet word na bestaande beleid en institusionele
raamwerk om dit aan te vul met inligting oor die faktore wat prestasie beïnvloed soos
bevind in hierdie studie. Innoverende beleidmakende proses wat die ontwikkeling
van kleinboere na die plaashek steun is nodig.
VI
TABLE OF CONTENTS
CONTENTS PAGE
Acknowledgements ii
Abstract. .iv
Uitreksel. vi
Table of contents viii
List of tables xvii
List of figures xix
CHAPTER 1
INTRODUCTION
1.1 Background 1
1.2 Study area 5
1.3 Problem statement 6
1.4 Research objectives 7
1.5 Data and Methodology 8
1.6 Chapter outline 9
vii
CHAPTER2
LITERATURE REVIEW
2.1 Introduction 11
2.2 Constraints faced by smallholder farmers 12
2.2.1 Institutional constraints 14
2.2.1 .1 Finance 14
2.2.1.2 Information 16
2.2.1.3 Technology .18
2.2.1.4 Markets 21
2.2.1.4.1 Market access as a success factor. 22
2.2.1.5 Collective action 24
2.2.1.6 Property rights 25
2.2.1.7 Transaction cost economics 27
2.2.2 Technical constraints 29
2.2.2.] Infrastructure 29
2.2.2.2 Distance to markets 30
2.2.2.3 Access to inputs 31
2.2.2.4 Economies of scale 32
2.2.2.5 Extension services 33
2.2.2.6 Lack of skills, experience and education 34
2.3 Contract farming as a means of overcoming constraints 35
2.3.1 Background 35
2.3.2 Earlier experiences of contract farming 36
2.3.3 Advantages and disadvantages of contract farming .40
2.3.3.1 Advantages to producers .40
2.3.3.2 Disadvantages to producers .42
2.3.3.3 Advantages to institutions .43
viii
2.3.3.4 Disadvantages to institutions .44
2.4 Success in smallholder irrigation farming 45
2.5 Conclusion 46
ix
CHAPTER3
DESCR.IPTION OF THE STUDY AREA
3.1 Introduction 49
3.2 The past and present situation of the Taung
small-scale farmers 50
3.3 Taung irrigation scheme at present. 52
3.4 Private sector involvement .. : 55
3.5 South African Breweries Malting as financial intermediary 56
3.6 The producers 59
3.6.1. Agricultural production in the scheme 60
3.6.1.1 Alfalfa 60
3.6.1.2 Barley 62
3.6.1.3 Wheat. 63
3.6.1.4 Cotton 63
3.6.1.5 Maize 64
3.6.1.6 Groundnuts 64
3.7 Irrigation infrastructure 65
3.8 Farming infrastructure 67
3.9 Summary 67
x
CHAPTER4
FARMING HOUSEHOLDS ANDMARKETING MANAGEMENT
4.1 Introduction 69
4.2 Questionnaire development 69
4.3 Age and household composition '.' 70
4.3.1 Farmer age 70
4.3.2 Household composition 70
4.4 Human capital endowments 71
4.4.] Educati on 71
4.4.2 Language capabilities 72
4.4.3 Farming experience 73
4.4.4 Planning skills 74
4.4.5 Financial management and record keeping 75
4.5 Resources 77
4.5.1 Farm size and land use 77
4.5.2 Infrastructure 78
4.5.2.1 Roads 79
4.5.2.2 Transport. 79
4.5.2.3 Telephones 80
4.5.2.4 Electricity 80
4.5.2.5 Local markets 80
4.6 Institutions 81
4.6.1 Services 8.1
4.6.2 Sources of information 84
4.6.3 Farmer organisations 86
4.7 Marketing management. 87
xi
4.7.1 Marketing outlets 87
4.7.2 Input acquisition 88
4.8 Summary 90
xii
CHAPTER 5
CHARAC'fERJSTICS OF POTENTIALL Y SUCCESSFUL
SMALLHOLDER. IRR.IGATORS IN THE TAUNG IRRIGATION
SCHEME.
5.1 Introduction ~ 92
5.2 Methodology 93
5.3 Results and discussion 96
5.4 Factors influencing the success potential of smallholder
irrigators in South Africa 99
5.5 The variables 100
5.6 The model. 101
5.7 The influence of derived components on success potential. 106
5.8 Summary and conclusion 109
xiii
CHAPTER 6
SUMMARY, CONCLU~:::ONS& RECOMMENDATiONS
6.1 Introduction 112
6.2 Summary 112
6.3 Conclusions , 114
6.3.1 General. '" 1]4
6.3.2 Principle components influencing success potential. .116
6.3.3 The influence of SAB in success potential. 117
6.4 Recommendations 118
6.4.1 Policy 118
6.4.2 Further research 12]
REFERENCES 123
APPENDIX A 146
APPENDIX B 156
xiv
LIST OF TABLES
CONTENTS
Table 3.1: Markets for Groundnuts in the vicinity of Taung 65
Table 4.1: Average age of farmers 70
Table 4.2: Household composition 71
Table 4.3: Supply and demand for extension services and farmers'
perceptions 82
Table 4.4: Farmers' perceptions on the knowledge of the extension
services officers 82
Table 4.5: Jnformation sources 84
Table 4.6: The main reasons why high yielding seeds could
not be acquired 90
Table 5.1: Variable measurement 96
Table 5.2: Cluster means 96
Table 5.3: Cross tabulation of having a contract and
cluster membership 99
Table 5.4: Explanatory variables and their expected signs 100
Table 5.5: Principal components and their eigen values 104
Table 5.6: Parameter estimates of the logistic regression 107
xv
LIST OF FIGURES
CONTENTS PAGE
Figure 3.1: Map of the North West province 49
Figure 3.2: Aerial photo of the Taung irrigation scheme 53
Figure 3.3: Old infrastructure and barren fields 54
Figure 3.4: Alfalfa under centre pivot irrigation 61
Figure 3.5: Barley under centre pivot irrigation 62
Figure 4.1: Educational qualifications of respondents 72
Figure 4.2: Language capabilities of the participating farmers 73
Figure 4.3: Farming experience in each village 74
Figure 4.4: Farmer planning skills 75
Figure 4.5: Record keeping 76
Figure 4.6: Plot sizes of villages in Taung 78
Figure 4.7: Availability of infrastructure 79
Figure 4.8: Need for extension services 81
Figure 4.9: Reasons why credit is not available 84
Figure 4.10: Factors that determine the type of crop to be produced 88
Figure 4.11: Means of acquiring high yielding seeds 89
xvi
CHAPTER 1
INTRODUCTION
1.1 Background
While past policy has contributed to rural impoverishment, new policies will create the
opportunity for reforms, enabling agriculture to make a much larger contribution to
poverty alleviation and the enhancement of national and household food security (NDA,
1998). An estimated 16 million South Africans are living in poverty, with its incidence
highest in rural areas and among female and child-headed households. It is estimated that
72 % of poor people live in rural areas and that about 70 % of rural people are poor
(Woolard, 2002). Long-term growth in agricultural production will depend on the
implementation of healthy long-term strategies that will stimulate entrepreneurship and
technological innovation. Agriculture is a vibrant, pulsing socio-economic system,
particularly in countries where a considerable part of the annual per capita income is
generated from the agricultural sector, as is the case in South Africa.
The majority of emerging farmers reside in the former homelands where the former
apartheid regime enveloped them, and it is these farmers that need to be mainstreamed
into the economy. To be mainstreamed into the growing economy of South Africa, these
farmers will need to overcome many challenges.
The concept of small-scale agriculture in South Africa is loaded with subjectivity and has
been associated with non-productivity and commercially unviable agriculture. The
reality faced by small-scale black farmers must be acknowledged. In general, most
emerging farmers, whether small-scale or not, have limited access to land and capital and
have received inadequate or inappropriate research and extension support. This has
resulted in chronically low standards of living and reliance on subsistence production, to
a greater or lesser extent (Mahlangu, 2000).
Chapter 1 - Introduction
Regardless of the potential that small-scale irrigated agriculture poses, there has been a
reverse process corresponding to smallholder irrigators of South Africa. Unlike in some
other countries, smallholders in South Africa are faced with a very large set of
constraints. Productivity levels have dropped drastically, especially in the formerly state-
managed smallholder irrigation schemes. This relates to the declining govemment
support provided to smallholders in the so-called Irrigation Management Transfer (IMT)
process. In the Limpopo Province, Kamara et al. (2002) noted that the level of
production had dropped to about 20 % in schemes that were previously managed by the
Agricultural Rural and Development Corporation (ARDC). This went against a generally
positive growth in the country's agriculture. They also found that some farmers were
producing at a loss. Making particular reference to the Eastem Cape, Bembridge (2000)
argues that in spite of huge investments, the performance of most small-scale irrigation
schemes in the Eastem Cape has been poor and falls short of the expectations of
engineers, politicians, development agencies and the participants themselves.
The situation is complex and is largely attributable to the fact that South African smalI-
scale agriculture has a history of generating dependency. Farmers (especially those based
in the large former homeland irrigation schemes) have become accustomed to the
profound support provided by the parastatal organisations that managed most of the
irrigation schemes in the country (Magingxa, 2007).
Most of the smallholder schemes that were established during 1930 to 1960 were
primarily aimed at providing African families residing in the 'Bantu Areas' with a full
livelihood (The Commission for the Socio-Economic Development of the Bantu Areas
within the Union of South Africa, 1955, hereafter referred to as The Commission, 1955).
The Land Act of 1913 and the Land and Trust Act of 1936, which largely restricted land
ownership by black people in South Africa to these territories, created the 'Bantu Areas'.
The Commission (1955) identified "smallholdings on irrigation schemes in the north of
South Africa that were supervised by Europeans" as being the most successful
smallholder farm enterprises in the 'Bantu Areas'.
2
Chapter 1 - Introduction
Agricultural land in South Africa compnses just over 100 million hectares (ha)
(Agriculture and Land Affairs, 2007), of which about 1.3 million ha are under irrigation
and 0.1 million ha of this irrigated land is in the hands of smallholders (Backeberg,
2006). According to Perret (2002), smallholding irrigation schemes in South Africa
comprise approximately 46 000 to 49 500 ha as former Bantustan schemes and about 50
000 ha as garden schemes and food plots. In South Africa, the term smallholder or smalI-
scale irrigation mainly refers to irrigated agriculture practised by black people. It is
estimated that two-thirds of South Africa's smallholding irrigation schemes are dedicated
to food plots for subsistence purposes and that 200 000 to 230 000 rural black people are
dependent on such schemes, at least partially, for their livelihoods. The importance of
smallholder irrigation schemes in South Africa arises primarily from the number of
participants involved. Smallholder irrigators have been categorised into four groups,
namely: (1) farmers in irrigation schemes; (2) independent irrigation farmers; (3)
community gardeners; and (4) home gardeners (De Lange, 1994; Crosby, De Lange,
Stimie and Van der Stoep, 2000; Du Plessis, Van Averbeke and Van der Stoep, 2002).
This study will focus primarily on the first category, namely farmers in irrigation
schemes.
For many decades smallholder irrigation schemes have generated public interest, mainly
because their establishment and revitalisation were made possible through the investment
of public resources. The Commission's (1955) highly positive review of the performance
of these schemes has not been repeated since. More recent assessments of the sector
concur that the success of smallholder irrigation has been limited (Bembridge, 2000;
Crosby et al., 2000). Factors that contributed to their modest performance were poor
infrastructure, limited knowledge of crop production among smallholders, limited farmer
participation in the management of water, ineffective extension and mechanisation
services and a lack of reliable markets and effective credit services (Bembridge, 2000;
Crosby et al., 2000; Dannson, Ezedinma, Wambua, Bashasha, Kirsten, Sartorius von
Bach, 2004; Chen, Shepherd and Da Silva, 2005; Shepherd, 2007). Another factor that
constrained the economic impact of smallholder irrigation was the predominance of
subsistence-oriented farming. Backeberg et al. (1996) reported that 37 % of farmers in
3
Chapter 1 - Introduction
smallholder irrigation schemes were commercially-oriented, whilst the remaining 63 %
were mainly engaged in subsistence production. The results of the recent survey by Gibb
(2004) painted a similar picture. It should be noted that economic success through
market-oriented production has not always been the objective of these projects (Van
Averbeke et al., ]998) and 'success' measures should not ignore the importance of
ensuring food security through one's own production. As Perret (2002) points out, food
security remains the major objective for many plot holders and subsistence-oriented crop
production patterns have never been changed. For this reason, it is important to also
assess the success of smallholder irrigation from the perspective of plot holders and to
take into account whether their livelihoods meet their needs. Bembridge (1996, 2000)
stated that the performances and economic success of smallholding irrigation schemes
have been very poor and "fall far short of the expectations of planners, politicians,
development agencies, the participants themselves, and despite huge investments".
Perret (2002) indicates that it is important to take note of the paradigm shift that occurred
in smallholding irrigator schemes. Most schemes were built up for social and food
security purposes during the apartheid era, in the early 1960s. From the early 1980s, the
management agencies (corporations) were facing such financial and social problems that
they encouraged farmers to make some profit in order for them to pay back a portion of
their loans. Production patterns remained the same, while market opportunities
weakened and a poor agribusiness environment resulted. At the same time, due to
infrastructure degradation, consultants were hired to set up rehabilitation plans. Hence,
even more sophisticated technologies (e.g., pumps and sprinkler irrigation) were
introduced in certain schemes, which required even higher capital, operation and
maintenance costs.
Government has set certain policies in place to address these problems, such as the
Comprehensive Agricultural Support Programme (CASP) and the Accelerated and
Shared Growth Initiative for South Africa (ASGISA).
4
Chapter 1 - Introduction
The Aim of the CASP programme is to provide post-settlement support to the targeted
beneficiaries of land reform and to the other producers who have acquired land through
private means. CASP has six priority areas, which include:
o Information and technology management;
o Technical and advisory assistance and regulatory services;
o Marketing and business development;
o Training and capacity-building;
o On/off-farm infrastructure and product inputs; and
e Financial support.
ASGISA focuses more on the proposed 5 % economic growth, which the government
wants to sustain up to the year 2014. In realising the 5 % growth rate, the social
objectives require government to improve the environment and opportunities for more
labour-absorbing economic activities. In essence, the government needs to ensure that
the country's economic progress includes the majority of the poor so as to address the
inequalities which exist in South Africa.
South Africa has come a long way since the abolishment of apartheid in 1994, but still
has a far way to go in the establishment of a sustainable black farming sector. A better
understanding of the institutional environment and arrangements in the Taung irrigation
scheme will help to achieve sustainable rural development, increase economic growth
and reduce poverty in the North West Province and ultimately, South Africa as a whole.
1.2 Study area
It was decided to initially focus on the former homeland areas of South Africa.
The Taung irrigation scheme is situated in one of these former homelands, namely the old
Bophuthatswana, now part of the North West. The Taung irrigation scheme was
established on land that existed under communal tenure arrangements, whereby user
rights were allocated by the tribal leadership on a hereditary basis. The scheme
5
Chapter 1 - Introduction
comprises 4000-5000 ha of communal arable land partitioned among 411 farmers
(Seshoka, de Lange and Faysse, 2004).
The North West Province is characterised by high income inequalities, as revealed by the
province's Gini coefficient, which is above 0.6. This elevated Gini coefficient places the
province amongst the most income inequitable regions of the world. Agriculture is the
second most important sector in the North West Province's economy after mining. It
contributes 8.6 % to the province's GDP and 16.7 % to employment. At national level,
the North West Province provides one of the important food baskets of South Africa. It
provides at least a third of the country's annual maize requirements (NDA, 2004).
A detailed description of the study area is presented in Chapter 3.
1.3 Problem statement
The smallholder agricultural sector is evidently constrained both by its history of past
deprivation and the contemporary focus on more macro-level reform processes, which
largely bypass smallholders. Although the existence of smallholders is recognised,
studies and policy actions generally exclude them, with more emphasis being given to the
emerging and small-scale farmers, whose circumstances are completely different.
Putting the background of the smallholder irrigation schemes into perspective, one starts
seeing the problems which generally prevail in these schemes. The main challenge with
regards to smallholder irrigators is to answer the question: 'What should be done to
ensure that smallholder irrigators are economically successful?' The Taung irrigation
scheme in the North West Province is presently a subject of great concern. These farmers
have difficulty in securing financial independence. This is also the case with most other
similar schemes. In spite of the huge capital investment made in its establishment, in the
form of infrastructure and huge maintenance costs borne by the Department of
Agriculture (DoA) over the years, the scheme has failed to produce commercial,
independent farmers (Kydd, 2002).
6
Chapter 1 - Introduction
To find the solution to the above question, which has been the topic of many papers, both
academic and practical in nature, one has to analyse the problem on different levels. On a
technical and institutional level there are various problems which need to be addressed.
These include problems such as extension services, infrastructure, lack of skills and
experience, quality and quantity of products, distance to markets, economies of scale and
access to markets.
Much of the current policy advice on smallholders focuses on the effects of policy
distortions and inadequate attention is given to the serious, embedded deficiencies that
limit many smallholder areas from taking advantage of market opportunities. These
deficiencies include a lack of access to markets, finance, information and a lack of
collective action in that the farmers seem to be incapable of taking leadership. These
deficiencies require intensive and long-term attention if sustainable development is to be
achieved for smallholder farmers in the Taung irrigation project. One of the most
limiting constraints in the Taung irrigation scheme seems to be the issue surrounding
property rights, as these farmers produce on communal land (Kotze, 2008). Most of the
land falls under tribal authorities and development and investment are delayed because of
the lack of efficient property rights.
Farmers in Taung do not seem to be able to achieve financial independence nor are they
competitive enough to be able to compete with the commercial farmers (Erasmus, 2007).
The parameters and the characteristics of a successful irrigation farmer will have to be
determined and then a path will need to be devised for these smallholder irrigators to
reach this success measure. The study intends to determine the extent to which small-
scale farmers can share and participate in the regional economy and what institutional
and other reforms are necessary to enhance their participation.
1.4 Research objectives
The main objective of this study is to incorporate the smallholder irrigation farmers into
the growing economy, i.e., to mainstream these farmers so that they benefit from
economic growth. The study is designed with the primary objective being to generate
7
Chapter 1 - Introduction
information on the role of contract farming m a small-scale irrigation management
system.
Secondly, the study seeks to identify and measure key determinants of success potential
for smallholder irrigators. A better understanding of the key determinants affecting
success potential would be useful in informing policy decisions aimed at mainstreaming
small-scale irrigators into the economy.
To achieve the main objective, a few sub-objectives need to be addressed, including:
g The background to small-scale irrigation and the contribution it makes in the
developing economy must be analysed by consulting the available literature.
o The technical and institutional limitations on small-scale irrigation farmers must
be determined.
c The characteristics of and the differences between successful farmers and
unsuccessful farmers must be determined by applying a statistical technique.
o Determine what should be done and what action plan should be set in motion to
mainstream small-scale irrigators.
Enhanced small-scale farming productivity will contribute to the South African economy
as a whole, as well as address the problem of food insecurity and unemployment. Thus,
it is vital to identify the constraining factors influencing success potential in the smalI-
scale farming sector and to facilitate a solution to these constraints.
1.5 Data and methodology
Data for the study was collected in five villages in the greater Taung area of the North
West Province. The five villages under study are Bosele, Retuseng, Tshidiso, Ipeleng and
Areageng. The dataset mainly focuses on socio-economic factors as well as factors
influencing the success potential of smallholder farmers.
8
Chapter 1 - Introduction
Following Leedy and Ormrod' sexample (2001), pnmary data was collected from a
sample of 151 smallholder irrigation farmers using a structured questionnaire, which is
attached as Appendix A. The lack of appropriate records by farmers presented a problem
and some of the information depended on the truthfulness of the farmers' recall.
A range of methodologies was employed to achieve the set of objectives. The study uses
mainly econometric analytical methods to achieve the afore-mentioned objectives. To
distinguish more successful farmers from less successful farmers, a cluster analysis was
done. The Principal Component Analysis (PCA) technique was applied to determine the
influence of various factors on success potential. To determine factors influencing the
success potential in smallholder irrigation schemes, a logit model was used. A detailed
description of each of the techniques is provided in the subsequent chapters.
1.6 Chapter outline
The study is mainly concerned with the factors influencing success potential in small-
scale irrigation agriculture. A review of the relevant literature is used to better
understand and explain the smallholder irrigation sector in Chapter 2. It mainly focuses
on what the constraints are, from both a technical and institutional point of view. The
role institutions can play in smallholder irrigation farmer production will be included,
looking at both local and international literature. The technical side of the production
process will also be evaluated to determine the limitations it poses to these farmers. The
role of contract farming and other possible solutions are also encompassed in this chapter.
Chapter 3 describes the history and structure of the Taung smallholder sector and gives a
description of the study area in terms of location, main crops produced, socio-economic
environment, number of smallholder farmers, etc. The data collected for the study is
presented in Chapter 4. Here, characteristics of households in terms of demographics and
human capital endowments are covered. The primary data used in this study was
collected from 151 small-scale farmers in five villages around the Taung area.
9
Chapter 1 - Introduction
In Chapter 5 the cluster analysis tool is used to assess the different characteristics of the
'more successful farmers' and the 'less successful farmers'. This chapter will cover and
address the specific problem of their inability to access the mainstream economy.
Chapter 6 consists of a summary, conclusions and recommendations. Results from the
analyses conducted in previous chapters are used to formulate the recommendations that
are presented in this chapter.
10
CHAPTER2
LITERA TURE REVIEW
2.1 Introduction
Development is all about growth and change in order to provide a better way of life. To
achieve this in agricultural development, farmers will have to produce at a more
productive level. According to Sanders, Southgate and Lee (1995), developing countries
need to increase their yields (total production per hectare). In their view, many
productivity-increasing technologies are more sustainable than area-expansion
technologies in developing countries. Soil retention techniques, irrigation and adequate
management techniques are needed in low-income countries, especially those with low-
rainfall conditions. Policy reviews such as the structural-adjustment programmes, which
aim to reduce price distortions and to strengthen property rights, are essential to
guarantee the success of new technology adoption, which may result in a more productive
and sustainable agricultural sector.
A 2008 World Bank report titled 'Agriculture for development' recognises the
importance of agriculture in development. Agriculture has played a significant role in
development in many developing countries during the green revolution. There is rising
awareness that pro-poor growth, the key strategy to reach the First Millennium
Development Goal, necessitates promoting growth in the agricultural sector, where most
of the poor make their living. Acting as an engine of pro-poor growth, agriculture can
make contributions to development as a source of comparative advantage and new
business opportunities, also promoting development in food and nutrition security
(Byerlee, Sadoulet and de Janvry, 2009).
Smallholder agriculture is practised all over the world and is more the rule than the
exception in most developing countries. The term smallholder is a relative term and it is
not easily defined. In this study it is used to denote individuals and households that either
farm under a traditional communal basis, or on relatively small plots of land. Evidence
Chapter 2 - Literature Review
from elsewhere in the world, and most particularly from elsewhere in Africa,
overwhelmingly demonstrates that smallholder agriculture has been the principal motor
of development in rural areas (Dorward, Kydd, Morrison and Poulton, 2002).
Smallholder agriculture units have achieved higher returns to land and capital over time
than large-scale agricultural operations (Delgado, 1999). In rural development literature,
agriculture is considered as the best vehicle to reduce rural poverty. In most developing
countries, agriculture and agriculture-related activities provide most of the employment
in rural areas. This means that increasing agricultural growth may have a large and
positive impact on poverty (Lopez, 2002). According to a World Bank report (2003), 42
% of the total population of South Africa was situated in the rural areas of the country.
Given that agriculture is the single most important source of rural livelihoods in South
Africa, a smallholder-based agricultural strategy can help in reducing hunger and poverty
and can promote economic growth, with the latter being one of the key focus areas of this
study.
This chapter provides a review of relevant literature on constraints, success m
smallholder irrigation and means of overcoming the constraints faced by small-scale
farmers. Firstly, the focus is turned to institutional constraints and then technical
constraints faced by rural poor. The problems of small-scale farmers are discussed in
detail by making use of relevant literature. Different means of overcoming the
constraints faced by smallholders are presented by using relevant literature. The chapter
also presents factors that are understood to have an influence in the success potential of
smallholder farmers and their projects.
2.2 Constraints faced by smallholder farmers
In an attempt to uplift smallholder irrigators to an economically viable state, it is
necessary to understand the constraints that smallholder irrigation schemes have.
Infrastructure deficiencies, poor operational and management structure, inappropriate
land tenure arrangements and a lack of technical expertise are amongst a few of the major
constraints smallholder irrigation farmers face in South Africa (Yokwe, 2004).
