Integration of emerging cotton farmers into the commercial agricultural economy

Abstract

English: The broad objective of the study was to generate information that will facilitate the integration of small-scale emerging agriculture into the South African economy. The specific main objectives were to: - Identify the constraints to market participation and commercial orientation of the small-scale emerging farmers; - Identify potential successful and unsuccessful farmers; - Assess the potential role of joint venture initiatives as a commercialization model; - Assess the impact of market participation to farmers’ livelihoods and their welfare in general; - Analyse both the structure and performance of the cotton industry as well as the profitability of the cotton crop; - Discuss the implications of the findings for policy and possibly additional research necessary to improve small-scale agriculture. The study was conducted in two cotton growing regions of the Mpumalanga Province, namely Moutse and Nkomazi. A sample of 177 small-scale cotton growers was drawn from emerging cotton growers. The basis for analysing and understanding of the major factors behind the success or failure of small-scale farmers’ commercialisation lies within the New Institutional Economics school of thought. Contract farming is an institutional marketing arrangement widely used by sample farmers to reduce transaction costs. Its main advantage is that it offers farmers a guaranteed market. For processing companies (ginners) the advantage is that production is more reliable and guaranteed than open market purchases. As a result of guaranteed market, cotton has the highest commercialisation index of 0.99 and 1 in Moutse and Nkomazi respectively. The main challenge facing the continuation of contract farming is the non repayment of loans with a resultant decline in the level of support that farmers receive Cotton plays an important role in the farmers’ livelihood in terms of employment, income, household gender relations and food security. The role of cotton in rural development is, however, constrained both by external and internal factors. Low international prices arising mainly as a result of subsidy policies in the wealthy countries constitute the greatest limiting factor to cotton farmers in developing countries. Profitability analysis shows a gross margin of R1 072 per hectare in Moutse which is 52% higher than Nkomazi gross margin. Three main critical variables that influence the profitability of cotton production are production levels, costs and price as influenced by the quality of seed cotton produced. Break-even analysis reveals that when price is set at R3.65/kg, the break-even yield for Moutse and Nkomazi is estimated to be 1 073kg and 917kg per hectare of seed cotton respectively. When the seed cotton price declines larger quantities of seed cotton have to be produced to break-even. Cluster analysis revealed two main groups of farmers categorised according to their entrepreneurial skills, namely very successful and less successful farmers. The very successful group is dominated by a group of relatively young farmers with a high level of entrepreneurial skills. In addition, this group has a relatively high percentage of risk takers (10%) compared to 2% for less successful farmers. The hypothesis that transaction costs and other closely related factors influence commercialisation was empirically tested using logistic regression. Statistically significant factors were found to be age, ability to speak English, region, ownership of transport, access to market information, distance to market, dependency ratio, trust, ownership of livestock and land size. The results do not support the hypothesis that the level of commercialisation increases with land size. A unit increase in land size decreases the probability of commercialisation by 17%. In view of these findings, the following policy proposals are suggested: There is a need to develop a typology of small-scale cotton producers in order to operate different kinds of credit schemes based on farmers’ level of production, yield and perceived risk. Secondly, contract farming is the future of agricultural production and marketing and should therefore be promoted. In this regard, there is a need for a well developed and efficient legal system in which the government has a role to play. Thirdly, consolidation of farmers’ organisation is critical. If well developed, banks should, inter alia, consider group lending through working with effective farmers organisations. Finally, successful integration of small-scale agriculture relies heavily on the selection of beneficiaries. Future research studies should take cognisance of nonhomogeneity of small-scale farmers and their aspirations. There is a need for a study that focuses on attributes of a successful entrepreneur and such attributes should be used for the selection of land reform beneficiaries.

Afrikaans: Die studie het ten doel gehad om inligting te genereer wat die integrasie van kleinskaalse opkomende boerdery in die Suid-Afrikaanse ekonomie kan aanhelp. Spesifieke hoofdoele was om: - Die beperkings tot markdeelname en kommersiele orientering by kleinskaalse opkomende boere te identifiseer; - Potensieel suksesvolle en onsuksesvolle boere te identifiseer; - Die potensiele rol van gesamentlike ondernemings inisiatiewe as ‘n kommersialiseringsmodel te beoordeel; - Die impak van markdeelname op boere se lewenspeil an algemene welvaart te beoordeel; - Beide die struktuur en prestasie van die katoenbedryf asook die winsgewendheid van die gewas te ontleed; - Die implikasies van die bevindings vir beleid asook moontlike addisionele navorsingsbehoeftes wat nodig is om kleinskaalse boerdery te verbeter, te bespreek. Die studie is uitgevoer in twee katoenproduserende streke in Mpumulanga Provinsie, naamlik Moutse en Nkomazi. ‘n Steekproef van 177 kleinskaalse katoenboere is getrek. Die basis vir analise en begrip van die hoof-faktore onderliggend aan sukses of mislukking van die kommersialisering van kleinskaalse boere val binne die gedagteskool van die Nuwe Institusionele Ekonomie. Steekproefboere maak heelwat gebruik van kontrakboerdery as institusionele bemarkingsmodel om transksiekoste te verlaag. Die belangrikste voordeel is ‘n gewaarborgte mark vir boere. Verwerkers (pluismeulens) verkry die voordeel dat dit lei tot meer betroubare en gewaarborgte produksie as met ope mark aankope. Weens die gewaarborgte mark het katoen die hoogste kommersialseringsindeks van 0.99 en 1 in Moutse en Nkomazi onderskeidelik. Die grootste uitdaging vir die voortsetting van kontrakboerdery is die nie-betaling van lenings met ‘n gevolglike afname in die peil van ondersteuning wat die boere ontvang. Katoen speel ‘n belangrike rol in die boere se bestaan met betrekking tot indiensneming, inkome, die huishoudings se geslagsverhoudings en voedselsekuriteit. Katoen se rol in landelike ontwikkeling word egter beperk deur eksterne asook interne beperkings. Lae internasionale pryse hoofsaaklik weens subsidiebeleide in die ryk lande vorm die belangrikste beperkende faktor vir katoenboere in ontwikkelende lande. Wisgewendheidsanalise toon ‘n brutomarge van R1072 per hektaar in Moutse, 52% groter as die brutomarge in Nkomazi. Produksiepeil, koste en prys soos deur gehalte beinvloed is drie belangrike kritiese veranderlikes wat ‘n uitwerking op