12
Chapter 2 - Literature Review
The rural smallholders' impoverishment has not abated, perhaps as a result of inadequate
economic infrastructures and lack of access to markets where surplus output can translate
into enhanced profitability for the poor rural farmer. The Government has declared that
the next post-apartheid decade will be devoted to tackling this problem (Makgetla and
Landsberg, 2004). This vision is consistent with the goals defined under various
government programmes, including the Reconstruction and Development Programme
(RDP), the Integrated and Sustainable Rural Development Strategy (ISRDS), Black
Economic Empowerment (BEE), and the Broadening Access to Agriculture Trust
(BATAT) initiative. Other programmes which lend support to small-scale farmers
include the Comprehensive Agricultural Support Programme (CASP), the Accelerated
Shared Growth Initiative of South Africa (ASGISA), the Land Redistribution for
Agricultural Development (LRAD) and the Local Economic Development Network
(LED). It is important to understand these programmes and the support which they lend
to small-scale farmers (Madonsela, 2004).
Government and donor policies converge on the need for more effective local
development efforts to fully integrate South Africa's smallholders into the mainstream
development process. This study coincides with renewed concern regarding the level of
policy in the country to address the problems arising from marketing liberalisation, which
may have had considerable impact on information flows and a range of ancillary
marketing functions including storage, transportation, financial aspects, food processing
etc. (NDoA, 2000).
In general, there are two different types of constraints on smallholder farmers, namely
institutional and technical. These two foremost constraints can again be divided into
more detailed constraints, and if one were to address the different detailed constraints
faced by small-scale farmers, the outcome would be a more successful farmer as an end
product.
13
Chapter 2 - Literature Review
2.2.1 Institutional constraints
Institutional constraints can be further divided into different factors such as access to
finance, access to information, access to technology, access to farm input and product
output markets, lack of collective action (lack of leadership) and well defined property
rights (Bembridge, 1999; Shah, van Koppen, Merrey, de Lange and Samad, 2001).
2.2.1.1 Finance
The main services required by rural households are savings, credit, insurance and money
transmission. These are often closely related to each other, and also with input and output
marketing services, with respect to both the problems they face (for example, low levels
of activity with small and dispersed, hence high-cost, transactions), and the way that
supply and demand constraints across input, output and financial service delivery interact
in the vicious circles of low-level equilibrium traps (Braverman and Guasch, 1989).
Poor money transmission services contribute to this by reducing investment flows from
migrant workers to rural areas, inhibiting their potential contribution to raising volumes
of savings, input purchases, output sales and incomes (Hoff, Braverman and Stiglitz,
1993).
One of the great recent revolutions in developing countries has been the development of
credit and savings systems for poor families. These families lack the kinds of collateral
that banks typically demand, appearing to be too high a risk, and so have to rely on
money-lenders who charge exorbitant rates of interest. A major change in thinking and
practice occurred when professionals began to realise that it was possible to provide
micro-finance to groups, and so ensure high repayment rates. When local groups are
trusted to manage financial resources, they can be much more efficient and effective than
banks (Pretty, 2003).
14
Chapter 2 - Literature Review
According to Poulton, Kydd and Dorward (2005), there are particular challenges in the
provision of savings and credit services in poor rural areas, and in particular in providing
credit for seasonal purchases of crop inputs:
e Small-scale deposits and loans lead to very high transaction costs, exacerbated by
the dispersion of rural populations and poor communications infrastructure;
o The seasonality of agriculture leads to patterns of lumpy demand and repayment
by all farmers, often with a period of several months without income (during
which time it may be difficult to make repayments);
Q Lending to agriculture in a given area faces covariant risks from adverse weather
or prices affecting large numbers of farmers in similar ways. These and other risks
make agriculture particularly risky, but insurance markets are usually non-existent
and smallholders generally lack collateral to borrow against;
o Covariant risks (of events striking many members in a community, for example,
the effects of drought or adverse price changes) and seasonal patterns of crop
financing affect not only the demand for credit but also savings deposits and
withdrawals by rural people; and
o There are further problems in financing input purchases for subsistence-crop
production, as the financed inputs do not directly lead to sales from which
repayments can be made.
These difficulties make provision of banking services costly and unprofitable in poor
rural areas, hence these areas are poorly served by banking facilities. Difficult and costly
access to these facilities, which are located in distant urban centres, then constrains
demand even for relatively straightforward deposit or withdrawal services.
The list of commercial banks in South Africa who are public companies registered as
banks in terms of the Banks Act, 1990 (Act No 94 of 1990) include the following banks:
Absa Bank Ltd, African Bank Ltd, Albaraka Bank Ltd, Capitec Bank Ltd, FirstRand
Bank Ltd, Habib Overseas Bank Ltd, HBZ Bank Ltd, Imperial Bank Ltd, Investee Bank
Ltd, Marriott Merchant Bank Ltd, MEEG Bank Ltd, Mercantile Bank Ltd, Nedbank Ltd,
Peoples Bank Ltd, Rennies Bank Ltd, Sasfin Bank Ltd, The South African Bank of
15
Chapter 2 - Literature Review
Athens Ltd, The Standard Bank of SA Ltd and TEBA Bank Ltd. These banks are,
however, focusing more on the developed areas of the country.
There are also a wide range of foreign banks operating in South Africa but none are of
importance for this particular study. There are three other banks operating in South
Africa which operate under a different set of rules than the commercial banks. These are
the Postbank, which is a saving institution operating as a subsidiary of the South African
Post Office; the LandBank, also known as the Land and Agricultural Development Bank
of South Africa, and the DBSA, also known as the Development Bank of South Africa,
all of which are key financiers in the South African agricultural sector.
2.2.1.2 Information
Information in various sources of literature depict the transparency of a market, and how
the deregulation of the agricultural marketing sector in South Africa in the late 1990s
resulted in the abolishment of the marketing boards, which led to non-transparency in
markets. With the abolishment of the marketing boards, the important role it played in the
collection and dissemination of agricultural data went with it, leading to a decrease in the
supply of agricultural data, and in some cases a discontinuation, despite a substantial
increase in the need for data by decision-makers. Information economics studies show
how information affects economic decisions. Information is a unique input because it is
so easy to spread, but so hard to control. It is easy to create, but hard to trust. And it
influences many decisions. However, the special nature of information complicates
many standard economic theories. Information economics focuses on three areas: the
study of information asymmetries, the economics of information goods, and the
economics of information technology (Stiglitz, 2000).
Globalisation and the new information and communications technologies are fast
transforming all aspects of development and how information is shared. All farming,
whether large- or small-scale, requires an array of skills and knowledge. Farmers are
under increased pressure to diversify their output, adopt new farming systems, and
16
Chapter 2 - Literature Review
compete in national and global markets, but according to Stiglitz (2000), one of the
central aspects of less developed countries is that markets work less efficiently, including
'markets for information'. Information is an important commodity for rural people short
of access to financial resources. Yet information and associated technologies, whether
locally or externally sourced, are vital for making improvements to livelihoods and
economies. These can take many forms, including market information, technology
updates, policy signals and climate/weather summaries (Pretty, 2003).
Rural service providers also require access to relevant and timely information to support
farmers. Information and communication can bring benefits in all of these areas
(Treinen, 2003). Other aspects of behaviour within the rural sector of developing
countries that can be explained by information-theoretic models include the interlinked
transactions in labour, credit and land markets, as well as numerous features of credit
markets, most particularly, the success of micro-credit schemes based on peer monitoring
(Stiglitz, 2000).
However, provision of information alone does not guarantee that recipients will find it
useful or even understand it. Networks that are socially and culturally contextualised thus
need to be built on demand-side rather than supply-side principles (Pretty, 2003).
Decentralised networks for information technologies can therefore help in the sharing and
exchange of new ideas, advance understanding of the policy connections for rural
development, and build power amongst rural people to demand the information they
require (Pretty, 2003).
Differential access to information is one of the major explanations for the existence of
transaction costs. In this study, access to information is proxied by the average education
of the household, contact with extension services, proximity to roads and thus towns, and
the road conditions. Stiglitz (2000) found that proximity to the nearest town stimulated
horticultural sales, but discouraged a positive decision to participate in markets for other
field crops. Proximity was not significant for decision to participate in livestock and
17
Chapter 2 - Literature Review
maize markets. Proximity is important for horticultural crops though, since farmers need
to make decisions about selling their produce timeously. Another aspect is that a location
closer to the markets facilitates access to information. Contact with extension officers
also facilitated the decision to sell horticultural products, but did not do so for the other
commodities. Good road conditions were only an important factor in the decision to sell
other field crops, but did not play that role with respect to other commodities.
These results suggest that farmers who are presently not participating in the markets
might respond positively if they could have reasonable access to information about
markets. Access to information is possible when farmers are located closer to the
markets, and have appropriate contacts with their respective extension service.
Information systems for promo~ing market access have not been very clear and accessible
in South Africa. To encourage smallholder farmers to participate in high value markets,
information sources must definitely be created that are within farmers' reach (Magingxa,
2007).
The other role of information pertains to the increased level of market participation. This
is reflected in the existence of variable transaction costs. The role of access to
information through extension officers and the ability to interpret information is limited
to influencing the farmer's decision regarding whether to participate in the market. What
the farmer knows about the market is not pivotal in determining the level of sales
(Magingxa, 2007).
The second hypothesis of this study is that the more information these farmers have and
the more access to high-quality and timely information they have regarding production
and markets, the more successful they will be.
2.2.1.3 Technology
Expansion of the area cultivated or grazed was the main means of increasing agricultural
production before the industrialisation era. However, agricultural growth based on the
18
Chapter 2 - Literature Review
resource exploitation model was not sustainable over the long term because of the limited
supply of agricultural land and labour. Subsequently, alternative technologies were
developed to substitute for the limited land and labour. Hayami and Ruttan (1998)
formulated a model of agricultural development in which technical and institutional
change was treated as endogenous to the economic system. According to the model,
technologies are developed to substitute relatively abundant resources for scarce
resources. In agriculture, this predominantly translated into the development of
mechanical techniques for the substitution of labour, and biological and chemical
technology for the substitution of land. Mechanical technologies were designed to
substitute power and machinery for labour, and biological technology such as chemical
fertilisers, pesticides, husbandry practices, management systems etc. to substitute for
available land (Hayami and Ruttan, 1998).
By the early 1960s it became increasingly clear that much of agricultural technology was
location-specific. Techniques developed in advanced countries are not generally directly
transferable to less developed countries with different climates and different resource
endowments (Ruttan, 1998), and it can be confidently stated that the same is probably
true with smallholder and commercial agricultural sectors in South Africa.
More recently it has become evident that a transition to being more environmentally
friendly is needed. Critics of the green revolution argue that the gains from agricultural
intensification have come at too high a cost in terms of energy consumption and depletion
of natural resource stocks, and that it is not sustainable (Matson, Naylor and Ortiz-
Monasterio, 1998). The impact that agricultural intensification has on production itself is
of great concern to many environmentalists. The impact is especially true in developing
areas, such as the Taung area, where a lack of property rights and overpopulation causes
overgrazing of veldt and consequently, soil degradation. Soil erosion and degradation
have been widely regarded as major threats to sustainable growth in agricultural
production and it is projected that it will become even more severe constraints in the
future (Pimental et al., 1995a).
19
Chapter 2 - Literature Review
It is clear from the above discussions that technologies should be seen and developed
endogenously. The dualism of the agricultural sector in South Africa makes it a unique
case. Where the commercial sector has developed under the protection of large land
areas, technologies are skewed towards high levels of mechanisation and biotechnology.
The smallholder area (mainly situated in the former homelands) is, on the other hand,
characterised by high population densities and low levels of investment and modem
technologies. The farms are generally at subsistence level and lack the technologies to
become commercial and competitive farms in a competitive global environment
(Bembridge, 1999).
Relatively little research exists on traditional technology development for smallholder
farmers (e.g., Louise Fresco on Cassava fanning systems). In South Africa, indigenous
knowledge systems are poorly understood and their integration into modem agriculture is
practically non-existent. However, a few NGOs and universities in the former homelands
have recognised the value of traditional methods and have sought to find ways of both
developing and incorporating them into mainstream agricultural practice. While most of
this technology is aimed at the large-scale farming sector, there are spin-offs for
smallholders - for example, hybrid maize cultivars, bred ostensibly for large-scale
farmers, are also widely used on smallholder farms. However, new developments are
more likely to benefit the large-scale farming sector, as research and development
focuses on their specific needs (OettIe, Fakir, Wentze, Giddings and Whiteside, 1998).
The majority of research in the past was directed at transferring technologies without
acknowledging the socio-economic constraints for the environment. In the Taung
irrigation scheme, the decision was made in 1973 to convert the scheme to centre pivots
for various reasons, including managerial shortcomings. Subsequently, the DoA (2002)
at the time labelled the transition of the irrigation system to centre pivots 'to be a
mistake', because of the farmers' inability to operate the new technology. Since then the
scheme has come a long way, and now most of the farmers are capable of operating the
pivots.
20
Chapter 2 - Literature Review
2.2.1.4 Markets
According to Kherallah and Kirsten (2002), the universally agreed upon definition for
institutions encompasses a set of formal (political systems, laws, contracts, organisations,
markets, etc.) and informal (religions, norms, traditions, customs/value systems,
sociological trends, etc.) rules of conduct that aid co-ordination or govern relationships
between individuals or groups. In other words, institutions can be viewed as the
structural framework for social interaction, and they focus on conventions and rules as
coordinators of social behaviour and economic interaction. On the other hand, a market
is often defined as a medium whereby change of ownership for goods and services takes
place. To put it another way, markets exist to facilitate the transfer of ownership of
goods from one owner to another within a particular set of rules. According to Magingxa
(2007), a market can therefore be viewed as an institution.
Market access for smallholders is complicated by numerous internal and external
challenges. As the previous three headings have all touched on the subject of market
access, the constraints faced by small-scale farmers will be discussed in detail in the
following section.
The Marketing Act of 1937 has been regulating agricultural marketing in South Africa
for more than 50 years (Schmid, 1987). The Act entails that farmers were only to be
concerned with production since marketing was done via control boards that monopolised
the marketing process (Keegan, 1981; Murray, 1992; Sirnkins, 1981). The consequence
of this marketing system was a disincentive for farmers to acquire marketing skills due to
lack of practical opportunity to do so (Kritzinger; van Niekerk et aI., 1992). Nonetheless,
the year 1997 saw a turnaround of South African agricultural markets from regulated and
protected status to that of free market dispensation, a move in response to globalisation of
markets (Kritzinger; van Niekerk et al., 1992).
Much of the literature points to the pervasive imperfections that characterise markets in
the developing world. Studies conducted by the NAMC, Makura (1994, 2001) and
21
Chapter 2 - Literature Review
Matungal et al. (2001) identified the following major obstacles to entry into markets in
South Africa for smallholder agriculture:
o Management and basic business skills;
o Lack of information on prices and technologies;
o Communications;
o Roads and vehicles;
o Storage;
o Extension advice;
e Finance and credit;
Il) Bargaining power;
o Institutional capacity;
o Processing technology,
e High transaction costs, legislation and regulations.
In addition, with the increasing number of free trade agreements affecting both national
and international commodity markets, the smallholder farmer is being forced to compete
not only with their local cohorts, but also with farmers from other countries as well as
domestic and international agribusinesses (Makhura and Mokoena, 2003).
From the above it can be seen that access to markets is both an institutional and
technological problem and that they are mutually reinforcing.
2.2.1.4.1 Market access as a success factor
According to Magingxa (2007), varIOUSscholars focus on diverse issues that have a
possible influence on the success of smallholder irrigation projects, and certain issues
seem to be commonly acknowledged. A combination of factors has a role in influencing
the potential success of these activities. Lipton (1996) identified four reforms that have
helped many developing countries to increase growth in farm output and employment.
They involve land distribution, agricultural research, rural infrastructure and markets. He
22
Chapter 2 - Literature Review
goes further to say that labour-intensive farm growth tends both to increase nearby rural
non-farm growth and to improve food availability. Therefore, the four reforms advance
GNP growth while reducing poverty. De Lange (1994) identifies several issues that are
important for the success of small-scale irrigators in South Africa. These issues are
identified as appropriate technology, organisation, sufficient irrigation, management and
training.
According to Foremen and Livezey (2003) in a study conducted to determine factors
contributing to financial success, the ratio of government payments to total production
value, tenure, crop diversification, cost control, education, yield and debt-to-asset ratio
are significant factors influencing at least one financial success measure. They propose
that market access is one of the driving forces of agricultural commercialisation.
Muhammad, Tegegne and Ekanem (2004) included the following factors as probably
being influential in terms of the level of success achieved, namely: size and type of farm
operation; sources of information; importance of farm labour and off-farm income; use of
information technology; marketing practices and research, and extension and education
needs. Additionally, they also examined the plans for the outlook of the respondents.
Their results showed that more successful farmers use production systems that are
diverse, adopt measures to control costs and use marketing strategies that seek the highest
level of profit.
In Hau and von Oppen's study (2002), they present an analysis of the influence of market
access on agricultural productivity. Results indicated the significance of investments in
physical and institutional infrastructure of agricultural markets. It is emphasised that an
upgrading in market access can help stimulate market driving forces, and in turn
maximise the potential benefits of agricultural commercialisation by increasing incomes
and improving living standards in the rural areas of many developing countries. There
seems to be a general outlook that market access is one of the critical factors that
determine success of smallholder farming projects. This is a satisfactory view, even
among professionals working in developing countries. For example, presenting results of
an expert survey, Gabre-Madhin and Haggblade (2001) found that the main views on
23
Chapter 2 - Literature Review
determinants of success in African agriculture include technology, collaboration, markets
and a favourable policy environment and management. In this study, social scientists
chose markets and a favourable policy environment as being the most prominent
determinants of success.
2.2.1.5 Collective action
The concept of social capital is what best describes the term collective action. As Portes
(1998) observes, "Whereas economic capital is in people's bank accounts and human
capital is inside their heads, social capital inheres in the structure of their relationships".
The uniqueness of social capital is that it is relational. It exists only when it is shared.
Putnam (1993) therefore claims that "Social capital refers to features of social
organization, such as trust, norms and networks, that can improve the efficiency of
society, facilitating coordinating actions".
Social capital has been defined both at community level and at individual level. At
community level, the structural component of social capital has been defined in terms of
the density and diversity of associations within a community (Putnam, 1993; Narayan,
1997). The associational interactions in the community reflect the ability to coordinate,
monitor and hence solve a collective dilemma. At individual level, structural definitions
consider social capital as being embedded in the network of friends, relatives and
acquaintances an individual interacts with, and is based on norms of reciprocity (Lin,
1999; Fafchamps and Mitten, 1999; Glaeser, Laison and Sacerdote, 2001). Individual
social capital can be conceptualised as consisting of two components: (i) the private
component that is embedded in friends, relatives and acquaintances, and (ii) the public or
social component that is embedded in the community and flows from informal
community institutions (local associations).
As the literature demonstrates, information diffusion may be a function of social capital
(Conley and Udry, 2001; Collier, 1998), suggesting that potential adopters may lack
access to information from early adopters, which may in turn lead to differences in
24
Chapter 2 - Literature Review
adoption rates. Social capital may influence social learning and technology adoption in a
number of ways. Firstly, social capital reduces the cost of information acquisition since it
can be acquired passively during social interactions or actively from people who already
know each other. Secondly, social capital reduces the uncertainty about the reliability of
information. Information is likely to be given a higher value if it comes from trusted
people. Thirdly, social capital facilitates a willingness and cooperation in sharing
information, thereby revealing tacit information that would be difficult to exchange
otherwise (Yli Renko, Autio and Tontti, 2002). Social capital also reduces transaction
costs in a range of markets (such as output, labour and credit markets) that are endemic in
most developing economies (Fafchamps and Minten, 2001).
The economic function of social capital is to reduce the transaction costs associated with
formal coordination mechanisms such as contracts, hierarchies, bureaucratic rules and the
like. It is of course possible to achieve coordinated action among a group of people
possessing no social capital, but this would presumably entail additional transaction costs
of monitoring, negotiating, litigating and enforcing formal agreements. No contract can
possibly specify every contingency that may arise between the parties; most presuppose a
certain amount of goodwill that prevents the parties from taking advantage of unforeseen
loopholes (Fukuyama, 1999).
2.2.1.6 Property rights
Dernsetz (1967) defines property rights as the capacity to use or to control the use of an
asset or resource. He maintains that for any form of human cooperation to be workable,
especially those involving agreement, it requires clearly defined and enforced property
rights. The neoclassical model specifies that property is privately held and property
rights are exclusive and transferable on a voluntary basis. Since transaction costs are
assumed to be zero, these property rights can be fully defined, allocated and enforced,
and will be allocated to those uses where they yield the highest return (Royer, 1999).
According to Coase (1960), externalities can be internalised if property rights are well
established. In Coase's view, if property rights are well established and if there are not
25
Chapter 2 - Literature Review
transaction costs, an externality can be internalised between two private parties through
bargaining and negotiations. This is the essence of what has been labelled the 'Coase
Theorem'.
Keyfitz and Derfman (1991) state that there are 14 institutional and cultural requirements
necessary for the operation of an effective private market, and one of these is security of
persons and property. They further state that as a requisite for a properly functioning
marketing system, property rights should be clearly established and demarcated as well as
the procedures for establishing property rights and transferring them.
Property rights theory, also referred to as the incomplete contracting theory of the firm,
was developed by Grossman and Hart (1986), Hart and Moore (1990) and Hart (1995). It
is based on the assumption that contracts are necessarily incomplete (e.g., due to
asymmetric information between trading parties and bounded rationally), and thus do not
"fully specify the division of value in an exchange relationship for every contingency"
(Sykuta and Chaddad, 1999). Hence, ownership (the right of residual control) of the
assets involved in a transaction becomes critical in deciding how value is divided when a
(non-covered) contingency arises. Since transaction costs are positive, "the allocation
(and possible non-transferability) of property rights may have significant consequences
for economic organization, behaviour, and performance" (Sykuta and Chaddad, 1999).
There is widespread belief among development specialists that land tenure security is a
necessity but not a sufficient condition for economic development. Compared with weak
or insufficient property rights, tenure security (i) increases credit use through greater
incentives for investment, improved creditworthiness of projects, and enhanced collateral
value of land; (ii) increases land transactions, facilitating land transfers from less efficient
to more efficient users by increasing the certainty of contracts and lowering enforcement
costs; (iii) reduces the incidence of land disputes through clearer definition and
protection of rights and (iv) raises productivity through increased agricultural investment
(Prosterman et al., 1998).
26
Chapter 2 - Literature Review
Prosterman et al. (1998) state that in production, for product output to increase, tenure
security become a binding constraint. At some point of production, farmers will demand
high tenure security before undertaking fixed land improvements or investing in capital
intensive technology. Credit supply by informal lenders becomes limiting, while formal
lenders will require clear and transferable title before lending. It is doubtful whether the
transition to high value crops and a high capital/labour ratio can be achieved without land
tenure that confers right of sale, mortgage, and low cost transaction in the eyes of
creditors.
According to Tietenberg (2003), the structure of property rights that could produce
efficient allocations in a well-functioning market economy structure has three main
characteristics:
e Exclusivity - All benefits and costs accrued as a result of owning and using the
resources should accrue to the owner (and only the owner), either directly or
indirectly by sale to others.
o Transferability - All property rights should be transferable from one owner to
another in a voluntary exchange.
o Enforceability - Property rights should be secure from involuntary seizure or
encroachment by others.
2.2.1.7 Transaction cost economics
With all of the institutional constraints discussed, there has been an underlying theme
throughout, namely transaction costs in the respective institutions. Institutions are
transaction cost-minimising arrangements, which may change and evolve with changes in
the nature and sources of transaction costs. This work was pioneered by Coase (1937) in
his article 'The Nature of the Firm', where he argues that market exchange is not costless.
Coase underlines the important role of transaction costs in the organisation of firms and
other contracts (Coase, 1937). Transaction costs have been broadly defined by Steven
Cheung as any costs that are not conceivable in a 'Robinson Crusoe economy' - in other
words, any costs that arise due to the existence of institutions. Cheung (1987) stated that
27
Chapter 2 - Literature Review
transaction costs should be called institutional costs. Coase explains that firms emerge to
economise on the transaction costs of market exchange and that the 'boundary' of a firm,
in respect to the extent of vertical integration, will depend on the magnitude of these
transaction costs (Coase, ]937). Transaction costs originate typically from the following
activities (Eggertson, 1990, as cited in Makhura, 2001).
e The search for information about potential contracting parties and the price and
quality of the resources in which they have property rights; this includes personal
time, travel expenses and communication costs.
o The bargaining that is needed to find the true position of contracting parties,
especially when prices (including wages, interest rates, etc.) are not determined
exogenous Iy.
o The making of (formal and informal) contracts, that is, defining the obligations of
the contracting parties.
o The monitoring of contractual partners to see whether they abide by the terms of
the contract.
o The enforcement of the contract and the collection of damages when partners fail
to observe their contractual obligations.
Screening costs: These refer to the uncertainty about the reliability of potential
buyers' suppliers and the uncertainty about the actual quality of the goods.
o Transfer costs: These refer to the legal, extra-legal or physical constraints on the
movement and transfer of goods. This dimension commonly includes handling,
storage costs, transport costs, etc.
Farmers engaged in small-scale agriculture have limited access to factors of production,
credit and information, and markets are often constrained by inadequate property rights
and high transaction costs (Lyne, 1996). Generally, transaction costs can be explicit
(observable) and/or implicit (unobservable). Explicit transaction costs include transport
costs, for example bus fares, while implicit transaction costs include the opportunity cost
of time spent searching for new partners or customers, gathering market information,
travelling and waiting time (Gonzalez-Vega, 1993). When faced with high transaction
28
Chapter 2 - Literature Review
costs, small farmers may not realise the benefits of trade and consequently persist with
subsistence agriculture. The provision of physical and legal infrastructure, information
and education through extension, and agricultural research may lower transaction costs.
Achieving rural economic growth will require the participation of small-scale farmers in
various markets (Matungul, Lyne and Ortmann, 2002). Government policies, education,
knowledge and access to capital are important factors for Third World small-scale
farmers to consider when participating in markets. Therefore, policies are required ,
which affect rural marketing institutions, property rights and both physical and legal
infrastructure that deal effectively with transaction cost obstacles within the communal
areas of South Africa (Delgado, 1997).
2.2.2 Technical constraints
Technical constraints can be further divided into different factors such as inadequate
infrastructure, distance to markets, access to inputs, the lack of economies of scale,
extension services and a general lack of skills and experience (Pote and Obi, 2007).
2.2.2.1 Infrastructure
According to Torero and Chowdhurry (2005), development of the different rural
infrastructure services in Africa in the 1980s and 1990s was sector specific, with little or
no emphasis on cross-sectoral strategies. The common strategy among sectors was to
attract private capital and the users' contributions as the principal means of financing.
Although the sector-specific strategy worked in some countries and communities, it
largely failed to attract the necessary capital to build and maintain rural infrastructure.
For instance, some scholars have reported that the policy of leaving the rural transport
provision to the private sector was generally unsuccessful in sub-Saharan Africa. In most
cases, transportation markets remained uncompetitive and disproportionately dominated
by transportation unions, associations, and formal and informal cartels.
An implication for policy-making might be that investment in a good physical
infrastructure is of the essence if smallholder participation in the markets is to be
29
Chapter 2 - Literature Review
encouraged. Markets should be brought closer to the farmers in order to address the
problem of proximity to markets. This can be done by establishing market infrastructure
that includes collection points and/or a transport system. Farmers could deliver their
products to the nearby distribution points, from which the buyers or agents can collect the
products. This initiative could possibly be left in the hands of the private sector, but the
public sector could play a role in supporting the information transfer to farmers. There is
therefore a clear need for better managing of marketing, such that it can cater for market
information centres.
Better infrastructural development and effective support services (legal support for
contract enforcement, extension and research), coupled with more secure access to land,
are needed if small-scale farmers are to be integrated into the commercial agricultural
sector (Thomson, 1996).
A study done by Torero and Chowdhury for IFPRl (2005) indicated that rural households
in sub-Saharan Africa pay much higher transportation costs than rural households in
developing countries in Asia. This is equally true for passenger fares and freight charges.
For instance, a comparative study of rural transportation found that some African
countries' transportation charges were two to two and a half times more expensive than
those in Thailand, Pakistan and Sri Lanka. This makes distance to markets an important
Issue.
2.2.2.2 Distance to markets
Farmers near markets and on main roads could justify taking their products directl y to
markets because of reduced transportation costs and reduced time taken to carry the
products to the market. Lyne (1996) reported that KwaZulu-Natal homeland wards
furthest removed from markets and main roads were the poorest. Omamos (1998) study
in Kenya concluded that farmers' choice of food crop production with lower gross
income than cotton was due to cotton's high transportation costs. The long distances to
30
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Chapter 2 - Literature Review
cotton marketplaces and the bulkiness of cotton limited the transportation of large
quantities.
The distance from the market to the farm gate is generally integrated as an explicit cost in
the transaction cost economies discussed in 2.3.1.7. However, distance from the market
also has an implicit transaction cost as there is an opportunity cost of time spent
travelling to markets. The implicit costs are usually higher, suggesting that proximity to
institutions such as markets and banking facilities is crucial. The extent of these costs
depends on the degree of market organisation and the development of the physical and
institutional infrastructure (Gonzalez- Vega, 1993).
Rural households with different asset bases are likely to have different levels and
distribution of transaction costs. In regions with thin or non-existent markets, it is costly
to discover trading opportunities. Also, poor market access due to lack of transport and
distance, and barriers such as ethnicity, increase a household's cost of observing market
prices to make transaction decisions (Goetz, 1992).
2.2.2.3 Access to inputs
There has been widespread interest in recent years in farmer organisations as mechanisms
for supporting agricultural development and as an important means for smallholders to
access markets and services (Chirwa, Dorward, Kachule, Kwumwenda, Kydd, Poulton
and Stockbridge, 2005). Resource productivity can be improved through application of
external inputs or with internal resources. Given the high costs of agrochemical inputs,
poor farmers tend to rely on internal inputs (manure, fallow and cover crops). Economic
performance of such low external input systems has been disappointing due to their
generally high labour requirements. Only in rather remote regions with high population
density and low opportunity costs of labour, may exclusive reliance on internal inputs be
a feasible option. In other settings, a combination of internal and external inputs will be
more appropriate for raising factor productivity (Ruben, 2005).
31
Chapter 2 - Literature Review
The inaccessibility of seed, fertilisers and plant protection inputs are reported to hinder
yields. Use of poor quality seed does not enhance crop yields, while use of high yield
varieties significantly increases yields (Key, Sadooulet and Janvry, 2000). Cairns and Lea
(1990) reported that smallholders in KwaZul u-Natal increased their yields by 65 percent
when they used improved seed as opposed to traditional seeds.
Poor access to inputs affected the supply response of agricultural markets even if
smallholders had a positive perception of cash crops due to good prices, increased
demand and good extension support (Havens and Flinn, 1961; Poulton et al., 1998).
According to Jeje, Machungo, Howard, Strasberg, Tscherley, Crowford and Michael
(1998), and Poulton, Kydd and Dorward (1998), the private sector did not emerge to take
on the role of distributing inputs because of: (i) the poor demand for inputs due to high
input costs; (ii) high costs of transportation and distribution of inputs in dispersed
villages; (iii) lack of skilled and experienced traders to manage agrochemicals, and (iv)
the seasonal nature of the business.
2.2.2.4 Economies of scale
Given increasing market instability and competition, smallholder farmers need to become
more competitive, and build capacity to improve their market position. One way to
enhance such productivity is through the advantages of economies of scale (Bienabe and
Sautier,200S). Developing producers' organisations can help to achieve these economies
through pooling of credit, information, labour force and transportation means for selling
products and buying inputs. Bienabe and Sautier (2005) point out that such aggregation
of input activity, production, processing and marketing processes into larger economic
units, like farmers' associations or cooperative organisations, has been shown to improve
individuals smallholders' bargaining power and hence market position.
Bienabe and Saucier (2005) propose that collective marketing through rural producers'
organisations can be a means to overcome constraints faced by small-scale farmers,
including lack of capital, imperfect information, geographic dispersion, and poor
32
Chapter 2 - Literature Review
infrastructure and communications. These constraints are particularly apparent with State
withdrawal from productive activities, concurrent with a private sector that is still
underdeveloped. Acting collectively through farmers' associations, farmers can mitigate
transaction costs, and therefore accrue benefits from collective marketing.
Moll's (1988) study of commercial wheat and maize farms in South Africa suggests that
there are economies of scale across a range of sizes in the large-farm sectors. On grain
farms there may well be a minimum size for tractors to be used economically, but the
main advantage of large farms stems from owner-operators using their own labour over
larger areas. Moll suggests that if land were to be divided into farms at the lower end of
the large-farm range (about 50 ha), they would need support as they would be less
efficient than larger farms. Other studies suggest that observed economies of scale may
be attributed to 'managerial ability'; good farmers are able to acquire larger farms.
Efficiency is not simply a matter of scale: "A wide range of farm sizes in both extensive
and intensive commercial farming seems to be scale efficient, depending on how farmers
organize their specific variable and fixed input mix, as well as the combination of outputs
they produce" (Moll, 1988).
2.2.2.5 Extension services
Extension services link directly to the supply of information. It is pertinent that extension
systems should be able to supply the farmers with adequate marketing information. Thus
I
it is recommended that Government, in particular, consider introducing extension officers
who are specialised in marketing into the extension system. Naturally this would require
the training of these officers through formal college education and in the in-service
context. With extension officers gathering and dispersing market information, the benefit
of such investments would be an increased market participation of smallholder farmers
(Muhammad, Tegegne and Ekanem, 2004).
Owens, Hoddinott and Kinsey (200]) examined the impact of agricultural extension on
farm production in resettlement areas of Zimbabwe. Their data provided statistical
33
Chapter 2 - Literature Review
evidence that farm-level extension visits increased productivity, even after controlling for
innate productivity characteristics and farmer ability. It was found that having one or two
extension visits increased net crop incomes in the three non-drought years. For the
drought year, one or two visits had either no effect or a negative effect on production.
Farmers may have received technical advice early and thus have fertilised their crops in
anticipation of early rains, only to suffer losses due to the drought. Those who received
three or more visits, however, got additional advice in a later visit that advised them not
to top-dress their crops and to plant additional plots of unfertilised crop following
sporadic rains. The latter had higher levels of crop production.
2.2.2.6 Lack of skills, experience and education
Literacy was generally acknowledged to positively influence smallholders' agricultural
market participation. Some of the reasons that helped literate households to cultivate and
participate in the market were attributed to: (i) an enhanced ability to receive, decode and
understand information from print and mass media channels; (ii) easy contact with
outsiders; (iii) understanding of concepts related to causality, arithmetic, weights and
measures that increased the ability to conceptualise abstract ideas; (iv) improved
managerial ability, and v) sensibility regarding science and technology (Mook, 1981;
Feder, Just and Zilberman, 1985; Masuku, Makhura and Rwelamira, 2001).
Highly literate households could access and utilise information at lower costs than non-
educated households (Makhura, 2001). Mook (1981) suggested that the difference in
adoption between the educated and non-educated declined with increasing extension
contact or provision of information. According to Feder et al. (1985), education had no
impact on adoption of crops in regions with traditional agricultural practices.
Kinsey and Binswanger (1993) presented a review of the performance resettlement
programmes in Kenya, Indonesia, Malaysia and Zimbabwe. They identify critical
success factors from the experiences of farmers in these countries as age, education,
family labour force, marital status, capital assets, and farming experience and skills. In
34
Chapter 2 - Literature Review
terms of education, the authors say there is strong evidence that better-educated settlers in
these countries are more successful. Farming experience and skills are strong predictors
of good performance.
2.3 Contract farming as a means of overcoming constraints
Efforts to develop the agricultural sector in developing countries are now taking place
against the background of major structural change in the world agricultural industry. The
changing nature of agriculture has opened opportunities for contract farming or
contractual relations in developing country agriculture. In developed countries, contracts
have almost become a standard feature of agriculture. The following section presents an
overview of contract farming in both developing and developed countries. Relevant
literature also presents the advantages and disadvantages to both producers and
institutions.
2.3.1 Background
Agricultural production in many developed countries is altering from being an industry
dominated by family-operated, small-scale farms or firms to one of larger firms that are
more narrowly aligned across the production and distribution value chain (Boehlje,
2000). Additionally, the trend of market-orientated reforms, following multilateral trade
liberalisation and particularly structural adjustment programmes in developing countries,
has led to the augmented integration of world markets (Reardon & Barrett, 2000). Thus,
farmers in the developing world are now, more than ever, linked to consumers and
corporations of the wealthy nations. Although most of the changes in agricultural and
food markets are taking place in developed countries, they have far-reaching implications
for agricultural development efforts in developing countries.
According to Kirsten and Sartorius van Bach (2002), the changes in food and agricultural
markets (the so-called industrialisation of agriculture) have influenced the need for higher
levels of managed coordination. This led to the introduction of different forms of vertical
integration and alliances, which have become a dominant feature of agricultural supply
35
Chapter 2 - Literature Review
chains. Similarly, there has been a global increase in consumer demand for differentiated
agricultural products that are relatively labour intensive (Rhodes, 1993; Royer, 1995;
Pasour, 1998). However, it is mostly the skilled and well-endowed that have the ability to
be part of these coordinated marketing chains and alliances. Therefore, there is a danger
that the requirements, quality standards and food safety rules of the consumers and
corporations (supermarkets) in the developed countries can act as effective barriers to
small exporters' participation in the high-value chains and, to some extent, small
producers. Only a small number of farmers in developing countries have the ability and
luxury to be part of these lucrative markets and the reward for them is substantial
(Kirsten and Sartorius von Bach, 2002).
Contract farming is considered to be a system that has significant potential for providing
a way to integrate small-scale farmers in developing countries into export and processing
markets as well as into the modern economy. In Africa, contract farming is believed to
help farmers by providing new technology, ready markets and secured inputs and prices.
Further, contract farming offers a mechanism that ensures self-sustained development
(Glover, 1987; Weatherspoon et aI., 2001).
2.3.2 Earlier experiences of contract farming
As an institution in agriculture, contract farming has a long history. Various forms of this
institutional arrangement were employed by United States multinationals in Central
America at the beginning of the 20th century, and by the Japanese to secure sugar
production in Taiwan from 1885 (Runs ten and Key, 1996; Rehber, 1998). In the period of
1930-1950, contracting was increasingl y implemented in many food and fibre sectors.
The fruit and vegetable canning sectors expanded in the United States and Europe (Little
and Watts, 1994; Clapp, 1994), and merchants in Europe and North America entered into
seed production contracts with growers in Australia, Britain, Canada, France, Holland,
Hungary and the United States (Watts, 1994). From the late 1950s, Mexican growers
increasingly supplied the American markets with fruit and vegetables under contract
(Watts, 1994), and in the period of 1960-1980 there was a momentous increase in
36
Chapter 2 - Literature Review
contracting for vegetables, fruit, nuts and seed crops (Kilmer, 1986). By the late 20th
century, contract farming was widespread across Western Europe, the United States and
Japan (Rehber, 1998). Contract farming is now a common organisational structure in
many developed countries.
Contract farming also spread rapidly in Asia, Latin America and Africa owing to the
higher returns earned by high-value export crops and the impact of new technologies
(Clapp, 1994; Eieher and Staatz, 1998). Contract farming in Latin America has been
extensively promoted since 1945 in a series of import substitution programmes, and has a
much longer history than it does in Africa (Clapp, 1994; Little and Watts, 1994; Daddieh,
1994; Runsten and Key, .1996). In the period of 1930-1950, contracting expanded in the
fruit and vegetable canning sectors of colonial Africa (Little & Watts, 1994) and was
followed by a swift increase in the period of 1975-1985, with some 60 schemes operating
in ]6 countries (Carney, 1988; Watts, 1994; Little, 1994; Eicher and Staatz, 1998). South
Africa has a long history of farming under contract, which includes a wide range of
sharecropping arrangements dating back to the early 20th century (Bundy, 1979).
Vertical coordination arrangements currently exist in the tea, fruit, sugar, flower, cotton,
vegetable, timber, fishing and tobacco sectors (Levin, 1988; Porter and Phillips-Howard,
1997; Van Rooyen, 1999; Karaan, 1999).
Contract farming regularly involves a large number of variations and several objectives,
which include political, welfare, social and economic criteria. Generally, this organisation
takes the form of a central processing or exporting unit that purchases independent
farmers' harvests (Eaton & Shepherd, 2001). The terms of the purchase are arranged
through contracts that vary from case to case, and they are usually signed at planting
time. Often, the organisation provides inputs, credit, farm machinery and technical advice
to the farmers in return for the commodity they produce (Glover, 1994; Grosh, 1994;
Eaton and Shepherd, 2001).
Morvaridi (1995) states that, in some situations, the structure of the contract is based on
the farmer's access to key resources such as water, while in others the producer does not
37
L __
· Chapter 2 - Literature Review
even own the intermediate product, which remains the property of the organisation. In
contracts such as these, the organisation uses the facilities and labour of the farmer, who
is paid a fee for the provision of the facilities and services. This type of contract can
ensure that the technology incorporated in the intermediate product supplied by the
farmer is retained exclusively by the organisation (Martin, 1999; Goodhue, 1999). In
addition, many contracts incorporate some form of credit arrangement (Wolz and Kirsch,
1999).
Contract farming in developing countries has experienced a mixed fortune, yielding little
success and many failures (cf. Little and Watts, 1994; Jaffee, 1994; Glover, 1984;
Runsten and Key, 1996). Jaffee (1994), for example, talks of the 'rocky road' of contract
farming in Kenya. Several studies (cf. Minot, 1986; Glover, 1984, 1987, ]994; Glover
and Kusterer, 1990; Jaffee, 1994; Little and Watts, 1994; Porter and Phillips-Howard,
1997; Runsten and Key, 1996; Eaton and Shepherd, 2001) have analysed the nature and
performance of contract farming schemes in developing countries. These studies contain
valuable reviews of the various case study literatures regarding contract farming schemes
in the developing world. Many studies on contract farming also came from
anthropologists, political economists, sociologists and geographers (Grosh, 1994). This
-
literature is mostly dominated by questions related to the reliance and world systems
approach, and criticises contract farming for being an institution that leads to an increase
in the marginalisation of farmers and communities that do not participate in contracting
(Korovkin, 1992; Watts, 1994; Little, 1994). In this respect, it is argued that technological
advances are passed on to the minority, resulting in uneven benefits that do not
necessarily suit the needs of the developing country concerned (Meliczek, 2000).
According to Little (1994), there is evidence of an increase in landlessness as a result of
contract farming's expanding land requirements. Contract farming in Africa has been
observed to disrupt power relations within farm households, to develop an unequal power
relationship with growers, and to lead to growers becoming overly dependent on their
contracts (Key and Runsten, 1999).
38
Chapter 2 - Literature Review
Kirsten and Sartorius von Bach (2002) emphasise that the main lessons from the
experience with contract farming reveal a number of factors that determine the success of
contract farming ventures. In general, it can be argued that the chances of success will be
enhanced if the following measures are taken:
e The farmer partners should be screened properly.
o The country-specific historical and institutional legacies that have shaped local
conditions should be taken into account in project design.
o Commodities requiring more labour-intensive production techniques should be
selected. A crop that requires low levels of mechanisation and high labour inputs
may not be suited to large producers, who could have the same labour and
supervision problems as plantations. The production of a commodity that is
delicate, highly perishable, involves a high level of labour inputs and a low level
of mechanisation, and that needs a high degree of coordination, technology inputs
and tight quality specificity, is better suited to contract farming involving small
farmers.
o One should select crops displaying a high value per hectare, as well as requiring
post-harvest facilities that are not feasible for the farmer. Commodities with high
transaction marketing and processing costs and with economies of scale higher in
the marketing chain are the crops ideally suited for some form of vertical
integration, such as contract farming.
Cl Mutual asset specificity between the contracting partners should be incorporated,
thus raising the exit costs for both partners and ensuring a much more stable and
sustainable relationship.
e The location and concentration of growers in relationship to the location of the
organisation and other logistical factors should be optimised. If a competitive
local market is present, contracted farmers may choose to sell to the fresh market
instead of the contracting firm, who is often unable to legally enforce contractual
obligations. Serious disruption to input supplies to farmers can result in such a
situation.
39
Chapter 2 - Literature Review
6) The legal system should be well-developed, strong and respected, ensuring
contract enforcement at minimal costs.
e Contractual relations should be well managed and based on mutual trust. The
perceived high levels of contract manipulation by agribusiness firms, distrust by
farmers of the contractual relationship, and a perception of loss of autonomy have
characterised contract farming in developing countries. Removing all elements of
mistrust and establishing trustworthy relationships are important measures for
success.
o Farmer interests should be well represented in contract negotiations. In this
respect, the formation of farmer cooperatives in a contract farming arrangement is
seen as the most cost-effective way to represent the interests of the contracted
farmer, as well as for the integrator to deliver inputs and services to the individual
farms.
o Organisations should play a key role in coordinating farmers' access to a range of
inputs, services and facilities. These could include promoting literacy, improving
business skills, fostering farmer links with agribusiness and banks, and
establishing a facility for resolving conflicts, infrastructure development, etc.
2.3.3 Advantages and disadvantages of contract farming
2.3.3.1 Advantages to producers
Donors' interest regarding the benefits of contracting in developing countries has resulted
in overstated expectations of the potential of this institution (Little, 1994). However,
benefits to the farmer do exist, as discussed below. Contracting allows farmers to
overcome the barriers of entry into specific sectors.
Generally, farmers enter into contract production in order to reduce cost and gain access
to information, technology, marketing channels, managerial skills, technical expertise,
access to plants and equipment and patented production procedures (Carney, 1988;
Rhodes, 1993; Glover, 1994; Clapp, ]994; Jackson and Cheater, 1994; Little, 1994;
Royer, 1995; Pasour, 1998; Delgado, 1999; Vellema, 2000).
40
Chapter 2 - Literature Review
Hudson (2000) states that contracting could improve access to capital and credit. This is a
major concern for the majority of farmers and particularly so in developing countries.
Farmers are prepared to surrender their self-sufficiency for the sake of being able to
produce. Contracting farmers can decrease production costs and enhance production and
income as a result of their use of new technology and their access to organisational inputs
(Watts, 1994; Clapp, 1994). The reduction in cost is due to better technology, better
collective decisions, reduced transport and marketing costs (Hennessy, 1996; Pasour,
1998), and low-cost inputs from the integrator, all of which facilitate the ability to
increase economies of scale (Royer, 1995) or technology developed by the integrator
(Pasour, 1998).
Contracting farmers reduces marketing risk and stabilises income, and the integrator
provides a form of insurance (Featherstone and Sherrick, 1992; Watts, 1994; Jackson &
Cheater, 1994; Runsten and Key, 1996; Wolz and Kirsch, 1999; Flaskerud and KIenow,
]999; Martin, 1999; Colchao, 1999; Sofranko et al., 2000). Simultaneously, contracts
may simplify production and marketing decisions, thus improving the farmer's
effectiveness (Hudson, 2000). The reduction of marketing risk through the demand
assurance embodied in a contract is also appealing to farmers, especially those producing
products for which the markets are scarce.
According to Pasour (1998), contracting farmers in developing countries can enhance
profit opportunities through a larger product range and differentiated products, or by
diversifying out of traditional crops in order to grow high-value crops and thereby
increase their income (Williams, 1985; Levin, 1988; Korovkin, 1992; Glover, ] 994; Van
Braun and Immink, 1994; Kennedy, 1994; Delgado, 1999; Coulter et al., ]999). There is
extensive evidence of an improvement in farmer income in developing countries as a
result of contracting (Levin, ]988; Clapp, ]994), although the effect of an increase in
production costs is sometimes not considered when evaluating the incidence of increased
income (Little, 1994).
41
Chapter 2 - Literature Review
Conclusively, the educational experience of interacting with an institutional partner can
provide a platform for farmers in developing countries who are attempting to convert
from subsistence to commercial farming (Glover, 1984, 1994; Sofranko et al., 2000).
2.3.3.2 Disadvantages to producers
Kirsten and Sartorius von Bach (2002) state that the critique against contract farming
schemes refers to the disadvantages incurred by the farmers entrenched in the contractual
arrangements. These disadvantages include farmers' loss of self-sufficiency, increased
production risk, increased market power of organisations, increased concentration of
production and, in certain instances, reduced producer income.
A common loss of self-sufficiency occurs as farmers operate under a central ised control
system (Schrader, 1986; Currie and Ray, 1986; Levin, 1988; Korovkin, 1992; Morvaridi,
1995; Pasour, 1998; Rehber, 1998; Wolz and Kirsch, 1999; Colchao, 1999; Sofranko et
al., 2000) and the contracted farmer is sometimes reduced to little more than a hired hand
(Clapp, 1994). On the contrary, it can be argued that the independent farmer who is
heavily indebted has much the same status (Watts, 1994). It is also said that producers are
disadvantaged by the high level of manipulation of the contract, in terms of both the legal
and unspoken arrangements (Glover, 1984, 1987; Porter and Phillips-Howard, 1997), and
by the fact that contracting undermines traditional structures and support systems
(Korovkin, 1992). Additionally, contracting is often associated with higher levels of
family conflict (Watts, 1994).
Runsten and Key (1996) state that contracting generally increases land-use intensity and
can lead to higher levels of pollution. Contract farming in developing countries can result
in decreased food production and increased food security problems as a result of the
concentration on contract crops (Glover, 1994; Clapp, 1994; Morvaridi. ] 995; Rehber,
] 998).
It is generally accepted that prices paid to the contractor will be less than spot market
prices because of the reduction in marketing risk to the farmer and the increased market
42
Chapter 2 - Literature Review
power of the contracting organisation, which results in reduced income for farmers
(Pasour, 1998). This situation might particularly penalise a contracted farmer with high
levels of capitalisation and managerial skills where an open market exists for the same
crop (Runsten and Key, 1996; Rehber, 1998). Furthermore, contract production
frequently involves a high-cost package of inputs that require financing facilities. The
change in cost structure is especially marked in developing countries when farmers
diversify out of traditional crops, and can negate the effect of increased revenue (Von
Braun and Immink, 1994; Little, 1994).
Farmers incur additional cost because of the need to coordinate their production to suit
the integrator, as well as to liaise for the use of company inputs and services (Glover,
1987).
2.3.3.3 Advantages to institutions
The benefits for the organisational firm ansirig from a contract-farming venture are
mainly around cost reduction, quality control and reduced uncertainty with regard to the
supply of raw material. Cost is reduced as a result of a more synchronised input-output
processing function (Kilmer, 1986; Azzam, 1996) and the cost and financing of
production are passed on to the farmer (Schrader, 1986) without the loss of control
(Rhodes, 1993). The organisation can ensure that the quality of large volumes of the raw
commodity is better controlled (King, 1992; Featherstone and Sherrick, 1992; Goodhue,
1999) and that the company's technology is adopted properly by the producer (Leathers,
1999). An additional advantage to the organisation is the ability to reduce the cost of the
raw commodity supplied by the contracted farmer through assuming the marketing risk of
the farmer and thus reducing related farmer marketing and transport costs (Glover, 1984;
Kurnar, 1995). Due to a reasonably stronger bargaining position in the contractual
arrangement, the organisation is able to influence favourable farmer commodity prices
(Delgado, ]999). Contracting thus removes the production risk to the farmer and
eliminates the uncertainty regarding large volumes of input (raw material) supply (Levin,
43
Chapter 2 - Literature Review
1988; Korovkin, 1992). Because the quality of inputs is more consistent, the risk of
displeased consumers is reduced (Pas our, 1998; Rehber, 1998; Wolz and Kirsch, 1999).
Advantages that are specific to agribusiness firms in developing countries are the
substantial political economy gains as a result of involvement in national development
projects, or because the government is a party to the contracting arrangement (Hayami,
1990; Binswanger et aI., 1993; Watts, 1994; Little, 1994). The latter can translate into
more tangible economic benefits resulting from government intervention or low-cost
credit (Clapp, 1994; Morvaridi, 1995). Conclusively, organisational firms in developing
countries that are not allowed to own land can overcome this constraint by contract
farming with local farmers. This happened in many parts of Latin America: multinational
agribusiness firms used contract farming to secure a constant flow of commodities for
their processing and export ventures (Runsten and Key, 1996).
2.3.3.4 Disadvantages to institutions
The high level of transaction costs is a primary disadvantage often related with contract
farming in developing countries. Transaction costs are often excessive in projects
involving large numbers of small farmers who are spatially dispersed (Key and Runsten,
1999).
Excessive transaction costs are generated as a result of the structuring, administering and
enforcing of the large number of contracts (Barry et al., 1992). Thus, the integrator incurs
additional supervision and monitoring costs along with the costly delivery of services and
inputs to farms that are small and spatially dispersed. Incidentally, it is estimated that
dealing with larger farmers, who make less use of inputs and deliver in greater volumes,
results in lower levels of transaction costs. Coulter et al. (1999) refer to an example of
horticultural exporters in Zimbabwe who pay their smallholder suppliers 30 per cent of
the price per kilogramme paid to the large-scale farmers in order to break even.
Contracting firms could easily (and usually do) deal with larger growers, which makes
44
Chapter 2 - Literature Review
the relationship much more profitable, but this contributes to many smallholders being
shut out from production.
Evidence is already emerging that agribusiness firms prefer to deal with larger farmers in
order to reduce transaction costs and achieve greater consistency of quality and supply. In
the United States, for example, contract farms are significantly bigger than non-contract
farms (Sofranko et al., 2000) and, if the raw commodity offers economies of scale and is
not labour intensive, large farmers have a production advantage (Glover, 1984; Runsten
and Key, 1996).
2.4 Success in smallholder irrigation farming
Magingxa (2007) stated that assessment trends largely support the concept that the
process of economic growth depends mainly on entrepreneurship. Within
entrepreneurship literature, three main factors of capital have been recognised as essential
elements of the entrepreneurial process - human, financial and social capital. From an
entrepreneurial perspective, human capital consists of the skills, experience and education
an entrepreneur brings to the venture; financial capital includes debt or equity funds an
entrepreneur has available for venture start-up, and social capital encompasses family
members, social networks, connections etc. that may potentially be helpful with respect
to establishing a business (Marshall and Peake, 2005). They go further to say that human
capital is the most accessible in terms of assistance strategies. As a result, those
concerned with small business development spend a great deal of time developing this
capital. Evidently, these components of human capital form part of essential
characteristics that influence the potential success of smallholder irrigators. Rauch and
Frese (2000) also support this argument when they say that human capital of small
business owners constitutes an important factor of small business success. They
highlight the aspects of knowledge and skills of the business owners as being helpful in
running a business and learning more about it. According to Magingxa (2007), most of
the literature on entrepreneurship is not specific to small-scale irrigation management but
the main beliefs are applicable to them.
45
Chapter 2 - Literature Review
Contributing to this discussion, Blackman, Hurd, and Timo (2000) emphasise three
characteristics that are generall y found in entrepreneurial individuals. These
characteristics are innovation, creativity and the need to achieve. The conclusion to their
study shows that respondents who scored higher in these characteristics were more
entrepreneurial than their counterparts.
Concluding the discussion, Nel, Botha and Groenewald (1998) advance that the
relationship between managerial ability and farming success has been renowned ever
since Agricultural Economics and Farm Management emerged as academic disciplines.
They recommend that this relationship should be borne in mind when efforts are made to
settle new farmers on land. They argue that it is essential for farmers established on land
to farm successfully and to become financially independent. Again, this argument is as
much relevant to new farmer settlements as it is to existing irrigation schemes.
2.5 Conclusion
The review displayed the constraints smallholder farmers face. A strong link exists
between poverty elimination and agricultural development. Rooted in this line of reason
is the acknowledgement that increased food production also leads to enhanced income
generation opportunities. Thus, small-scale farmers need proper management of their
farming enterprises so as to ensure the desired outcomes. Success in smallholder
irrigation depends on a number of factors. On one hand it is the characteristics of
individual farmers. These are mainly related to and influence the managerial ability of
the farmer. On the other hand, the success of irrigation projects depends on a number of
conditions that have to be favourable. These include farm level issues and the farming
environment in general. Amongst these factors, market access is increasingly being
realised as critical. Rural incomes will not be substantially increased by exclusive
emphasis on subsistence food crop production; rather, more market-oriented production
systems are needed. These require the intensification of agricultural production systems,
increased commercialization and specialization in higher-value crops. And these must be
built upon the establishment of efficient and well-functioning markets and trade systems
46
Chapter 2 - Literature Review
- ones that keep transaction costs low, minimize risk and extend information to all
players, and that do not either exclude, or work contrary to the interests of, the poor -
particularly those living in areas of marginal productivity and weak infrastructure (IFAD,
2003).
The Global Forum on Agricultural Research (2005) identified seven key success factors
regarding how the poor smallholder farmers can benefit from growth in markets, and this
can be generalised for most smallholder farmers in South Africa as well:
o Willingness and capacity of farmers to organise for collective action. It was felt
that in order to overcome the challenges and risks posed by high-value markets, it
is critical for farmers to organise collectively for input and output markets,
advocacy and other functions, and to link with other actors of the chain, the
principle being that smallholder farmers are defined by their limited assets.
e Ability to access technical and training assistance and organisational advice.
This is a key factor that can be included in each of the other key factors listed.
This explicit mentioning of the point results from its importance and the
continued need for it in smallholder farmers' organisations that are involved in
supply chains.
o Credible facilitating agents (extension officers) to encourage market linkages and
build trust among actors. Third party facilitation is often required to build
effective farmer-buyer linkages. This targeted short-term intervention is designed
to create effective and efficient communication and coordination along the supply
chain.
Access to credible market information and intelligence. Small-scale fanners need
to know what to produce to access markets, but they also need to know where,
when and how to sell their products.
Access to affordable finance. Tools to access credit which IS affordable and
reliable can be crucial at all stages in the chain.
47
Chapter 2 - Literature Review
Local motivation and entrepreneurial skills within the community. Entrepreneurial
skills are, at least to some members of the local community, a necessary
requirement.
Consistent and supportive policies to create development. Enabling environments
entail more than governmental infrastructure issues. Pro-poor policies entail
changing policies that create bottlenecks in supply chains, thus creating a socio-
political environment with an emphasis on food security through rural business
development.
Literature suggests that contract farming provides a basis for the development of the
seven key factors mentioned. By implementing this strategy small-scale farmers can
benefit from growth in markets and participate in the mainstream economy. But before
embarking on analysing this task, it is important to put the study in context by describing
the study area that was covered in this exercise.
48
CHAPTER3
DESCRIPTION OF THE STUDY AREA
3.1 Introduction
The North West Province is one of the smallest provinces of South Africa, with a surface
area covering about 11 632km2. This makes it the sixth largest province in the country.
The province was formed in 1994 after the first democratic elections of South Africa, by
joining the former Western Transvaal, the Cape Province, the Vryburg district and part of
the former Bophuthatswana homelands (Martin, 1999). The Province is bordered by
Botswana in the North, the Free State and Northern Cape Province in the South and the
Limpopo and Gauteng Province in the North- West (see Fig. 3.1). The province has four
distinct ecological zones: the Highveld in the south-east, the Bushveld in the north-west,
the Kalahari Desert in the west and the Middieveld, which is a narrow zone between the
Highveld and the Bushveld.
~" ,..., Gaborone
I I o IM
BOT WANA
Sun CIty
Z..erust Phokeng Brits
[.....] Ru!'ter,burg Ha;tb ....spoort
SlfI.brtruggerls
Mafikeng Pretoria
ti A G AL lESE: B R G
Lichtenburg
Johannesburg
Coligny
Potchefstroom
Klerksdorp ,
Vryburg
Nl
W'olm ,..nsstad
SOhltlE'IZE-r6
R..n e lt.e
Taung .=,.,"'_....,_ 1"'" HAL
[ SOUTH
AFRICA
Figure 3.1: Map of the North West Province
Source: ARC (2008)
Chapter 3 - Taung irrigation scheme
The Greater Taung Municipality is located in the South of the province and is a typical
rural municipality consisting of 106 villages, with only 7.2% of its 201 683 residents
urbanised. The majority (53%) of its municipal population is female, and the
municipality has the highest population density within the Bophirima district, which
spans almost 36km2. The current unemployment rate of 65% is very high. More than
97% of the inhabitants in Greater Taung earn less than R1600.00 per month. The
minimum level to survive was determined at RllOO.OO in 2005 (StatSA, 2007).
3.2 The past and present situation of the Taung small-scale farmers
A review of smallholder irrigation development in South Africa revealed the phenomenal
and innovative actions taken in the North West Province to irrigate communal arable
lands that were managed under a mixture of tribal tenure systems and freehold with a
highly sophisticated irrigation infrastructure (Van Averbeke and Mohamed, 2006). The
Bureau for Food and Agricultural Policy (2008) has completed an assessment of the
scheme undertaken during that era and has produced a comprehensive document that
provides insight into the scheme in terms of its objectives, scope, operational details and
problems.
According to Seshoka, de Lange and Faysse (2004), the irrigation scheme was
established on land that existed under communal tenure arrangements, whereby user
rights were allocated by the tribal leadership on a hereditary basis. The particular scheme
analysed for this study comprises of 4000-5000ha of communal arable land which has.
been partitioned among 411 farmers who do not have to pay anything for the user rights,
which is in keeping with the precepts of the communal tenure systems prevailing in the
traditional black areas of the country.
The scheme has a long and varied history. According to Seshoka, de Lange and Faysse
(2004), during the nineteen-thirties and forties, almost 2000 farmers were settled on ].7
ha plots in blocks of 25 hectares. Each of these 25 hectare blocks had its own flood
irrigation dam. Subsistence farming was the order of the day on the 1.7 ha plots, and
maize and pumpkins were the preferred crops. A few plot holders attempted wheat
50
Chapter 3 - Taung irrigation scheme
production. Unavailability of a ready supply of inputs, lack of production credit, water
logging and salinity led to many plots being abandoned and overrun by weeds. The
Taung farmers were settled on the land according to a government proclamation (No. 4 of
1943) with regards to the Native Trust and Land Act (Act No. 18 of 1936). Candidate
farmers were selected from the rural communities by tribal/communal leaders in
cooperation with the public agencies created for agricultural development within the self-
governing homeland (Seshoka, de Lange and Faysse, 2004).
In 1974, 200 hectares of unused land was developed in a project that installed pivots and
gave farmers 10 ha of irrigation land under each of the pivots that covered an area of 40
hectares. There were thus four farmers under one centre pivot. The success of this
project provided the impetus to revitalise the whole scheme. An agricultural cooperative
named Lesedi was formed. Although Lesedi provided production credit to farmers and
farmers delivered their produce to Lesedi, it had no legal status as a cooperative and
became known as the Lesedi Trust among the locals. The farmers were organised as
farmer associations in small, localised groups. The Lesedi cooperative and Agricor (a
commercial agricultural cooperative) joined forces in 1978, and in the next decade, 244
farmers were settled on 10 ha plots under a centre pivot covering 40 hectares; l39
farmers were settled on 7.5 ha plots under sprinkler irrigation and 26 farmers under flood
irrigation (Seshoka, de Lange and Faysse, 2004).
In 1984 a serious drought affected the scheme and water allocation was cut by 50%. Not
only did this cause a direct loss in income but it also exposed some inherent flaws in both
the conception and operation of the scheme as a whole (Seshoka, de Lange and Faysse,
2004).
Lesedi was responsible for the management and maintenance of all project activities.
They determined the overall cropping programme and allocated this to the primary
cooperatives. Through their section managers, they monitored the implementation of this
programme. This led to a perception that the farmers were simply labourers on their own
plots. Agricor took over the operational side of Lesedi' s functions whilst the latter
uv . Uf!S
51 BLO£MF.~T~
IIMR1Jn~·:~~~
Chapter 3 - Taung irrigation scheme
retained responsibility for financing production, input supplies and marketing (Seshoka,
de Lange and Faysse, 2004).
3.3 Taung irrigation scheme at present
The irrigation scheme currently still consists of 411 farmers, as when it started. The
scheme is divided into five sections, namely Bosele, Rethuseng, Tshidiso, Ipelegeng and
Areageng (aka Pudimoe). Of these five subdivisions, only Rethuseng is under sprinkler
irrigation, while the others are under centre pivot irrigation. The areas under irrigation
are roughly shown in Figure 3.2 below. Bosele is represented by area E in the figure and
has 94 farmers on 940 hectares; Tshidiso is represented by area D and has 56 farmers on
560 hectares; Ipelegeng is represented by area C and has 35 farmers on 350 hectares;
Areageng is represented in area A, and has 64 farmers on 640 hectares. Finally,
Rethuseng is represented by area F and has 161 farmers on 1054 hectares. The
composition of the scheme consists of 52x40 ha, 2x30 ha, 16x20 ha and 3xlO ha pivots,
and the remaining hectares are comprised of sprinkler irrigation covering 987 ha and 41
ha under dragline irrigation.
Lack of ownership rights implies that the productive land cannot be used as collateral,
which restricts farmers' access to credit. Agri-bank, the agricultural bank operating in
the area and backed by government, stopped providing unsecured production loans to
clients whose existing loan accounts were in arrears (Erasmus, 2008). Since no other
South African credit provider was prepared to extend unsecured loans to the developing
agricultural sector, a large percentage of the Taung farmers could not secure the credit
they needed to plant barley (BFAB, 2008). Another problem caused by state ownership
of the land is that it is unclear who is ultimately responsible for paying the irrigation
scheme's water and electricity bill. Because the farmers are not landowners, no end user
agreements could be signed between Eskom (electricity supplier) and the farmers. While
the provincial Department of Agriculture is meant to facilitate the payment process by
allocating the costs of electricity to the individual farmers, this process is burdened by
difficulties. To determine the electricity consumed, the amount used by the individual
52
Chapter 3 - Taung irrigation scheme
pivots needs to be determined and then the four farmers who share a pivot have to further
allocate this expense. The net effect of this arrangement has been the non-payment of
electricity by a large number of farmers and, presently, Eskom is owed substantial
amounts of money (Tregurtha and Vink, 2002).
Figure 3.2: Aerial photo of the Taung irrigation scheme
Source: Google earth (2009)
According to the North West National Department of Agriculture and Environmental
Affairs (NWDAEA), the lack of access to inputs has been found to be directly related to
the difficulties small-scale farmers in the area have in accessing funds. Input costs were
found to be high because of the difficulties in accessing funds, the distance from the
source of the inputs and use of production systems that are unduly reliant on off-farm
inputs. Further, poor access to inputs was also found to significantly affect the rate at
which farmers are able to adopt new technologies. This has thus resulted in the farmers
achieving low yields (NWDAEA, 2007). According to the NWDAEA, there is still a
major problem regarding access to information that will empower communities to enter
53
Chapter 3 - Taung irrigation scheme
the economic mainstream. Although all of the relevant informational structures are in
place, the lack of competence exhibited by some government officials was highlighted as
a major problem when it comes to servicing these farmers (NWDAEA, 2007).
Many of the centre pivots in the irrigation scheme have been unproductive for some years
now. Figure 3.3 shows one of the centre pivots that have deteriorated because there has
been a lack of maintenance, the electrical cables has been stolen and most of the tires are
flat and have perished as a result of the sun.
Figure 3.3: Old infrastructure and barren fields
Source: Kotze (2007)
54
Chapter 3 - Taung irrigation scheme
3.4 Private sector involvement
This section presents an overview of SABMiller and their involvement in the Taung
irrigation scheme since the early 1990's when SAB/SABM started collaboration with the
North West Department of Agriculture to launch a barley growing project.
Established in 1895, SAB Ltd was the first industrial company to be listed on the
Johannesburg Stock Exchange in 1897. The company became known as SABMiller plc
in 2002 when it purchased the Miller Brewing Company in the US. SAB Ltd is the South
African operation of SABMiller plc and currently produces 26 million hectolitres of beer
per annum and sells 14 million hI of other beverages through its soft drinks division,
ABI. SAB Ltd's operations effectively involve manufacturing, sales, distribution and
marketing, supported by (among other functions) financial controls, supply chain
management, human resource management and reputation management of the company
as a whole (SAB, 2008). Manufacturing takes place at its seven breweries, whilst sales
and distribution are efficiently managed by each region - manufacturing entails
packaging, new product development, quality assurance, as well as the cultivation of raw
materials such as hops and barley by SAB Malting and SAB Hop Farms (SAB, 2008).
Barley is an essential resource for SAB's beer production. Barley was traditionally
grown in the Western Cape under dry land conditions. However, a combination of poor
weather conditions over the years, and the growing of wheat as a competitor for land use
in the region, meant that SAB was forced to increase its importation of barley. SAB,
therefore, needed to reduce its geographical risk and to consider local regions that were
more suited to growing new barley varieties introduced from Europe and Australia
(Kotze, 2008).
In the 1990s, South African Breweries (SAB) and South African Breweries Malting
(SABM) collaborated with the North West Department of Agriculture and the
Department of Land Affairs, and together they established a barley-growing project in
Taung (BFAB, 2008). The rationale for this initiative was to uplift the economy and the
55
Chapter 3 - Taung irrigation scheme
living standards of the people residing in Taung. Endeavouring to achieve this goal, SAB
agreed to pay for all producers' operating expenses, i.e., technical expertise and inputs,
while the provincial government agreed to provide the necessary infrastructure for the
project. This arrangement has remained unchanged until today.
The project began with 55 farmers and by the end of 2004, farmers participating in this
scheme had grown to 178. At this point, 3500 ha of land is under barley production using
sprinkler or pivot irrigation systems. The project can be easily expanded to cover 5200
ha (BFAB, 2008). By the end of the 2004 production season, the Taung scheme supplied
10 000 tons of barley out of the 42 000 tons that is required by SAB for malting, earning
in excess of R20 million. This was a large increase in earnings considering that they
earned R2.4 million in 1998 (BFAB, 2008). The economic prospects of this project are
good, bearing in mind that during the 2004/2005 season, maize and groundnuts were
introduced as a summer crop and yielded 5000 tons and 150 tons, respectively, spreading
the chances of alleviating poverty in the area.
3.5 South African Breweries Malting as financial intermediary
Compared to most commercial banks, agri-industrial firms often have an advantage in
supplying smallholders with credit. The close relationship SABM has with its contract
farmers lowers the risk of default, allowing the firm to lend money to growers unable to
obtain loans from commercial banks. The risk is lower for SABM for the following
reasons: 1) credit is supplied in the form of inputs; 2) SABM monitors the use of inputs
so that purchased inputs cannot be resold; 3) certain entry barriers to market limit the
growers' ability to sell their produce in alternative markets, inclining the grower to sell
his crop to SABM; 4) unlike a commercial bank, SABM has the advantage of acquiring
debt directly from the crop revenue; 5) default from the farmer will result in the farmer
not acquiring credit in the future. According to SABM, they, and especially the
Agricultural Services Department, play an ongoing role in performing the following
activities:
56
Chapter 3 - Taung irrigation scheme
e Before the planting season, Information Days are held to give feedback on the
previous year's crop and to recruit producers for the coming season.
CD Negotiations are held with input suppliers (fertiliser, pivot maintenance and
chemical companies) and contractors (soil preparation, planting, fertiliser
applications, weed control etc.) in order to bargain for the best prices for the
producers.
o Contracts are signed with individual producers and then captured in an electronic
format.
e Just prior to the planting season, tender opportunities are given to contractor and
fertiliser suppliers. After selection of the successful tenders, an agreement and
working schedule is drawn up.
o One month before planting, contracts are signed for each individual farmer with
the electricity supply commission (Eskom).
o Soil samples are drawn from each contracted field and are sent for analysis. On
receipt of the results, fertiliser recommendations are made for each individual
field.
I') Soil preparation and fertiliser applications are coordinated and all equipment is
checked to ensure the correct settings.
Cl A seed and fertiliser distribution schedule is compiled and procedures are
coordinated.
Q Negotiations are undertaken with Absa, ARS and Agricola (insurance companies)
to update the insurance policy and to obtain the best tender.
e They coordinate the planting of all of the fields, including correctly setting all of
the equipment.
G An irrigation schedule is established for each individual pivot (measuring of end
wheel speed etc.) and is monitored throughout the season.
€il The insurance company is issued with a list of producers and contracts are signed.
III All contractor requisitions are signed, captured in a financial system, processed,
paid and reconciled.
e Negotiations with Senwes (agent) on handling and storage costs, intake
procedures (grading) and upgrading of intake facilities are undertaken.
57
Chapter 3 - Taung irrigation scheme
Q Nitrogen topdressing is coordinated and all application equipment is checked and
calibrated.
Cl Each individual field is checked for weeds and where necessary, herbicides are
applied by a selected contractor.
o All contractor requisitions for herbicides and application costs are signed off,
captured in a financial system, processed, paid and reconciled.
o Each individual field is checked for insects and where necessary, insecticides are
applied by a selected contractor.
Q All contractor requisitions for insecticides and application costs are signed off,
captured in a financial system, processed, paid and reconciled.
o Negotiations are held with harvesting contractors in order to bargain for the best
prices for the producers.
o Tender opportunities are given to harvesting contractors and after selection of the
successful tenders, an agreement and working schedule are drawn up.
o Meeting with Senwes (agent) to finalise intake procedures is undertaken.
f) Coordination and monitoring of the harvesting (checking of moisture content,
harvester settings etc.), transport and intake processes are undertaken.
Q All contractor requisitions for harvesting and transport are signed off, captured in
a financial system, processed, paid and reconciled.
&> Input suppliers, e.g., Eskom, and pivot maintenance contractors are captured in a
financial system, processed, paid and reconciled on a monthly basis.
Q Senwes (agent) is supplied with an administration intake system. Intake data of
individual producers is electronically transferred to SABM and then captured in a
financial system, processed, paid and reconciled.
IJ Marketing of feed grade barley on behalf of the individual farmers at the best
possible price is undertaken.
q) An advisory service is provided on a daily and ad hoc basis throughout the
production season. Handling of all queries regarding sessions, payments, grading
etc. is undertaken.
58
Chapter 3 - Taung irrigation scheme
3.6 The producers
A typical farm unit in the Taung project produces mainly barley and maize under pivot
irrigation on land provided by the North West Provincial Government. The pivots are
maintained by the North West Department of Agriculture, Conservation and
Environment, while the farmer is responsible for minor repairs as well as the replacement
of electrical cables in the case of cable theft. SAB/SABM provides off-take contracts to
the farmers for both the barley and maize, hence providing the farmers with a secure and
stable market in return for acceptable quality and quantities of barley and maize. The
producers have the following responsibilities:
e Attendance of Information Days to familiarise themselves with options and
opportuni ties;
o Decisions regarding what to plant and with whom to contract;
fil Signing of contracts and checking legal aspects;
• Assistance with soil sampling;
e Ordering of irrigation water for pre-soil preparation irrigation;
o Checking with SABM regarding dates that contractors will cultivate, plant and
fertilise his/her land;
o Attending to all of the above-mentioned processes in order to check if it is done to
his/her satisfaction and to sign it off;
e Obtain irrigation schedule programme from SABM, order water and irrigate
accordingly;
9 Daily inspections of his/her field, especially when irrigating, in order to rectify
nozzle blockages and to report on irrigation equipment failures or breakdowns;
" Reporting of any power failures to Eskom directly or through SABM/Department
of Agriculture;
e Check repairs performed on irrigation equipment;
e Signing of crop insurance contracts;
ti} Scouting for non-conformities in his/her planting (weeds, insects, climatic
damage, e.g., frost, hail etc.) and reporting it;
59
Chapter 3 - Taung irrigation scheme
Q Attending to all crop protection actions (spraying for weeds and insects) in order
to check if it is done to his/her satisfaction and to sign it off;
«I Ensure that he/she obtains a delivery number from Senwes in order to be allowed
to deliver his/her product at the Magogong silos;
o Checking field on a daily basis to decide when irrigation can be terminated;
o Checking with SABM on dates that a harvest contractor can harvest his field;
f) Attending to all of the harvesting processes in order to check if it is done to
his/her satisfaction and to sign it off;
li) Keeping of records of all his/her input costs, yields harvested from his/her field as
well as pay-outs; and
oReconciling his/her pay-outs with all of his statements and to query any problems.
3.6.1 Agricultural production in the scheme
Taking into account the average household size of the 411 farmers in the Taung irrigation
scheme (5.9 persons in a household), there are 2450 people whose livelihoods are derived
from irrigation agriculture (NWDAE, 2007). Considering the number of people who are
dependent on the scheme, one understands the importance of the scheme and the
ramifications of whether it succeeds or not. There are basically 6 important crops which
are produced in the scheme, namely Alfalfa, Barley, Maize, Groundnuts, Cotton and
Wheat (Erasmus, 2008).
3.6.1.1 Alfalfa
Many of the farmers in this particular irrigation scheme produce alfalfa. There are
various reasons for choosing alfalfa as a crop, ranging from income being more constant
over a given time period to that there is an existing knowledge base about alfalfa. One of
the main reasons or determinants of why alfalfa is planted is because the buyers travel to
the plots and then buy the crop at the farm. By buying the crop on the farm, the seller
(farmer) saves time, money and effort in that he or she does not need to look for and hire
transport, giving them ample time to focus on the production aspect of farming (Erasmus,
2008).
60
Chapter 3 - Taung irrigation scheme
Buyers of alfalfa indicate that they want to expand their purchases. The main reason for
this is that a relatively strong demand exists for alfalfa, more specifically for processed
alfalfa. This emphasises the importance of alfalfa in the animal feed sector in Taung
(Kotze, 2008).
Figure 3.4 shows some of the fields planted with alfalfa for the livestock industry,
although most of the alfalfa is exported to nearby towns and is not used for the farmer's
own consumption; it contributes to the income of the farmers. As there are no processing
plants for alfalfa in the Taung area, all of the produce is sold in the unprocessed form.
Figure 3.4: Alfalfa under centre pivot irrigation
Source: Kotze (2007)
According to a study by Granum, Van Schalkwyk, Jooste, Louw, Du Plessis, Geldenhuys
and Geldenhuys (2000), increasing input costs is considered to be the most important
factor constraining expansion of alfalfa, and this is attested to by respondents in the
61
Chapter 3 - Taung irrigation scheme
bigger Vaalharts Area. The second most important reason is increasing machinery costs,
followed by water costs and water management. The transport costs, profit per hectare
compared to other crops, and labour intensity of the specific crop is also considered as
constraining. Although this study mainly focused on commercial farmers, the
smallholder irrigators also experienced all of these constraints.
3.6.1.2 Barley
Figure 3.5: Barley under Centre pivot irrigation.
Source: Kotze (2007
Barley is produced in only three of the five parts of the scheme, namely Bosele, Tsidiso
and Pudimoe. Boseie has the most hectares under barley with 760 hectares, and was
followed by Pudimoe with 550 hectares; Tsidiso had the least number of hectares (280
hectares). Cumulatively there were 1590 hectares planted with barley for the 2007
season, all under centre pivots. Figure 3.5 presents one of the pivot fields that was
planted with barley for South African Breweries.
62
Chapter 3 - Taung irrigation scheme
3.6.1.3 Wheat
The North West Province produced 143 000 tons of wheat in the 200612007 production
year, which accounted for 6 % of the South African total. However, wheat is not a
naturally strong commodity in the North West province. Wheat is not produced on a
commercial basis by the small-scale farmers in Taung, most of the wheat produced in the
Taung area is consumed locally (Erasmus, 2008).
3.6.1.4 Cotton
According to Erasmus (2008), smallholder farmers have not produced much cotton in the
area for the last decade, but the Cotton Growers Association at Vaalharts is in the process
of expanding their production and is incorporating more of the farmers in the Taung area
to supply their growing demand.
The development of the cotton sector forms the core of the Implementation Programme
Plan (IPP) for the South African cotton sector. In order to achieve the industry growth
objectives in the Strategic Plan, Cotton SA is focusing on expanding cotton production by
established commercial farmers (large and small-scale) through enabling access to
contract ginning services or forward integration into the farmers' own ginning; they
anticipate facilitating emerging farmer development projects in each of the traditional
cotton growing areas. As Taung was once known for its cotton growing capabilities, it is
important that Cotton SA include them in their action plans (Cotton SA, 2004).
According to Cotton SA (2004), the model developed specifies the establishment of
emerging cotton farmers in revived irrigation schemes (as is the case with Taung) in
order to reduce the risk of adverse weather conditions and to maximise the yield per
hectare. The programme will lean heavily on Government's LRAD programme as well as
on the revival and/or development of general and irrigation infrastructure on mostly
government-owned irrigation schemes. The main objective is to provide, where possible,
emerging farmers with the opportunity to grow into commercial farmers. The model
therefore suggests close cooperation between government and the developers to ensure
63
Chapter 3 - Taung irrigation scheme
that the right people are selected for these initiatives and that land ownership will only be
granted to farmers that have proven themselves over a specific number of seasons.
3.6.1.5 Maize
Maize production is one of the North West Province's biggest cash crops: it produced 1.7
million tons in the 2007/2008 production year, excluding the former homelands (SAGIS,
2007). It is thus important to recognise the potential maize production has in the Taung
area in that it makes a significant contribution to the provincial total. When considering
that Taung has the potential to produce an average yield of 12 tons of maize per hectare
under irrigation, it is safe to say that if all of the farmers producing maize under centre
pivots could realise lOtons of maize per hectare, this would mean that the area would
have the potential to market 24 900 tons of maize each season if all centre pivots were to
produce maize as a summer crop. During the 200712008 production year a total of 1590
ha of maize were planted with an average yield of 10.5 tons per hectare producing a total
of 16695 tons of maize.
3.6.1.6 Groundnuts
Groundnuts are mainly produced in the North West Province (61 %), Free State (24 %)
and Northern Cape (11 %). The North West Province produced 14 300 tons of
groundnuts in the 2007/2008 production year (SAGIS, 2007), which is less than what the
province produced in the previous production season. The groundnut potential yield (3-
3.5 ton/ha) in the Taung area is far above the average yield for the North West Province,
which is a mere 1.09-1.25 tonIha. However, only 200 ha are planted with Groundnuts in
the Taung irrigation scheme (Erasmus, 2008). Groundnuts can be marketed in shelled or
unshelled form in both formal and informal markets. Formal markets require larger
quantities of produce. Table 3.1 presents a list of all of the markets for groundnuts in the
vicinity of the irrigation scheme.
64
Chapter 3 - Taung irrigation scheme
Table 3.1: Markets for Groundnuts in the vicinity of Taung
Firm Type Trade Name Town
Processor Ambassador Foods Hartswater
Processor Elkana Hartswater
Trader Lemacor Hartswater
Processor Naledi Peanut Butter Hartswater
Trader Peanut Farm Agente Hartswater
Processor P-Farm Snacks Hartswater
Trader SA Groundnut Marketing (Pty) Ltd Hartswater
Trader Vaalharts Groundnuts Marketing CC Hartswater
Processor Vaalharts Graan Jan Kempdorp
3.7 Irrigation infrastructure
The Taung irrigation scheme forms part of the Vaalharts Water Users Association. The
total area of scheduled irrigation by the Association is some 36 000 ha. The Taung
irrigation scheme irrigates 3544 ha of land by means of centre pivot irrigation, flood
irrigation and sprinkler irrigation.
The Scheme receives water from the Vaalharts main canal. The capacity of the canal
where the water is released from the Vaal Dam is 136 800 m3 per hOUL The Taung canal
system is designed to manage 18 000 m3 per hOUL The whole canal system had an
annual water loss of almost 32% due to leakages, working loss and evaporation (Harbron,
2009).
According to Harbron (2009), the Vaalharts Water Users Association turned their
attention to the Water Administration System (WAS) developed by NB Systems CC to
minimise losses. The WAS programme is currently in use at all the major irrigation
schemes and a number of smaller irrigation boards throughout South Africa. WAS is
designed to be a management tool for irrigation schemes, Water User Associations
(WUAs), Catchment Management Agencies (CMAs) and water management offices that
want to manage their water usage, water distribution and water accounts. WAS can
handle any number of abstraction points and measuring stations on canal networks,
pipelines and rivers.
65
Chapter 3 - Taung irrigation scheme
According to Benade (2009), WAS is an integrated database-driven system with many
water management capabilities. WAS can be implemented in a small water office that
manages a few abstractions and measuring stations, or at a CMA level that manages
thousands of abstractions and measuring stations.
WAS is used for the efficient administration of:
o Address information;
e Scheduled areas;
GI Water quota allocations;
Cl Water delivery through pressure-regulated sluice gates, measuring structures and
water meters;
o Water transfers between users (automatically and manually);
e Water use calculations for planted areas based on crop water usage data;
e Date and time related flow data collected from electronic loggers or mechanical
chart recorders;
o Discharge tables (DT) to do conversions between water depth and flow rate for
measuring structures or vice versa;
El Listing rateable areas (LRA) information;
• Calculating scheme water balances;
e Calculating water releases for water distribution through canal networks, pipelines
and rivers taking lag times, evaporation, transpiration and seepage into account;
El Billing systems that link to the water usage information;
e Flexible tariff sets based on water usage, a flat rate or a scheduled area;
e Images and photos that can be linked to different types of information m the
database;
at Mail merge facilities for sending letters to clients;
By implementing the WAS programme, the Vaalharts Water Users Association managed
to decrease the total loss of water to 26% (Harbron, 2009). This has been achieved,
however, just by managing it more accurately and loss due to leakage still exists.
66
Chapter 3 - Taung irrigation scheme
3.8 Farming infrastructure
Many of the centre pivots in the irrigation scheme have been lying unproductive for some
years now. Centre pivots have deteriorated from the lack of maintenance, the electrical
cables have been stolen and most of the tires are flat and have perished from not being
used. Due to the long and varied history of the scheme, the need for restoration is
imperative. That said, there are some other irrigation infrastructures that are still in good
condition and are in daily use. Generally, the irrigation infrastructure that is in working
order belongs to those farmers who have acquired a contract with SAB.
SAB and the Department of Agriculture reached an agreement that SAB pay for all
producers' operating expenses, i.e., technical expertise and inputs, while the Department
of Agriculture replace and maintain the centre pivots.
3.9 Summary
The North West Province is a province troubled with a lot of rural poor people. Most of
these rural poor make their living from agricultural activities. For any economy to
develop and show growth, the first step in development is better agricultural production.
The Taung irrigation scheme is a typical example of the many irrigation schemes that
were formed during the homeland era. These homeland areas were mainly developed for
employment purposes and for food provision to the rural poor. Most of these irrigation
schemes are redundant and only a few of them are still in working order. The next
chapter describes the data collected from five vi11ages in the Taung irrigation scheme.
67
CHAPTER4
FARMING HOUSEHOLDS ANDMARKETING MANAGEMENT
4.1 Introduction
The literature review in Chapter 2 has shown that there are various aspects that have an
influence on the success of small-scale farmers. However, it has also been shown that
small-scale farmer success is dependent on a number of variables that may be specific to
households as well as relevant to the whole scheme. Literature has shown that success
potential can be influenced by both technical and institutional factors. To be able to
study these factors well, it is essential that information on characteristics of the farming
households, their resources as well as market conditions within the existing institutional
framework be obtained.
r
The objective of this chapter is, therefore, to give an overview of Taung in respect of the
farmers, farming household characteristics and household composition. Further, human
capital endowments and resources are described.
4.2 Questionnaire development
Data for the study was collected by making use of a structured questionnaire that was
adopted from Magingxa (2007). Some amendments were made in order to fit the
questionnaire to the particular environment and situation of the smallholder farmers in
Taung. The objective was to conduct personal interviews with as many of the 411
smallholder farmers as possible. However, it was only possible to interview 151 of the
small-scale farmers because the rest did not want to participate.
The questionnaire consists of ten divisions, namely: the demographic information
regarding the household; human capital endowments; land and agriculture; planning and
management; marketing; type of inputs used; institutions; infrastructure and capital;
L __
Chapter 4 - Farming households and marketing management
resources available and finally, credit. The interviewers were trained before questioning
the farmers and it was determined that everyone had the same understanding of all the
aspects in the questionnaire. The smallholder farmers in the Taung irrigation scheme
mostly speak Setswana. The Setswana language and the Sesotho language are very
similar and all of the interviewers spoke Sesotho; ultimately, there were no major
language difficulties and the farmers understood most of the questions very well. The
completed questionnaires were checked after completion to make sure that everything
was done correctly.
4.3 Age and household composition
4.3.1 Farmer age
Table 4.1 represents the average age of the interviewed farmers in the different areas of
the Taung irrigation scheme. The number of farmers in each scheme represents a sample
and not the whole population and was selected on proportional representation. The age
of the farmers who were interviewed ranges from 26 years to 89 years, with an overall
average of about 52 years. Rethuseng is the village with the youngest average of 49
years and Ipelegeng the village with the highest average age of farmers.
Table 4.1: Average age of farmers (n = 151)
Scheme name Mean Range of farmer age
BoseIe (n=49) 49.65 26 -72
Rethuseng (n=39) 49.21 30 - 80
Tshidiso (n=30) 56.13 29 - 80
Ipelegeng (n=8) 57 25 - 84
Areageng (n=25) 56.04 36 - 89
4.3.2 Household composition
Table 4.2 represents the household composition of the 5 different villages in the Taung
area; households are divided into three groups, namely: children, males and females. The
70
Chapter 4 - Farming households and marketing management
age distribution displays normal and expected tendencies. In the ages of 10-18, the
largest number of children occurred. Males and females were highest between the ages
of 19-44.
Thus it can be seen that most of the households consist of able-bodied people who can
provide labour and assist in the farming activities, which counteracts the high average age
of farmers. The average household sizes range between a minimum of 2 up to a
maximum of 13 people.
Table 4.2: Household composition (n = 151)
Village name
Age and
Gender BoseIe Rethuseng Tshidiso Ipelegeng Areageng
No. % No. % No. % No. % No. %
Child 0-4 20 8 17 7 17 9 I 2 8 6
Child 5-9 9 3 40 17 19 10 2 4 6 5
Child 10-18 72 28 36 16 54 27 22 47 27 20
Male 19-44 66 25 48 21 40 20 9 19 38 29
Male 45-64 25 10 20 9 Il 6 ] 2 10 8
Male >65 10 4 8 3 10 5 4 9 6 5
Female 19-44 22 8 34 15 22 II 2 4 21 16
Female 45-64 24 9 15 6 18 9 3 6 8 6
Female >65 13 5 13 6 8 4 3 6 8 6
Av. Hlhold size 5.27 5.95 6.53 5.88 5.84
4.4 Human capital endowments
4.4.1 Education
The educational levels of the interviewed smallholders range from none to post-matric
level. Figure 4.1 represents the educational levels of farmers, their spouses and their
71
Chapter 4 - Farming households and marketing management
children. Of all the farmers interviewed, more than 21% have never received any formal
education. Generally, only 2% of all farmers have post-matric education. Considering
farmer spouses, the figures were much the same as that of the farmers. The difference
comes in with the children who are currently still living at home, and it seems that more
of them are being educated, with more than 36% of them at a grade 12 level of education.
40
r-
35
30 -
25 - --
al
Cl
!!! r- o Farmerc:
fl 20 - • Spouse
Q;
Q. o Child with highest qualification
15 - -
r-t-
10 -I-- I--- l-
r-
I-
I- -
5 I-- I-- - I-- -
0 '- - - - '- '- - - '- '- Il.
1. None 2. ? 3. Grade 4. Grade 5. Grade 6. Grade 7. Post-
Grade 5 6-7 8-9 10 11-12 matric
Figure 4.1 Educational qualifications of respondents (n = 151)
4.4.2 Language capabilities
Figure 4.2 shows that less than 36% of the farmers can read and less than 32% can write
English. Afrikaans literacy is similarly low - less than 33% can read and less than 31%
can write in the language. Greater literacy figures feature for the home language
(Setswana) and only a small amount of the people cannot read or write in Setswana
(about 15%). This figure closely resembles the figure for farmers who have never
received any formal education, though it is slightly lower. This could be due to
knowledge gained later in their lives.
72
Chapter 4 - Farming households and marketing management
Cl)
Cl 01. English
!c9:: .2. Afrikaans
Cl)
~ o 3.Setswana
Cl)
0.
Talk Read Write
Figure 4.2: Language capabilities of the participating farmers (n = 151)
4.4.3 Farming experience
The experience referred to is farming experience that the farmers have obtained via the
irrigation scheme in the years they have been part of the scheme. The average experience
ranges from the lowest (12.3 years) in Rethuseng to the highest in Ipelegeng (20.4 years).
This correlates with the average farmer age discussed earlier. Thus, the farmers with the
most farming experience are the farmers with the highest average age and the farmers
with the least farming experience are the farmers with the lowest average age. The
overall mean between the 5 villages is almost 17 years of farming experience.
73
Chapter 4 - Farming households and marketing management
25.00 ,------------------------,
20.00 +--------------f-r---r-----,---I
-
I!! 15.00
nl
4)
~ IDAverage experiencel
10.00 t--
5.00 t--
Boseie Rethuseng Tshidiso Ipelegeng Areageng
Villages
Figure 4.3: Farming experience in each village (n = 151)
4.4.4 Planning skills
The farmers in the study area had to make a selection between four categories, ranging
from no planning through to thorough planning. Results of the planning skills are shown
in Figure 4.4. The results indicate that almost 36% of the farmers confess to no plans
whatsoever (the biggest group); almost 30% of farmers have some idea of planning;
farmers that have rough or incomplete planning is at about 24%, and farmers that have
thorough plans comprises a small percentage, almost 13%. Planning skills is thus an
aspect which is very underdeveloped in the Taung irrigation scheme.
74
Chapter 4 - Farming households and marketing management
Farmer
percentages
Thorough plans Some plans Only some idea No plans (not
and objectives (rough and about planning considered)
incomplete)
Figure 4.4: Farmer planning skills (n = 151)
4.4.5 Financial management and record keeping
Record keeping is essential in financial management and it is considered as the first step
of financial management. When asking the participants if they thought that keeping
financial records was important, 74.83 % indicated that it is important and the rest
thought it to be less important. The farmers that answered 'yes' participated further in
the questionnaire by indicating the importance of each of the following:
I) determining financial position;
2) decision-making and planning;
3) keeping the bank/co-op manager happy.
Figure 4.5 shows the results of farmer perceptions regarding record keeping. Almost
44% of the farmers indicated that keeping financial records is important to determine
their current financial position, whilst 35% indicated that it is very important; the rest of
the farmers did not consider it to be important.
75
Chapter 4 - Farming households and marketing management
The majority of farmers (about 52%) considered record keeping important for decision-
making and planning, whilst almost 34% indicated that it is very important and 14%
considered it not to be important.
The majority of farmers (68%) did not consider keeping financial records to be important
with respect to keeping the bank/co-op manager happy, 23% thought it to be important
and 9% thought it to be very important.
I!!
.Ë.. 50 +-----------
ol! o Not important
'040 +--- III Important
ell
Cl
,fI o Very Important
; 30 +--~
c...J.
ell
a.. 20
10
Determining financial Decision making and To keep the bank or eo-
position planning op manager happy
Importance of record keeping
Figure 4.5: Farmer perception on the importance of record keeping (n = 53)
Most of the records that the farmers refer to are records that are kept centrally by the
farmer organisations or the extension officer. Thus, farmers indicate that they do keep
records when they actually do not. The main reason for the central bookkeeping system
is due to the fact that some farmers are illiterate. It is a manner of assisting the farmers
but it is not an accurate measure with reliable results.
76
Chapter 4 - Fanning households and marketing management
4.5 Resources
4.5.1 Farm size and land use
According to Golder Associates (2005), the irrigation scheme was established on land
that existed under communal tenure arrangements, whereby user rights were allocated by
the tribal leadership on a hereditary basis. The development within the Taung area of the
province possesses characteristics that are considered typical of what prevailed in the
erstwhile Bophuthatswana Republic, as this former 'homeland' was known. The
particular scheme analysed comprises 4000-5000 ha of communal and arable land which
has been partitioned among 411 farmers who do not have to pay anything for the user
rights, in keeping with the precepts of the communal tenure systems prevailing in the
traditional black areas of the country.
Plot sizes in the different villages are indicated by Figure 4.6. All of the villages have a
plot size of 10 ha except for Rethuseng, where the plot size is 7.5 ha. The plots are all
under irrigation: most of them are under centre pivot irrigation while the rest are under
sprinklers.
When farmers were questioned on their satisfaction regarding the size of the plots, more
than 52% indicated that they were not satisfied with the size of the land, and the main
reason for such dissatisfaction was because the income derived there from was perceived
to be too little. Almost 48% were satisfied with the size of their plots.
77
Chapter 4 - Farming households and marketing management
10 / .c:::t ~ ~ ~
9 V
-
V -8 .L""=::; _
V -7 - -
6 - -
I:
Cl)tII 5 ~
.!::! Cl) - -
til'"
EtR)I 4 V
"'CI) - -
~.r:. 3 V
2 V
- -
V - -
A -, r-o ~ .. '----:- ~ '7
Boseie Rethuseng Tshidiso Ipelegeng Areageng
Villages
Figure 4.6: Plot sizes of the villages in Taung
4.5.2 Infrastructure
Most of the infrastructure around the major cities of South Africa is relatively well
developed and has efficient transport mechanisms to reach the markets. Rural areas, on
the other hand, are underdeveloped when it comes to infrastructure. Abbott (1986b, p38)
stated that in order to improve marketing of smallholder farmers' produce, a marketing
infrastructure that is better suited to the needs of the smallholder farmers should be
implemented. This objective will be reached when easy access to markets, inputs and
transport are made available to the farmers.
When farmers were questioned on the availability of certain forms of infrastructure in
their area, most of them were satisfied with the infrastructure they have. Figure 4.7
indicates the availability of essential infrastructure in the Taung area.
78
Chapter 4 - Farming households and marketing management
100
90
80
70
<II
Cl
J 60e!
<II
u 50
"-
<II
Il. 40
30
20
10
0
IJ) (ij
Q)
t:: c z- co
IJ) 0a. 0 'e IJ) (ij IJ) :;::::l IJ)"0 s
m IJ) a:. °C _ID c ID m
0 c Q) t5 ~-c 0 .><: E -IDc (jj
et:: ~ ëiï Q) om ~ (ij 2 m .r:.
f- f- m ....JE z E c E ê5
Figure 4.7: Availability of infrastructure (n = 151)
4.5.2.1 Roads
The Taung areas are serviced by a tar road running through the central parts of the region
and have a series of gravel road networks that connect the villages. The national road is
in good condition, while the gravel roads are in a poor condition. Even though the
availability of roads is quite good, it is important that a road rehabilitation programme be
implemented to upgrade the current road conditions, whereafter regular road maintenance
exercises should be followed. Good road conditions are important for the extraction of
produce, delivery of inputs (seed, fertiliser etc.) and to gain access to the irrigation lands.
4.5.2.2 Transport
The Taung area is serviced well by various bus operators as well as many taxi services
taking the people to any destination they require.
79
Chapter 4 - Farming households and marketing management
It is clear that the passenger transport sector is well developed; on the other hand, the
transport of goods is not that well developed. Farmers will have to hire contractors at a
very high rate to transport their produce to the markets. However, the farmers that have
acquired contracts with SAB do not have this problem as SAB supplies all of their input
needs and collects the produce on the plots.
4.5.2.3 Telephones
Communication has become an inevitable part of the production process - used for
enquiring about the best input suppliers, prices, production methods etc. to allocating
markets and bargaining for the best price for the produce. Most of the farmers (more
than 70%) indicated that they have access to a telephone or cellphone.
4.5.2.4 Electricity
The majority of farmers (80%) indicated that they have electricity available to them.
Electricity provides a cleaner, healthier way of preparing food for the family. Families
traditionally prepared their meals on wood fires and the excessive smoke led to various
lung problems, thus this method is a health hazard to the whole family. The operation of
the centre pivots also relies on electricity.
4.5.2.5 Local markets
The general feeling among the farmers was that they have sufficient access (almost 80%)
to local markets; however, the structure of the local markets can vary from being an
informal little shop alongside the road to the local co-op in the nearest town.
Of the 151 farmers who participated in the questionnaire, 62.25% of them indicated that
they have a contract with the South African Breweries to produce barley on a yearly
contractual basis. These farmers should be better off than the rest as they do not have the
same problems in finding markets, inputs and transport for the whole production process.
80
Chapter 4 - Farming households and marketing management
4.6 Institutions
4.6.1 Services
One of the most important factors in agriculture is the support service that extension
officers provide to the farmers. More than 85% of the farmers indicated that they need
extension services, as seen in Figure 4.8.
90
80
70
60
50
Percentages
40
30
20
10
O+-~~~_.~~----~~~~------------~
Yes No
Figure 4.8: Farmers' need for extension services (n = 151)
Local government has provided extension services since their withdrawal of support to
the agricultural sector. This study focused mainly on three categories of agricultural
extension services: government extension services, cooperative extension services and
input supplier extension services. Table 4.3 indicates the supply and demand for the
extension services in the three categories.
81
Chapter 4 - Farming households and marketing management
Table 4.3: Supply and demand for extension services and farmers' perceptions (n =
151)
Accessibility and availability of extension services Percentage
Government extension system 68.2]
Cooperative extension system 48.34
Input suppliers 29.8
Times visited by an extension officer this year Mean
Government extension officers 72
Cooperative extension officers 38
Input supplier extension officers 8
Total 118
The first part of Table 4.3 indicates the perceptions of farmers about the availability of
extension services to them, whilst the second part shows the number of times that the
farmers have been visited by the various extension officers throughout the year.
It is important to note that the above table is a summary of all the villages in the Taung
area and that it differs from village to village, however, not on a big scale. The data was
collected in 2007/2008 and it is based on what the farmers could remember. From the
above table it seems that the government extension service in Taung is very active.
Table 4.4 indicates the farmer perceptions regarding to what extent they think the
extension services officers can provide them with the necessary information required to
make decisions regarding technical and financial decisions.
Table 4.4: Farmers' perceptions on the knowledge of the extension services officers
Extension Technical Financial
services Yes No Yes No
1. Government extension officers 74 26 67 33
2. Cooperative extension officers 59 41 58 42
3. Input supplier extension officers 49 51 44 56
82
Chapter 4 - Farming households and marketing management
Results indicate that almost 74% of farmers trust government extension officers to have
the necessary technical knowledge whilst 67% trust that they have the necessary financial
knowledge. Considering the co-op extension officers, 59% of farmers trust that they
have the necessary technical knowledge and 58% trust that they have the necessary
financial knowledge. The farmers' perceptions on input suppliers show that the majority
feel that they are incompetent in giving technical advice, demonstrated by a figure of
51%, and also that they are incompetent in giving financial advice, with 56% of the
farmers feeling this way. This could be due to the fact that the farmers have the least
contact with the input suppliers. When looking at Table 4.3 it should be noted that the
input supplier scores the lowest when it comes to accessibility and the number of times
they visit the farmers. This leads to a lack of trust with respect to the input suppliers.
When farmers were consulted about their need for credit, 89% of the farmers indicated
that they need credit for production activities; however, only 74% of the farmers
indicated that they actually do use external sources of credit. In all of the surveyed areas,
a total of 72% of farmers indicated that credit is available to them as smallholder farmers.
The rest of the farmers (28%) gave reasons as depicted in figure 4.9 as to why credit is
not available to them.
The main reason (34%) why the farmers do not have access to credit is due to the fact
that banks do not want to supply credit to farmers if they do not have any security. They
reason that the farmers do not own the land they farm on, and thus it cannot be used as
collateral. The next big reason (28%) is a common occurrence amongst rural people: the
fact that they do not understand how commercial banks and other credit providers work
and thus do not know how to organise credit for themselves. Other reasons include
interest rates being too high, farmers' poor repayment abilities and some of them claim
that they do not need the extra money.
83
Chapter 4 - Farming households and marketing management
o Do not know how to organize credit
28%
• Do not need extra money 6%
o The cost (interest) of money is to
high 17%
o Bank does not want to supply credit
due to insufficient security (land)
34%
• Poor repayment ability of farm 15%
Figure 4.9: Reasons why credit is not available to smallholder farmers (n = 151)
4.6.2 Sources of information
As shown in Table 4.5, smallholders make use of various information sources that they
use to make decisions concerning their farming operations and management. The
decisions to be made have been categorised in Table 4.5 into technical, financial,
marketing, information on new technologies and training.
Table 4.5: Information sources
Sources for decision- Technical Financial Marketing Information on new Training
making and decisions decisions decisions technologies
information
Radio 14.57% 23.18% 24.5% 19.21% 7.95%
Television 17.22% 21.19% 16.56% 20.53% 8.61%
Extension publications 3.31% 3.31% 4.64% 5.3% 2.65%
(leaflets etc.)
Co-farmers/nei ghbours 9.93% 11.92% 15.89% 11.92% 10.6%
Department of 47.68% 51.66% 49.67% 53.64% 47.68%
Agriculture Extension
officers
Co-operative extension 19.21% 20.53% 19.87% 17.22% 15.89%
officers
84
Chapter 4 - Farming households and marketing management
No one: use own 0.66% 0.66% 0.66% 0.66% 1.32%
physical or technical
records
No one: use own - - - - 0.66%
financial records
Bank manager 1.32% 0.66% 1.32% 0.66% 1.32%
Supplier of inputs 2.65% 1.99% 3.97% 3.97% 3.97%
Sell to the buyer who is - - 0.66 - -
the closest to my farm
Market agents - 0.66% - 0.66% 0.66%
Read in the press 0.66% 0.66% 1.99% 0.66% 1.32%
(newspapers,
magazines)
Chief/village leader - - - - -
From the above table it can be seen that the surveyed farmers mostly rely on the
Department of Agriculture to provide them with all of the information they require in all
of the different categories. Generally, this is due to the fact that this is the extension
service they are most often exposed to.
After the government extension officers, there seem to be four other information sources
that play a substantial role, but to a lesser extent: radio, television, co-op extension and
eo-farmers. Other sources that provide a substantial amount of information on technical
decision-making are co-operative extension officers at 19.21%, followed by television
(17.22%) and radio (14.56%).
The second most important source of acquiring the financial information for decision-
making, after the government extension, is radio (23.18%), followed by television
(21.19%) and then co-op extension services (20.53%). Again, it is interesting that the
figures for the input suppliers are so low, especially as they are also the market providers
in the case of those farmers who have acquired contracts with SAB. This is mainly due
to a lack of knowledge on the farmers' part. Bank managers are less important, as
smallholder farmers mostly receive credit from other institutions, like government grants
and SAB.
85
Chapter 4 - Farming households and marketing management
The government extension officers play the biggest role in the marketing segment and
they give the most advice as to who the farmers should market their produce to. In some
instances the extension officers also try to acquire markets for the smallholder farmers.
Radio has the second highest role with respect to information provision regarding
marketing decisions (24.5%), followed by co-op extension (19.87%), television (16.56%)
and eo-farmers, albeit to a lesser extent.
In the case of gathering information on new technologies, television plays the second
biggest role, after government extension, with 20.53% of farmers utilising it for this
purpose. It is followed by radio, co-op extension and eo-farmers. The same four
categories feature when training information is needed; after government extension is co-
op extension, which is utilised 15.89% of the time, followed by eo-farmers, television
and radio.
It is clear that the government extension officers play the biggest role in all of the
decision-making categories, and other main sources of information include radio,
television, co-op extension services and eo-farmers or neighbours.
4.6.3 Farmer organisations
Farmers can acquire substantial benefits when they are structured within an organisation.
They have more bargaining power when it comes to buying inputs and they can also
realise economies of scale and thus acquire inputs at a lower prize. Well-established
farmer organisations more easily absorb new information and technologies as they reach
everybody quickly and at the same time. Problems that may occur can be handled in
groups and everybody is able to learn from each other's experiences.
Each of the five villages that were covered in the survey area had their own farmer
organisation, and they are mostly kept in order by the government extension officers.
Meetings are held on a monthly basis and various factors are argued at these meetings.
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Chapter 4 - Farming households and marketing management
4.7 Marketing management
4.7.1 Marketing outlets
Due to the fact that most smallholder farmers make a living from subsistence farming,
poor and unreliable production of agricultural commodities was a constraint that
undermines establishing an efficient agricultural marketing system. However, an
effective marketing system is vital to ensure economic independence for the smallholder
farmers so that their produce can be sold and the farmers can be mainstreamed into the
economy. For them to be able to join the mainstream of the economy, it is essential that
their produce is competitive in the market and thus it should be of high quality. For many
smallholder farmers, access to markets is the biggest constraint that they face.
The main marketing outlets at the Taung irrigation scheme are provided by SAB and the
co-operatives. The average distance to the nearest market outlets from the smallholders'
farms is 15.5 km. Farmers that have plots nearer to the main roadside use this to their
advantage and sell their produce at the roadside; this is mostly in the form of maize. In
the informal settlements there are a number of hawkers who will organise transport in
order to buy some of the produce on the farm from the farmer and then sell it at their
stands. The farmers, however, have a problem when it comes to transporting goods and
are unable to transport large amounts of produce into the informal settlement markets.
It was difficult to obtain reliable information regarding the quantities of the produce sold
due to the fact that there is no formal manner of recording the produce that was sold.
That said, there are reliable figures available for those farmers who have acquired
contracts with SAB.
Figure 4.10 indicates who or what factors determine the type of commodity which should
be produced. In spite of the big influence that the government extension officers have in
most of the decisions the farmers make, SAB has the most influence (50%) on the type of
commodity that is produced. This could be due to the fact that all of the farmers are
trying to acquire a contract with SAB, therefore they consult with their neighbouring
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Chapter 4 - Farming households and marketing management
farmers who already have contracts with SAB to hear what they should produce, hoping
that their produce will be purchased.
The government extension officers have the second largest influence, at almost 30%.
The government extension officers are widely trusted among the farmers because they are
in constant contact with each other.
60
50
40
30
20
r--
10 - I--- i---
o Il CJ
u
(5 ....
s: ::::l
al o>. IJ)IJ)
o::::l u
al
C al UIJ)
.c~ 'C~u til ::::l .ao::::l 0 ..
..a. (ij.c
o::::l til>-.cal >-
a.
IJ) ~.... eu 0....
tIl_
:!E 0
Figure 4.10: Factors that determine the type of crop to be produced
A lesser amount of farmers (20%) make their own decisions on what should be planted.
This portion of farmers has no obligation towards any institution regarding the type of
crop that they produce.
4.7.2 Input acquisition
Input markets is a very important aspect; however, in the debate about market access, this
side of markets is often not researched, as most of the focus is on output markets. The
88
Chapter 4 - Farming households and marketing management
majority of farmers do not have their own means of transport and have to hire transport in
order to acquire their inputs from the nearest town. This leads to farmers not adequately
considering where they buy from or the quality of the inputs that they purchase; they
rather look at the availability and distance factors.
The farmers in the Taung area were questioned on whether they used high yielding seeds,
and 84% of them indicated that they do make use of high yielding seeds. Figure 4.11
indicates how the farmers acquire the high yielding seeds that they use.
Cl)
Cl
~ 40+-------------------~~------------------~~
eCl)
~ 30+--------------------------------------------
o
Personally Through the From the Through the Visiting Other
from the farmers' local eo- local product means
market association operation extension extension (SAS)
officer officers
Figure 4.11: Means of acquiring high yielding seeds (n = 151)
More than 60% of the farmers indicated that they acquire their seeds through SAS, and
this correlates with the number of farmers that have contracts with SAB. These seeds are
delivered to the farmers' plots, thus farmers do not have any problems regarding
transporting seeds from the input market to the plot. Another means is to purchase it
from the local co-operation (almost 20%), however, this necessitates that the smallholder
farmers make use of highly costly rented transport. Generally, when inputs are required
89
Chapter 4 - Farming households and marketing management
from town, the farmers pool their money together in order to split the transport cost
between themselves. The local extension officers sometimes assist by providing
govemment transport for the inputs that the smallholder farmers acquire.
That farmers pool their money together is an important aspect of the organisational
structure that exists between the smallholder farmers, and this leads to farmers gaining
economies of scale by their placing one order, and thus they have higher bargaining
power. The main reasons why the remainder of farmers (16%) indicated that they could
not acquire the high yielding seeds are shown in Table 4.6.
Table 4.6: The main reasons why high yielding seeds could not be acquired
Reason Percentage
High yielding seed too expensive 50
Input markets not easily accessible -
Cannot get credit to buy seed 4.17
Do not know how to use high yielding seed 8.33
No information on how to acquire seed 16.67
Not interested in using high yielding seeds 4.17
Other reasons (specify) 8.33
The main reason was that the high yielding seeds are too expensive to purchase, and 50%
of the farmers supported this notion. This is also due to the fact that farmers have
problems acquiring credit to purchase the inputs that they need to farm with. The second
largest factor seems to be a lack of information on how to acquire the high yielding seeds.
The reason for this is that farmers do not attend the meetings at which information is
distributed regarding various production aspects.
4.8 Summary
The majority of the farmers have an obligation to sell their produce to SAB, and the
inputs are also acquired from them. This makes it much easier for the farmers as it
cancels out the credit and transportation problems, the type of crop that should be
produced etc. It seems that the farmers who have a contract with the SAB are better off
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Chapter 4 - Farming households and marketing management
than the rest of the farmers, who have to manage on their own and face many constraints
and sub-optimal conditions.
Human capital endowments play an important role in creativity and entrepreneurship,
mostly in the case of farmers that do not farm on a contract basis. It is up to them to
acquire a market for their produce to be sold in.
In the physical farming operations, knowledge and experience are the dominant and most
important factors, along with training. In the case of the contract farmers, these aspects
are covered by SAB and the farmers basically only provide the labour that is required. It
was concluded that the supportive institutions play a mayor role in the production
process. The next chapter will conduct analytical tests to determine which of the factors
have the greatest influence on the success of smallholder farmers.
91
CHAPTER 5
CHARACfERISTICS OF POTENTIALL Y SUCCESSFUL
SMALLHOLDER IRRIGATORS IN THE TAUNG IRRIGATION
SCHEME
5.1 Introduction
Regardless of the potential that smallholder irrigated agriculture possesses, smalI-
scale irrigators of South Africa have yet to realise this potential. Smallholders in
South Africa are faced with a very large set of constraints, which will be discussed in
this chapter. Productivity levels have dropped drastically, especially in the formerly
state-managed smallholder irrigation schemes. This relates to the declining
government support to smallholders in the so-called Irrigation Management Transfer
(IMT) process. In the Limpopo Province, Kamara et al. (2002) noted that the level of
production had dropped to about 20% in schemes that were previously managed by
the Agricultural Rural and Development Corporation (ARDC). This was in contrast
to a generally positive growth in the country's agriculture. They also found that some
farmers were producing at a loss. Making particular reference to the Eastern Cape,
Bembridge (2000) argues that in spite of huge investments, the performance of most
small-scale irrigation schemes in the Eastern Cape has been poor and falls short of the
expectations of engineers, politicians, development agencies and the participants
themsel ves.
The situation has the potential to become even more complex because South African
small-scale agriculture has a history of dependency. Farmers (especially those based
in the large former homeland irrigation schemes) had become accustomed to the
profound support provided by the parasitical organisations that managed most of the
irrigation schemes in the country (Magingxa, 2007).
For a farmer to be considered successful he has to embody the following
characteristics: he must be able to assess the future, identify opportunities before
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Chapter 5 - Characteristics of potentially successful smallholder irrigators
competitors do and be able to create and sustain competitive advantages (Neil and
Napier, 2005). In a study conducted by Foreman and Livezey (2003) to determine
factors contributing to financial success, they found that the ratio of government
payments to total production value, cost control, tenure, crop diversification, yield and
debt-to-asset ratio and education was a significant factor influencing financial
success. They also concluded that market access is one of the driving forces of
agricultural commercialisation. Examining these characteristics will result in a better
understanding of these smallholder farmers in the Taung irrigation scheme.
5.2 Methodology
In this chapter, farmers are divided in two groups, namely more successful (MS) and
less successful (LS) farmers. Thus, in this chapter the focus is on the characteristics
that determine whether farmers will be more successful. The technique used in this
chapter provides a categorical variable that can be used in further analysis. Further
analysis is based on the results of the cluster analysis, whereby the result from the
cluster analysis is used as a proxy. The influence of various factors on success is
examined and principle components are formed. A logit model is used to determine
which of the principle components have the greatest effect on the success potential of
the small-scale farmers in the Taung irrigation scheme. The methodology used is
explained in the next section.
The K-means cluster analysis technique was selected to divide farrners based on
individual characteristics that influence success potential. The purpose of cluster
analysis is to panel a set of objects into two or more clusters so that the objects within
a cluster are comparable and objects in different clusters are dissimilar (Magingxa,
2007). The basic data for cluster analysis is a set of N entities (for example,
smallholder irrigators) on which JJ measurements have been recorded. This initial
choice of the particular set of measurements used to describe each entity constitutes a
frame of reference within which to establish the clusters. The choice seemingly
reflects the investigator's judgement regarding significance for the purpose of
classification. As a result, it is important to take into account that the initial choice of
variables is itself a categorisation of the data, and has no mathematical or statistical
guidelines (Everitt, 1983).
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Chapter 5 - Characteristics of potentially successful smallholder irrigators
Following Kaufman and Rousseuw (1990), there are two types of distance
measurements being performed, depending on the type of variable. For N
observations to be clustered into K groups:
The Euclidean distance djk between rows j and k is computed using:
[1]
The Manhattan distance djk between rows j and k is computed using:
P
djk= I Is,I
,=1
[2]
Where for interval, ordinal and ratio variables:
6ijk = Zij - Zjk
And for asymmetric-binary, symmetric-binary and nominal variables:
Usi:jk = 1 if Xi)· f. X)·k
o if Xij = Xjk
With the exception that for asymmetric-binary, the variable is completely ignored (P
is decreased by one for this row) if both Xij and Xjk are equal to zero (the non-rare
event).
The objective function D is the total distance between objects within a cluster and it is
represented as follows:
K
D=II t:« [3]
k=1 ieC, jeC,
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Chapter 5 - Characteristics of potentially successful smallholder irrigators
The distance formula used in this study is the Euclidean distance measure, as it is
normally used as the default measure in statistical computer programmes.
The variables most likely to influence the success potential and that have been
selected for analysis are: thorough planning; financial records; financial decisions;
technical decisions: using high yielding seeds and high yielding fertiliser, pesticides
and herbicides; training; the need for extension advice; whether the farmer knows the
yield value; whether the farmer knows the amount of income he generated; fanning
experience; education and the size of the area that has been planted.
A correlation matrix - incorporating all the available variables in the questionnaire -
has been constructed (Appendix Bl). The variables that indicated high correlation
values and those that would logically influence the success potential of farmers were
selected to be used in the cluster analysis.
Table 5.1 below shows the variables that were selected for analysis and each one's
measurement. The hypothesis is that smallholders will be more successful if they
thoroughly plan; keep financial records; make financial decisions; apply technical
decisions (e.g., making use of high yielding seeds, high yielding fertiliser and using
pesticides and herbicides); receive training on the specific farming enterprise; get
extension advice on new farming activities; understand and/or know the yield value
produced and the income generated; have more farming experience, a higher level of
education and have planted a bigger area.
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Chapter 5 - Characteristics of potentially successful smallholder irrigators
Table 5.1: Variable measurement
Variable Measurement
Thorough planning 1 = yes: 0 = no
Financial records "
Financial decisions "
Tech decisions: Use high yielding seeds "
Tech decisions: Use high yielding fertiliser "
Tech decisions: Use pesticides and herbicides "
Training "
Need extension "
Yield known "
Income known "
Farming experience Years
Education Grades as categorised
Area planted Hectares
5.3 Results and discussion
After initially running the data through the clustering tool, results of the average
profile showed that the appropriate number of clusters that can be obtained is two,
namely; more successful (MS) and less successful (LS). Further analysis was
therefore carried out with these two clusters.
Table 5.2: Cluster means
Variables Cluster 1 Cluster 2
Planning 0.1 ] 0.15
Financial records 0.31 0.42
Financial decisions 0.78 0.69
Tech decisions: Use high yielding seeds 0.81 0.89
Tech decisions: Use high yielding fertiliser 0.89 0.93
Tech decisions: Use pesticides and
herbicides 0.9] 1
Training 0.55 0.42
Need extension 0.88 0.82
Yield known 0.45 0.62
Income known 0.29 0.47
Farming experience -0.64328 1.12282
Education 0.23479 -0.40982
Area planted -0.18759 0.32743
Number of cases in each cluster 96 55
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Chapter 5 - Characteristics of potentially successful smallholder irrigators
The mean of each cluster represents the average characteristics of farmers in the
cluster.
Cluster 1 - Less successful farmers
Cluster 1 is represented by ninety-six observations and can be considered as referring
to the less successful (LS) farmers. The variable scores, which are considered to
positively influence success potential, do not favour the factors expected to determine
success.
Despite the small but positive gap in terms of training and education, this group of
farmers exhibits a large and negative gap in farming experience. Thus, these farmers
have very poor farming experience in relation to the more successful group of
farmers. When combined with extension advice and training, farming experience can
Increase significantly and, subsequently, so can consistent use of good farming
practices.
External training inputs is one of the internal characteristics of successful farmer
controlled enterprises, specifically when trying to integrate the farmers into the
mainstream economy through the development of links with financial and market
intermediaries (Coulter et al., 1999). Coulter et al. made use of case studies from
Zimbabwe and Kenya. In these case studies, specific training needs were identified in
the areas of:
" Improving crop management skills thus enhancing the prospects of obtaining
contracts from agri-businesses;
lP Developing more effective bargaining strategies thus exercising some choice
over the business/es with which they contract; and
III Understanding the cyclical nature of product lifecycles, and the need this
generates for savings and backstop strategies.
The farmers in this group scored lower on decisive characteristics such as planning
and keeping financial records, which are important for monitoring the financial
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Chapter 5 - Characteristics of potentially successful smallholder irrigators
position of the farm. This group of farmers scored higher when it came to making
financial decisions. These decisions would, however, prove to be poor due to the fact
that there is a lack of planning and record keeping. Other important characteristics
which this group scored poorly on included not making use of high yielding seeds,
fertiliser, pesticides and herbicides.
Although the farmers in this group received more training than the other farmers,
there was a lack of knowledge of the yield that had been produced and regarding the
total income generated. It seems that this group of farmers have a 'don't care'
attitude, which has a negative effect on production. There is also a big negative gap
between the areas planted, although this could also be attributed to the fact that
farmers did not know how much they had actually planted.
Cluster 2 - More successful farmers
Cluster 2 meets most of the criteria for potential success and can therefore be
representative of the more successful farmers. There are four variables where the
assumptions do not meet the hypothesis. Lower scores were obtained for financial
decisions, training, the need for extension and education. The rest of the assumptions
were all met and they correlated with the hypothesis. This cluster is represented by
fifty-five observations.
Although the farmers in this group have received less training and education, they
have far more farming experience than the less successful farmers. The greater
amount of farming experience could also explain why the need for extension in this
group of farmers is lower. The lesser score in financial decisions does not necessarily
mean that this group of farmers has insufficient financial decision methods. They
score higher in planning and financial record keeping, which are essential steps taken
prior to making financial decisions, thus this group of farmers make less financial
decisions but it seems that the financial decisions they do make are more accurate
than those of the less successful farmers.
The farmers in this cluster score positively in other essential farmer characteristics
necessary for successful farming. These include making technical decisions
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Chapter 5 - Characteristics of potentially successful smallholder irrigators
regarding, for instance, use of high yielding seeds, high yielding fertiliser and
applying herbicides and pesticides. The farmers in this group appear to be more in
control than the less successful farmers as they know the yields that have been
obtained as well as the total income they generated. According to the cluster
information, the areas that these farmers plant are also bigger than the areas of the less
successful farmers.
Table 5.3: Cross-tabulation of having a contract and cluster membership (n =
151)
Cluster 0 Cluster I Total
Contract Actual count 39 18 57
0 Expected count 36.2 20.8 57
Contract Actual count 57 37 94
I Expected count 59.8 34.2 94
Actual count 96 55 IS]
Total Expected count 96 55 ]5]
By using the cross-tabulation method (see table 5.3) it was concluded that there is no
significant difference between having a contract and being more or less successful.
From the table it is observed that the actual count and the expected count are very
close to each over. When the chi-square test was conducted, it indicated that there is
no relationship between having a contract and one's success potential. The exact
significance indicated a value of 0.385, thus it is not significant and the null
hypothesis can be rejected.
The conclusion that can be drawn from this is that the contracts acquired with SABM
are proportionally spread over the two groups of clusters.
5.4 Factors influencing the success potential of smallholder irrigators in South
Africa
Building on the results of the cluster analysis we will examine the influence of
assorted factors - that form circumstances within which smallholder irrigators operate
- on the potential for success. Van Rooyen (1984) stated that effective agricultural
production should start with the farmer and his farming organisation.
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Chapter 5 - Characteristics of potentially successful smallholder irrigators
5.5 The variables
The proxy for the dependent variable is a result of the cluster analysis conducted, i.e.,
farmers grouped based on individual characteristics. This separated the farmers into
two groups that were referred to as more successful (MS) or less successful (LS)
farmers. This yielded a discrete variable with values of either 0 for LS or I for MS.
The MS group was more positively associated with some of the factors (as mentioned
earlier, not with financial decision-making, training, the need for extension and
education) considered to lead to more success and vice versa for the LS group. Table
5.4 shows the list of explanatory variables together with their expected signs.
Table 5.4: Explanatory variables and their expected signs
Variable Measurement Expected sign
Contract with SABM 1 = Yes; 0 = No +
Gender 1 = Male; 0 = Female +
Thorough planning ] = Yes; 0 = No +
Market availability " +
Access to information " +
Transport access " +
Training " +
Belonging to a farm organisation " +
Off-farm income " +
Credit availability " +
Market distance Kilometres -
Extension visits Times per year +
Risk attitude Scale of 1-3 +
Farmer age Years +
Road accessibility 1 =Yes; O=No +
Electricity availability " +
Based on the factors influencing potential success in this smallholder irrigation
project, the variables were selected by using those that would logically influence the
success potential. These variables were also run in a correlation matrix and showed
significant correlation (Appendix B2). The following variables were included in the
analysis: the explanatory variables of having a contract with SABM; the gender of the
farmer; whether the farmer planned thoroughly; market availability; access to
information; transport access; whether the farmer received any training; whether the
farmer belonged to a farmers' organisation; whether the fanner has off-farm income;
the availability of credit for production; distance to the nearest market; how many
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Chapter 5 - Characteristics of potentially successful smallholder irrigators
extension visits per year the farmer has had; the farmer's risk attitude; the age of the
farmer; road accessibility and the availability of electricity.
5.6 The Model
In analysing the data, it had been decided to use the logit model because the
dependent variable is of a dichotomous nature, as shown in equation I below:
k
P) <00+L~Xt)
as ( -- =e ,=1 [I]I-P
Where Pi represents the probability of the smallholder irrigator i being more
successful, and Xi is the set of explanatory variables determining the smallholder
irrigators' potential for success. Denoting ao + ~ ai x, as Q, equation 1 may be
;=1
written to give the probability of success of a smallholder irrigator i as:
p. = I [2]
, l+e-Qj
From equation 2, the probability of an irrigator being unsuccessful is given by (1- p;)
as
. I
(l-p.)=-- [3]
, l+eQj
The odds ratio, i.e., Pj / (1- Pj) is given as
[4]
The natural logarithm of equation 4 gives rise to equation 5.
Ln ( --'
P - 1= Q = ao + _kLa;x; + E; [5]
1- P; ;=1
lOl
Chapter 5 - Characteristics of potentially successful smallholder irrigators
Rearranging equation 5, with the dependent variable in log odds, the logistic
regression can be manipulated to calculate conditional probabilities as
(ao+faiXi)
e 1=1
P. = -----:-------:- [6]
1 (ao+ ,faiXi)
1+e 1=1
Attempting to fit equation 5 for the first time using the maximum likelihood
procedure failed. This was attributed to multi-colinearity, as can be observed by
studying the correlation coefficient matrix.
In solving the multi-colinearity problem, it was necessary to compress the related
variables into fewer unrelated principal components. This technique is referred to as
principal component analysis (PCA). PCA is a technique used to reduce the
dimensionality of data while retaining as much information as possible.
The correlation matrix Cl, using standardised variables, was used to calculate eigen
values A" ~ , ..AK and corresponding eigenveetors vi' respectively as
[7]
The eigenveetors V j were then arranged to give matrix V in equation 8.
v= [8]
J The independent variables were standardised as (Xi - xi) / SXi
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Chapter 5 - Characteristics of potentially successful smallholder irrigators
The matrix V is orthogonal as its columns satisfy the conditions vjVj = I and vjVj =0
for i* j.
The principal components (Z) are calculated as
[9]
Where XS is an n x k matrix of standardised variables, and V is the eigenvector matrix
as defined in equation 9.
There are k principal components as there are k variables'. The second Z was chosen
to be uncorrelated with the first, and to have as large a variance as possible. Thus, the
X variables are transformed into new uncorrelated variables, which accounts for as
much of the variation as possible in descending order.
Several methods are used when choosing the number of principal components in
PCA. Using the scree plot of the eigenvalues is one of the criteria used and it is
extracted from the correlation matrix (Appendix B2). In this study, the number was
decided by leaving out components with corresponding eigenvalues of less than one.
This is the rule of thumb when conducting PCA using a correlation matrix. This is so
because an eigenvalue corresponds to the number of variables in a factor and the sum
of the eigenvalues corresponds to the total number of variables. A factor that is less
than one therefore means that it accounts for variability of less than one variable. The
initial variables (Xs) were therefore grouped into 6 principal components, altogether
accounting for 61.66% of the variability. Table 5.5 shows the results of the exercise
described above, with corresponding eigenvalues after Varimax rotation. Rotation is
a procedure that involves the redeployment of the variation for the different variables
between components, such that each variable is more or less clustered in one
component rather than spread throughout the components.
2 This new set of variables (principal components), unlike the original variables, are orthogonal; i.e.,
they are uncorrelated.
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Chapter 5 - Characteristics of potentially successful smallholder irrigators
Table 5.5 Principal components and their eigen values
.187
to a farm .083
1.298
8.11
The first principal component, PCI, accounts for 17.75% of variability, while PC2
through to PC6 account for 9.56% and 8.11%, respectively, as can be seen in Table
5.5. For clarity purposes, values of factor loadings below 0.45, in either direction,
were dropped from the analysis. Analysing the direction (sign of component loading)
and strength (value of component loading) of the relationships between the
components and the initial variables (as shown in Table 5.5) allows us to interpret the
results as follows:
Having a contract with SABM, access to credit and electricity are clearly the biggest
contributors influencing the success potential of smallholder irrigators. Access to
roads also plays a role, although it is to a lesser extent. All of these factors have a
strong and positive relationship with PCI. This could therefore be interpreted as
reflecting production capability. In order to be more successful a farmer should have
access to these factors. A negative relationship with market distance indicates that for
those farmers who have acquired a contract with SABM, distance to the market has
no influence as the yield is collected by contractors from SABM.
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Chapter 5 - Characteristics of potentially successful smallholder irrigators
PC2 has a strong relationship with information and transport access. It could be
interpreted as referring to information accessibility - in other words, the more access
the farmer has to transport, the more easily he can gain external sources of
information. Acquiring external sources of information is crucial to produce
successfully in a changing environment.
In PC) a positive relationship occurs between risk attitude and market availability.
This can be interpreted as referring to the ability to identify new opportunities. The
more risk averse the farmer is, the more likely it is that he is not able to identify a new
market opportunity. If a farmer takes on the risk of enhancing his infrastructure on
the farrn, he is more likely to acquire a contract with SABM. Thus, a new market
opportunity is opened up for the smallholder farmer. The contrary exists for the risk-
averse smallholder farmer who is not willing to improve his infrastructure.
Within the fourth principal component (PC4) there is a strong relationship between
planning and belonging to a farmer organisation. This component can be interpreted
as referring to planning aptitude - whether planning is done individually or within an
association. The results of the personal interviews with the farmers showed that a
very low percentage of farmers do thorough planning (12.5%) and also that a small
percentage of the latter group belong to a farmer organisation (33.] %). The main
reason for this is that 62.25% of the farmers interviewed had a contract with SABM,
which handles most of the planning and decision-making, thus the farmers do not
have to.
PCs shows a strong relationship between off-farm income and age. A negative
relationship with age exists, indicating that higher ages do not affect the ability to
receive off-farm income. This is largely attributed to the pension funds that older
farmers acquire through the government.
PC6 indicates a strong relationship between gender and extension visits.
Traditionally, women in black communities do not have the same rights and authority
as men do. This leads to women not attending the extension visits due to the fact that
they do not have the same influence as the men do. This component can be
interpreted as referring to gender relations. For most rural fanners, extension officers
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Chapter 5 - Characteristics of potentially successful smallholder irrigators
bring the only form of current information on farming issues. In a study done in
Nepal on gender aspects of smallholder irrigation technology, Upadhyay (2004) states
that extension and adoption of agricultural technology is still predominantly
undertaken by males. There are a handful of cases where extension services have
reached women farmers. Another study by Upadhyay (2002) revealed that 94% of
women in Jamuna (located in the upland area of the Ilarn district of eastern Nepal)
and 91 % in Chhita (Chhita falls under Terai and is a lowland region of the Sunsari
district, which has a humid, subtropical climate with rainfall varying from 1000 to
1500 mm a year) did not have any contact with extension agents in ] 998-99. Only
5% to 7% of women farmers of Jamuna and Chhita, respectively, had contact with
extension agents (only once) in 1998-99. According to Upadhyay (2004), rural
women are one of the deprived groups in Nepali communities to benefit from
modernisation and the introduction of new technology. However, the extension and
adoption system is still largely male dominated and women receive little or no
information on technological innovations in agriculture and irrigation.
5.7 The influence of derived components on success potential
After determining the principal components, a regression analysis was conducted to
study how the estimated components influence smallholder success potential. For this
exercise the discrete variable formed in the cluster analysis was used, and the
dependent variable was 0 for less successful and 1 for more successful farmers. The
previously described estimated components served as explanatory variables and their
values were the component scores (the score of each variable within the component).
The component scores are scaled in such a way that they have a variance of one and a
mean equal to zero.
A logit model was used to determine the effect of the six components identified
earlier regarding smallholders' success potential. The model was chosen because of
the dichotomous nature of the dependent variable (i.e., success potential). The
following logit model was used to determine the influence of the six principal
components on the success potential of smallholder irrigators:
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Chapter 5 - Characteristics of potentially successful smallholder irrigators
Lo Ry=l) ){ =ao +L~.,Ct;x; or as ( RY=,)) =e(ao+ta;x),=1 ......................... (1)]-P(y=l) ;=1 ]-PC\'=I)
Where P represents the probability of a small irrigator being successful, y represents
the more successful farmers and Xi is the set of explanatory variables determining
smallholder irrigators' success potential. According to Kleinbaum (1994), logistic
regression is a mathematical modelling approach that can be used to describe the
relationship between several Xs and a dichotomous dependent variable. Kleinbaum
also states that other modelling approaches are possible but logistic regression is by
far the most popular. Logit regression results are reported in Table 5.6.
Table 5.6: Parameter estimates of the logistic regression
Standard
Variables Coef1ïcient error T-ratio Probabilities
Production capability (PCI) 0.364 0.222 2.686 0.101*
Information accessibility (PC2) 0.459 0.227 4.086 0.043**
Ability to identify opportunities
(PC3) 0.658 0.218 9.079 0.003***
Planning aptitude (PC4) 0.329 0.214 2.36 0.124
Off-farm income (PCs) - J .566 0.37 17.932 .000***
Gender relations (PC6) 0.444 0.222 3.998 0.046**
Constant -0.953 0.235 16.47] .000***
The model has a 39% goodness of fit. The low value for the goodness of fit is due to
the cross-sectional analysis. It can be considered a good result when reflecting on the
complexity of the research object and the array of factors that influence the success
potential of smallholder farmers. As shown in Table 5.6, PC4 is not significant. PC3
and PCs are the most significant at a 1% (***) level of significance. PC2 and PC6 are
the second most significant at a 5% (**) level of significance. PC, is significant at the
cut-off point of 10% (*) significance.
In this type of discussion it is best to contemplate statistical significance because, for
the logit model, the estimated coefficients do not have a direct economic
interpretation. PC4 is described as the planning aptitude of the farmers and is based
on whether they belong to a farmer organisation and conduct thorough planning. The
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Chapter 5 - Characteristics of potentially successful smallholder irrigators
result of the regression indicates that it does not have a significant impact on the
success potential of farmers. This is also due to the fact that if a farmer acquired a
contract with SABM, all of the planning is done by SABM and not by the smallholder
farmers.
Now the discussion turns its focus towards the components that have a significant
influence on the model. The fifth principal component represents off-farm income.
This component proves to be the most significant in determining the success potential
of farmers when looking at income alone. Off-farm income has such a big influence
because only 7.3% of the farmers have another occupation from which they generate
income. The off-farm income they generate can be used to purchase inputs needed
for production or to make repairs to the infrastructure, for instance, the pivots. PC3
denotes the ability to identify opportunities and consists of risk attitude and market
availability. It is very significant at a ]% level. More risk-seeking farmers are more
likely to discover new markets.
The second component represents the information accessibility and consists of access
to information and access to transport. This component is significant at a 5% level of
significance. New information is always necessary to keep up with the changes that
arise in the production process. Farmers that produce under the contract farming
concept of SAB/SABM are obliged to attend Information Days that are held at the
local fanner support unions (FSU). SAB facilitates easy access to these Information
Days by choosing a central meeting point (most of the time at a building where the
FSUs meet regularly). Access to transport in order to attend Information Days in
other locations is thus a priority in the bid to acquire external information to help with
staying abreast of the latest production issues. The small-scale farmers use public
transport in order to meet this need.
PC6, gender relations, proves to be significant for this model at a 5% level of
significance. This is attributed to the fact that most farmers (75.5%) in this study are
male. This indicates that if the farmer is male, he is more likely to be successful. As
mentioned earl ier, this corresponds with the South African and other developing
countries' situations, as males in the native community have much more authority
than females do and this explains why male farmers generally attend extension visits.
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Chapter 5 - Characteristics of potentially successful smallholder irrigators
SAB is a BEE compliant company and has to accommodate previously oppressed
people. Black women fall under this legislation, thus SAB has to comply and include
women farmers in their contract farming arrangements.
The first component represents what can be termed as the production capabilities
essential for smallholders to achieve success - for instance, having a contract with
SABM, credit availability and access to electricity and roads. The results in the
regression show that this component is significant at a 10% level of significance.
This could be explained by the fact that if a farmer has acquired a contract with
SABM, the farmer has sufficient electricity and road access and SABM provides the
credit that is needed for the production. In the personal interviews held with the
smallholder farmers it was noted that 62.25% of all farmers had acquired a contract
with SABM. This indicates that all of these fanners have sufficient infrastructure and
credit provided by SABM.
De Lange (1994) identified several issues that are important for the success potential
of smallholder irrigation farmers. They are management and training, appropriate
technology usage, organisation and sufficient irrigation. It is clear that production
capability strongly relates to sufficient irrigation, particularly considering that the
appropriate infrastructure and availability of credit are obtained through having a
contract with SABM. Planning aptitude relates strongly to management and
organisation. Gender relations and off-farm income do not have a relationship with
de Lange's statements but, nevertheless, they are considered very important In
determining the success of smallholder irrigators in the Taung irrigation scheme.
5.8 Summary and conclusion
Understanding the success potential of smallholder irrigation projects IS critical
because it aids in developing proper planning. The general perspective is that
smallholder irrigation projects have the potential to present numerous livelihood
sources for the rural poor. Beyond serving the function of meeting subsistence needs,
surplus production has the potential to improve household incomes. These
improvements would feed directly into the government's imperatives of poverty
alleviation and economic growth.
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Chapter S - Characteristics of potentially successful smallholder irrigators
This chapter attempted to determine the extent of the influence of these factors and
used primary data from the Taung irrigation scheme in the North West Province of
South Africa. A principal component analysis was performed due to multi-colinearity
among the variables and it yielded six principal components, interpreted as:
Production capability (PCI); Information accessibility (PC2); Ability to identify
opportunities (PC3); Planning aptitude (PC4); Off-farm income (PCs) and Gender
relations (PC6). These accounted for 61.66% of the variability in the success potential
variable.
Further regression analysis using the principal components as explanatory variables
revealed that the most significant components were off-farm income (mainly received
by the older people in the form of pension), the ability to identify opportunities,
information accessibility, gender relations and production capability. The model had
a 39% goodness of fit. The relatively low goodness of fit is due to the cross-sectional
analysis. PCs and PC3 were significant at a 1% level while PC2 and PC6 were
significant at a S % level; PCI was significant at a 10% level. These results were in
line with the dimensions of success potential described earlier. It should be noted,
however, that the total effect of a component is a function of interactions of variables
within a component.
The results suggest that these five significant components should receive more
attention in order to address the factors that influence the success potential of
smallholder irrigators in the Taung irrigation scheme. These findings have
implications for both smallholder irrigators and policy-makers. Providing the
smallholder irrigators with the necessary infrastructure and including them in a
contract-farming organisation can certainly boost their success potential. This will
lead to overall wealth increases and the alleviation of poverty.
With respect to the ability to identify new opportunities, it is important that farmers be
taught how to identify the risk and whether the risk, if taken, will have a positive or
negative effect in the future. In order for the success potential to increase, it is crucial
that there be a lot of focus on improving the fanners' ability to identify new market
opportunities, as it plays the biggest role in the success potential of fanners.
IlO
Chapter 5 - Characteristics of potentially successful smallholder irrigators
Other farmers' experiences should be made accessible to smallholder farmers in order
to address the problem of lack of information accessibility. Whenever Information
Days are held in another location, transport should be made available to the farmers as
a group so that they can attend and thus acquire knowledge to apply to their own
situations. Extension advice provided by the government, SABM and from farmers is
also a very important source of information.
Gender relations indicate that males have the highest potential of being successful.
This does not mean that males are actually doing the work. In most instances in
South Africa, women are the providers of labour and have no authority. It is therefore
important to focus on gender equity as one of the factors behind success potential.
III
CHAPTER6
SUMMARY, CONCLUSKONS AND RECOMMENDATIONS
6.1 Introduction
The main purpose of this study was to highlight the areas where more attention should be
given to helping small-scale irrigators to become more successful in their production
methods as well as to mainstreaming them into the economy. Most of the focus fell on
the contract-farming concept of SAB/SABM. Contract farming seems to be a solution to
the problem of smallholder farmers not being able to participate in the mainstream
economy.
A summary, conclusion and recommendations of the study is presented in the following
sections.
6.2Summary
The presence of the rural poor was again highlighted in this study. The fact that most of
South Africa's poor live in the rural areas emphasises the importance of agriculture in
alleviating poverty and assuring food security. This fits in well with South Africa's
development objectives of alleviating poverty and promoting economic growth.
Smallholder irrigated agriculture deserves specific attention because of the rainfall
situation in the country. About 75% of the country is semi-arid and generally, rainfall is
erratic, averaging 464mm/annum. This situation makes the country heavily reliant on
irrigation, and about 52% of the current national water use is irrigated (Magingxa, 2007).
Chapter 6 - Recommendations and possible solutions
Thus, the importance of a thorough investigation into the current functionality of the
irrigation schemes is essential, particularly for the rural poor. The investigation is
imperative to provide insight to policy-makers.
Literature suggests that a range of factors influence the success potential of smallholder
irrigation projects, including access to land, information and markets, infrastructure,
family labour, research & development, farmer organisation, training, planning, record-
keeping, off-farm income, transport availability, extension and credit.
This study therefore explores the role of different factors in influencing the success
potential of small-scale irrigators. Data for this study was collected from the Taung
irrigation scheme in the North West Province of South Africa in five villages, namely
Bosele, Rethuseng, Tshidiso, Ipelegeng and Areageng (aka Pudimoe). The study has
used various analytical tools to address the imperatives raised in the previous discussion.
Firstly, a Cluster Analysis was performed to separate farmers based on their potential for
success, using individual characteristics gathered via a structured questionnaire. Results
of this exercise yielded two clusters of farmers - more successful and less successful.
What the results also established is that the more successful farmers tend to have more
farming experience than the less successful farmers. The results also conclude that the
more successful farmers actively plan and keep financial records. They also score
positively in other essential farmer characteristics necessary for successful farming, such
as making technical decisions of using high-yielding seeds and fertiliser and applying
herbicides and pesticides. The more successful group of farmers show that they have
more control over their production process than the less successful farmers.
Secondly, building on the above results, the logit model was used to determine factors
that influence the success potential of small-scale irrigators. In this exercise, results of
the cluster analysis were developed into the dependent variable (success potential). The
objective was to assess the role of different variables that would logically influence
success potential. Variables that also featured significantly in the results were: having a
contract with SAB, availability of credit, markets, roads and electricity, access to
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Chapter 6 - Recommendations and possible solutions
information and transport, risk attitude, thorough planning, belonging to a farmer
organisation, off-farm income, gender and finally, extension visits.
The final step employed Principal Component Analysis to investigate the factors that
influence the success potential of smallholder irrigators. Results grouped six principal
components, together accounting for 61.66% of variability. The influence of the derived
components on the success potential was determined by again making use of alogit
model. However, only five of the six components had a significant influence on success
potential. The components were: off-farm income, ability to identify opportunities,
information accessibility, gender relations and production capability.
6.3 Conclusions
The conclusions drawn from the results of this study are summarised and presented
hereunder and focus on general issues, the principal components influencing success
potential and the role of SAB.
6.3.1 General
Of the 151 farmers interviewed in this study, about 62% indicated that they have acquired
a contract with SAB to produce barley and maize. Thus, these farmers have a set market
for their produce and market access is, in this case, not a significant problem for the
small-scale farmers in the Taung irrigation scheme. Farmers who do not have a contract
with SAB also make use of the market SAB provides in the area, assuming that the
product is in line with the needs and quality specifications of SAB.
Results indicate that more than 89% of the small-scale farmers need credit to produce and
more than 72 % indicated that they have access to credit. Access to credit is thus not a big
constraint in the Taung irrigation scheme. The reason for this is that more than 62% of
the small-scale fanners indicated that they have a contract to produce for SAB. SAB acts
as a credit provider in the form of inputs. However, there is still a need for access to
credit for the remaining fanners in the scheme. The farmers that indicated they do not
have access to credit implied that the main reasons for not acquiring credit are:
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Chapter 6 - Recommendations and possible solutions
insufficient security to apply at a commercial bank, lack of knowledge to go about
organising credit and finally, high interest and transaction costs. This is a common feature
in rural areas where most people do not understand how the system of commercial and
agricultural banks works.
The educational levels were determined and they range from having no education to post-
matric level. More than 21 % of the small-scale farmers have not received any form of
education and only about 15% have education up to Grade 12. Even though there is a
lack of education among the farmers, it does not seem to have a significant effect on the
success potential of the farmers. It was noted that the more successful group of farmers
had a lower level of education than those in the less successful group.
More than 50% of the farmers received training on the production methods they use.
However, results indicate that it is not significant when determining success as the more
successful farmers had received less training. The same results were found for financial
decision-making and the need for extension. Although more than 85% of small-scale
farmers indicated that they need extension advice, it is not a significant factor in
determining success potential.
The factors with the most significant influence on success potential were: farming
experience and technical decisions related to making use of pesticides/herbicides, high-
yielding seeds and fertiliser.
The overall average of farming experience amongst the small-scale farmers is 15 years.
Practical farming experience is a very valuable asset and outweighs any form of training
and education. Results in this study support this statement as farming experience was the
biggest contributor to success potential. However, education and training are still vital in
order to make informed decisions in the farming enterprise. Making technical decisions
related to the use of high-yielding seeds, fertilisers and applying pesticides/herbicides are
very important factors influencing the success potential. This group of farmers can
expect to harvest higher yields and thus improve the income they receive.
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Chapter 6 - Recommendations and possible solutions
6.3.2 Principle components influencing success potential
This study attempted to determine the extent of the influence of factors using primary
data from the Taung irrigation scheme in the North West province of South Africa. A
principal component analysis was performed due to multi-colinearity among the variables
and yielded six principal components, interpreted as: Production capability (PCI),
Information accessibility (PC2), Ability to identify opportunities (PC3), Planning aptitude
(PC4), Off-farm income (PCs) and Gender relations (PC6). These accounted for 61.66%
of the variability in the success potential variable.
Further regression analysis using the principal components as explanatory variables
revealed the most significant components to be off-farm income, the ability to identify
opportunities, information accessibility, gender relations and production capability. The
model had a 39% goodness of fit. The relatively low goodness of fit is due to the cross-
sectional analysis. Each of the pes has a level of significance influencing the success
potential. A summary of the five PCs follows below.
Off-farm income proved to be the most significant in determining the success potential of
farmers. Off-farm income has such a big influence because only 7.3% of the farmers
have another occupation whereby they generate an income. The off-farm income can be
used to purchase production inputs, which could be the difference between growing a
crop for the following season or not.
Ability to identify opportunities consisted of risk attitude and market availability, and
was also very significant at a 1% level. More risk-seeking farmers are more likely to
discover new production methods, alternative resources and markets for their products.
Information accessibility consists of information and access to transport. This
component was significant at a 5% level of significance. New information is always
necessary to keep up with the changes that arise in the production process. Access to
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Chapter 6 - Recommendations and possible solutions
transport is therefore necessary to attend information days in other locations in order to
acquire external information to help keep up with the latest production practices.
Gender relations proved to be significant for this model at a 5% level of significance.
This is attributed to the fact that most farmers (75.5%) in this study are male. This
indicates that if the farmer is a male, he is more likely to be successful. It aligns with the
South African situation as males in the black community have much more authority than
females do, and this explains why male farmers predominantly attend extension visits.
Production capability consists of having a contract with SAB, credit availability, access
to electricity and roads. The results in the regression show that this component is
significant at a 10% level of significance. This could be explained by the fact that if a
farmer acquired a contract with SAB, the farmer has sufficient electricity and road access,
and SAB provides the credit that is needed for production. In the personal interviews
held with the smallholder farmers it was noted that 62.25% of all farmers had acquired a
contract with SAB. This indicates that all of these farmers have sufficient infrastructure
and credit provided by SAB.
The results suggest that these five significant components should receive more attention
in order to address the factors that influence the success potential of smallholder irrigators
in the Taung irrigation scheme.
6.3.3 The influence of SAB in success potential
According to Magingxa (2007), market access is one of the most critical issues that
determine the success of smallholder irrigation projects. It is also acknowledged that
access to markets is the critical aspect determining profitability of smallholder irrigation
schemes. Smallholder irrigation is envisaged as one of the vehicles for achieving
economic growth, thus the role of market access must not be underestimated.
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Chapter 6 - Recommendations and possible solutions
By acquiring a contract to produce for SAB, the small-scale farmer automatically
receives access to the market. Thus, the small-scale farmers are assured of an offset for
their produce and a definite income. SAB also assists in the pre-production process by
acting as financial intermediary and by supplying credit to the small-scale farmers in the
form of production inputs.
Production inputs and other expenses can be purchased less expensively due to the
economies of scale that the small-scale farmers acquire through SAB. Expert advice and
ground-level assistance is supplied by SAB throughout the whole production process.
Thus the small-scale farmers are always informed and up-to-date with the newest
production methods and market news. SAB is a company that complies with the equity
legislation, thus promotes the inclusion of previously oppressed groups. Women smalI-
scale farmers will most certainly benefit from contract farming due to the equity policy.
Working with SAB meets four of the five principle components that influence success
potential, namely: the ability to identify opportunities, information accessibility, gender
relations and production capability. Thus, contract farming plays an important role in the
success potential of small-scale farmers.
6.4 Recommendations
Important recommendations are made following the preceding set of conclusions
presented in this section. Recommendations are presented under two headings: policy,
and recommendations for further research.
6.4.1 Policy
The conclusions made above have crucial implications for possible steps that can be
taken to deal with the problem of smallholder irrigation management.
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Chapter 6 - Recommendations and possible solutions
Cl Results in this study have shown that the majority of farmers are old. Literature
tells us that old age hinders the ability to react to opportunities and also impacts
negatively on the process of adopting new technologies. Making smallholder
farming interesting to the younger generation could be a way to improve the
performance of the small-scale sub-sector. It is vital that the older farmers'
existing knowledge be transferred to younger farmers. This will lead to the
development of a new generation of entrepreneurs and will reduce the over-
reliance on often non-existent employment opportunities.
o Directly related to the above is the issue of capacity-building in the small-scale
farming sector. Avenues that can be explored in this regard include continual
specialised training and the encouragement of constant interaction with more
experienced market participants. In this case, government can partner with
general society and the private sector to facilitate such interaction.
e One way of dealing with the problem of high-cost transportation may be to extend
the public transport subsidies enjoyed by bus operators to providers of transport
for the produce of smallholder irrigation schemes. That will make the exercise
attractive to service providers and will also encourage small-scale farmers to use
common transport rather than the more expensive alternative of small pick-up
vans. However, that will also mean attention has to be paid to the road
infrastructure. It is important for rural farmers to trade with outside buyers
because the local market is often not big enough nor is it widely dispersed.
111 The issue of farmers who hold on to land for non-productive purposes can be
approached in two ways. Firstly, more power can be given to community
organisations. Community organisations should be in a position to give
productive land to those interested in farming. Secondly, a land market system
can be created that will improve the economic value of the landholdings and
facilitate exchange. In addition, rural non-farm enterprises may have to be
119
Chapter 6 - Recommendations and possible solutions
developed to provide more incentives for committed farmers to rernam in the
irrigation schemes.
o A platform wherein government, the private sector, civil society and farmers are
partners is important. The goal should be to overcome exclusion from policy-
making and to design programmes that facilitate small-scale farmer market access
and private sector service provision. In this regard, the government will have to
play a facilitative role by designing, together with the other partners, a framework
that will facilitate an ongoing and protected investment by the private sector in
rural farming enterprises.
lol A lot of research work on smallholder irrigation management is done by research
professionals. However, the link between the results of this research and the
policy-making process is unclear. What is needed here is ongoing interaction
between policy-makers and scientists who work with the farmers, in order to
facilitate a two-way movement of information.
ti Farmer organisations and associations should be encouraged. There may even be
a reward system to encourage them. These could even serve as surety where
credit is needed and could see the small-scale irrigation sub-sector improving. A
popular example is that of the Asian Grameen Bank, which works well with
farmer groupings.
ti Rebuilding important farmer support services and institutions is crucial. Within
these, extension services show signs of not being efficient in terms of the quality
and quantity of interactions. It may be necessary to strengthen this service and
also to encourage specialisation and ongoing training of extension officers.
{Ij Information is cited as one of the major sources of transaction costs. It is critical
to facilitate better information access regarding quality requirements and
prevailing prices in the formal and more lucrative markets. Access to this type of
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Chapter 6 - Recommendations and possible solutions
information will assist smallholders to gear up for the opportunities provided.
Examples tried elsewhere include riding on the current wave of less costly
information technology, for instance using cell phones in addition to traditional
media.
6.4.2 Further research
Further research on the following aspects is recommended:
o It is possible to conclude that the marketing system for smallholder farmers is
generally quite poor. Smallholder irrigators largely do not pre-select a market
outlet and also do not sell to the buyer of choice. The choice of outlet has
implications in terms of costs and prices obtained by the producer at the market.
It would be interesting to research methods of designing agricultural marketing
systems that can influence productivity and growth for smallholder irrigators.
Such knowledge would benefit both the government, private sector and the
farmers themselves.
o The pricing of produce in smallholder irrigation farming is usually fluctuating and
ad hoc in nature. It would be helpful to determine more stable pricing measures
that will establish farmer expectations. Such knowledge would result in repeat
business from potential buyers and improve the competitiveness of the sub-sector.
• One of the factors that discourages formal business from dealing with the
informal small-scale farmer is the uncertainty in upholding agreements. It would
be very valuable to determine a framework that would facilitate the involvement
of the private sector in creating smallholder agreements within a protected
environment.
6) Whilst there is general consensus that smallholder farmers should be encouraged
to form associations in order to better access markets, increase their volumes and
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Chapter 6 - Recommendations and possible solutions
improve their bargaining power, it is not clear as to how such formations should
be conceived. Specific research on the role of market association to clarify the
extent to which such formations will help, as well as guidelines as to how they
should be conceived, would be valuable.
I) Comparative studies on the efficacy of various information sources is important to
guide policy-makers on how to convey critical information to smallholder
irrigators about existing prices and quality requirements in the more profitable
markets.
e Studies on how to develop the vital links between policy-makers, donors,
researchers and the private sector would most likely contribute to improving the
chances of smallholder irrigated agriculture being more successful and
sustainable.
122
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145
APPENDIX A
QUESTIONAIRE
146
UNIVERSITY OF THE FREE STATE
FACULTY OF NATURAL AND AGRICULTURAL SCIENCES
DEPARTMENT OF AGRICULTURAL ECONOMICS
Farmer Questionnaire on constraints of small scale farmers in Taung, North West Province
I Date: 11'D I M\i I YY'{Y
l.P. Klopper Email: klopperjp.sci@ufs.ac.za
Mobile: 0825473673 Office: 051-4013570
INSTRUCTION: Ask to speak to the farmer i.e. the person responsible for the day-to-day activities
Name of the interviewee
Name of the village Boseie 1
Rethuseng 2
Tshidiso 3
lQelegeng 4
Areageng 5
Do you have a contract to produce for South African Breweries? I Yes No
A.I Gender of household head? Male I
Female 2
A.2 Age of household head? years
A.3 How many people are currently resident in your household?
A.4 Household composition (include absentees)
1. Children 0-4 yr
2. Children 5 - 9 yr
3. Children lO - 18 yr
4. Males 19 - 44 yr
5. Males 45 - 64 yr
6. Males > 65 yr
7. Females 19 -44 yr
8. Females 45 - 64 yr
9. Females > 65 yr
147
B I What I.Sthe h'Ighl est eve I 0f educatron or:
Farmer Spouse Child with highest qualification
still living at home
I.None I I I
2. ::::Grade 5 2 2 2
3. Grade 6-7 3 3 3
4. Grade 8-9 4 4 4
5. Grade 10 5 5 5
6. Grade 11-12 6 6 6
7. Post-matric 7 7 7
B 2 Ind'icate whether you have the r0 IIowmg anguage ablr"une. s:
Language Talk Read Write
1. English 1 2 3
2. Afrikaans I 2 3
3. Your home language (specify) 1 2 3
4. Other language (specify) 1 2 3
Always Sometimes Never
B.3 Do you take risks in trying new farming techniques I 2 3
B.4 If you have a problem on your farm, do you wait for an I 2 3
extension officer to help you?
B.S Do other farmers ask you for help? 1 2 3
B.6 Do you ask other farmers for help? I 2 3
B.7 Do you consult other farmers before making a decision? ] 2 3
, .. ,....
C.l How long have you been farming years
C.2 Type of farming 1. Crop - Irrigation I
2. Crop - Dry land ]
3. Vegetables ]
4. Livestock I
5. Other - specify 1
C.3 Soi I type of the land I. Sandy I
2. Clayey 2
3. Loamy 3
4. Other (specify) 4
Do not know 5
I C.4 What is the size of your land ha
C.S Are you satisfied with the size of your land? Yes
No
I C.6 If "NO" to C.S, what is the reason? I. Too small
148
(mark more than one, if necessary) 2. Do not have ownership I
3. Shallow soils ]
4. Income not sufficient I
5. Other (specify) ]
I). PLANNING AND MANAGEMENT
D.] To what extend do you plan for the future
I.Through plans and objectives stated I
2. Some plans (rough + incomplete) 1
3. Only some idea about planning ]
4. No plans (not considered) I
D.2 Do you keep any financial records? Yes 1
No 2
D.3 If "-YE-S" to D.2, fill in the following table for the type of records you keep
Yes No
l. Cost records ] 2
2. Income records 1 2
3. Crop production records 1 2
4. Animal production records I 2
5. Labour records ] 2
6. Inventory records ] 2
7. Other records (specify) I 2
DA Do you think that keeping financial records are important? Yes
No
D.5 If "Y-E-S" in D.4, how important is keeping records to you?
Not Important Veryimportant important
I. Determining financial position ] 2 3
2. Decision making and planning I 2 3
3. To keep the bank or co-op manager happy 1 2 3
4. Other (specify) ] 2 3
E.] Do you sometimes produce more produce than you can sell? Yes I
No 2
E.2 Do you store part of your produce? Yes I
No 2
149
E.3 Are there output markets available within an accessible distance Yes
from your farm? No
E.4 Through which marketing system do you market your crops?
(fill in the names for the different crops)
Crop Crup I Crop .:: Crops '.f
1. At the field or on the roadside (%)
2. Open market in town (%) r ::(
3. Local trader or Co-operation (%)
4. Own consumption (%)
5. Value adding direct marketing (%) iji;
6. Other (specify)
E.5 Do you process (some of) your produce on the farm? Yes
No
E.6 Is there any produce that you could not sell in 2006/2007 Yes
No
I E.7 What is the distance from your farm to where you sell your produce? km
E.8 Who or what determines the crop which should be produced for the season?
I.You (household head) I
2. You and your spouse 2
3. Government extension officer 3
4. Depends on what contract you get in the beginning of the season 4
5. South African Breweries 5
6. Market prices of the intended crop at time of planting 6
7. Other (specify) I 7
2 8
3 9
F.l Do you use any high yielding seeds on your farm? Yes
No
F.2 If "YES" to F.l, how do you I. Personally from the market I
acquire these? 2. Through the fanners' association ]
3. From the local co-operation 1
4. Through the local extension officer I
5. Visiting product extension officers 1
6. Other means (specify) 1
150
F.3 If "NO" to FJ, what is the 1. High yielding seed to expensive 1
reason? 2. Input markets not easily accessible I
3. Can not get credit to buy seed I
4. Do not know how to use high yielding seed 1
5. No information on how to acquire seed 1
6. Not interested in using high yielding seeds I
7. Other reasons (specify) 1
F.4 Do you use any high yielding fertilizers on your farm? Yes
No
F.5 If "YES" to F.4, how do 1. Personally from the market 1
you acquire these? 2. Through the farmers' association 1
3. From the local co-operation 1
4. Through the local extension officer 1
5. Visiting product extension officers 1
6. Other means (specify) 1
F.6 If "NO" lO F.4, what is the I.Fertiliser to expensive 1
reason? 2. Fertiliser markets not easily accessible ]
3. Can not get credit to buy fertiliser 1
4. Do not know how to use fertiliser 1
5. No information on how to acquire fertiliser 1
6. Not interested in using fertiliser 1
7. Other reasons (specify) I
F.7 Do you use remedies like pesticides and herbicides? Yes I
No 2
G.l If you sell in the formal market, do you know in advance the prices Yes
prevailing in the market? No
G.2 Do you know in advance the quality requirements for specific Yes
markets? No
G.3 Do you make use of public or rented transport to acquire inputs? Yes
No
G.4 Do you have access to transport? Yes
No
151
G.5 What source(s) of information do you use or approach when you have to make the following
decr.s. ions, acquir.e. Inforrrrnaatnion or nee d training. ? (M ark as many as appnlica bl)e
Technical Financial Marketing Information on Training
decision decision decision new technologies
I.Radio I I 1 1 I
2. Television I I I I I
3. Extension publ ications 1 I ] ] I
(leaflets etc.)
4. Cc-farmers / neighbours 1 I 1 1 1
5. Department of Agriculture I I 1 1 1
Extension officer
6. Co-operative - extension ] 1 1 ] I
officers
7. No one -use own physical ] ] 1 1 1
or technical records
8. No one -use own financial I I I ] ]
records
9. Bank manager ] 1 1 ] ]
10. Supplier of inputs ] ] ] ] I
I].Sell to the buyer who is ] ] ] I 1
the closest to my farm
12. Market agents ] ] ] ] 1
13. Read in the press (news ] I ] ] I
Q<ïpers, magazi nes)
]4. Chief I ] ] ] I
] 5. Other specify 1 1 1 ] I
G.6 Did you receive any training on the technologies you use? Yes
No
G.7 Indicate which of the following institutions' services are freely and easily accessible to you, the
farmer
] . Government extension system 1
2. Cooperative extension system 1
3. Agricultural research council (ARC) 1
4. Input suppliers (seed, fertilizer, herbicide, fuel, etc. companies) 1
5. Output markets (institutions like co-ops, etc.) 1
6. Credit institutions ]
7. Other (specify) I
G.8 Do you need any extension advice? Yes
No
G 9If"YE-S"- to G 8·IS any 0 f the next extension 0ffteers aval"Iabl ew hen you nee d them.?
Yes No
I . Government extension officers ] 2
2. Cooperative extension officers 1 2
3. Input suppl ier ex tension officers 1 2
152
GIOH ow many imes have you been vr.s.ite db y an extension 0ffteer t IS year.?
] . Government extension officers Times
2. Cooperative extension officers Times
3. Input supplier extension officers Times
4. Total Times
G.I] Do you think the extension officer has enough knowledge to supply you with the necessary
Iinfoorrrnnaatiuon you need on your technmiea I and fimnaanncciaial management needss?.
Technical Financial
Yes No Yes No
] . Government extension officers ] 2 ] 2
2. Cooperative extension officers ] 2 1 2
3. Input supplier extension officers 1 2 ] 2
G.12 Are there any farmers' organisations in the scheme (whether formal or f---_Y_:_e.::....s_-t-_--:---i
informal)? No
G.J3 Do you belong to any farmers' organisation (whether formal or f---_Y_e.::....s_-t_-_ --i
informal)? No
G.14 Do you have any rules regarding the management of the irrigation r--Y-es--+---~
scheme? No
G.15 Are you aware of any government legislation(s) relating to your farm r--Y-es--+---~
operation and/or marketing? No
G.16 Are you familiar with the new National Water management Act r--Y-es--+---~
(NWA)? No
GJ7 Are you familiar with the Marketing of Agricultural Products Act r--Y-es--+---~
~~? ~
HJ Indicate which of the following infrastructure are freely available and easily accessible to you
the farmer?
1. Roads 1
2. TransQ_ort I
3. Telephones I
4. Electricity ]
5. Local markets I
6. National markets I
7. International markets I
8. Other (specify) ]
153
<,
1.1 Land-use
Share Rented Open Communal Partnership Total area
cropping land access land
I .Crops under centre
J"I{,) '.,' h;.:pivot inigation
2.Crops sprinkler
11:1 11:1 [,.,~1.1 JL1 flil i');.~
irrigation
3.Vegetables under JJ:) b~~ La Jd ha ;'"i~!
centre pivot irrigation
4.Vegetables under ha ha 11(; 1,"'" ;1~·i,sprinkler irrigation l
5.0ther (specify) ha ru tJ;! ] }:; ha h~-).
6.Total (ha) hG ha ha ha ha ]t:'1
1.2 Please provide the following information regarding last seasons' produce
Cro_Q_ Crop i C~rop '2 "," "',..l."()r ..) Cr±,
1. Area planted Ha Ha .!:-la IIa
2. Total yield 'Ion Ton 'ron 'fon
3. Total income R R R R
4. Cost per Hectare R R R 1<-
5. Price received for produce R/ron Rzron R!ton R/toll
1.3 Do you render services to other farmers Yes 1
No 2
1.4 }f"Yes", are you paid for these services Yes ]
No 2
1.5 If "Yes", to 1.3 what type of services?
1.6 If "Yes" to 1.3, then state the income you receive from this R
1.7 Do you have another occupation Gob) Yes 1
No 2
1.8 If t'Yes" to 1.7, the state the income you receive from this R
154
L_ ~~
J.l Do you make use of external sources of capital Yes
No
J 2 If "YES" name the source and amount outstan In_gon31/] 2/2007
Source Amount (R)
Formal sources
I.Commercial bank R
2. Land Bank R
3. Agricultural Cooperative R
4. Department of Agriculture R
5. South African Breweries R
6. Other R
Informal sources
7. Credit unions R
8. Farmers' association R
9. Family and friends R
] O. Stokvels R
11. Other (specify) R
J.3 Do you need credit for farming activities (inputs, food, ete) Yes I
No 2
J.4 Is credit available to you the smallholder farmer Yes ]
No 2
J 5 If "NO" to J .4,what is the reason
I.Do not need extra money - have enough to buy inputs ]
2. The cost (interest) of money is to high 1
3. Bank does not want to lend me money due to insufficient security (land) 1
4. Poor repayment ability of farm 1
5. Do not know how to go about organizing credit 1
6. Other (specify) 1
J.6 How do you buy the inputs (seed, fertilizer, pesticides, fuel etc.) for crops?
(mark only I)
Use only own funds 1
Buy only on credit 2
Combination of own funds and credit 3
Thank you
155
Appendix B 1: Correlation matrix cluster variables
Financial Financial Tech Tech Tech Need Yield Income Farm Area I
Variables Planning records decisions 1 2 3 Training extension known known experience Education planted ..
Planning 1.000 .139 .082 -.054 -.008 .011 -.022 .157 -.107 .092 .114 -.030 -.332
Financial ..
.139 1.000 .426 .016 .012 -.049 .009 -.011 .138 .204 .153 .092 -.053records
Financial .. .082 -.011 .122 -.125
decisions .082 .426 1.000 -.002 -.091 -.146 -.057 -.066 .073.. ..
Tech 1 -.054 .016 -.002 1.000.. .643
" .503 .. .148 .129 .154 .173 .083 -.107 .416 ..
Tech 2 -.008 .012 -.091 .643 .. 1.000 .478 .201 .051 .117 .109 .028
-.141 .471
.. ..
Tech 3 .011 -.049 -.146 .503 .478 1.000 .030 .134 .033 .071 .198 '.080 .241 ..
Training -.022 .009 -.057 .148 .201 .030 1.000 -.110 -.073 -.143 -.146 .065 .279
Need
extension .157 -.011 -.066 .129 .051 .134 -.110 1.000 .008 .034 -.031 .155 .020..
Yield known -.107 .138 .073 .154 .117 .033 -.073 .008 1.000.. .483 .133 '.081 .103
Income known .092 .204 .082 .173 .109 .071 -.143 .034 .483 1.000 .156 -.145 .082
Farm ..
experience .114 .153 -.011 .083 .028 .198 -.146 -.031 .133 .156 1.000 -.215
.139
..
Education -.030.. .092 .122 -.107.. -.141.. -.080.. .065.. .155 -.081 -.145 -.215 1.000 -.054
.Area planted -.332 -.053 -.125 .416 .471 .241 .279 .020 .103 .082 .139 -.054 1.000
** Correlation significant at 0.01 level
* Correlation significant at the 0.05 level
156
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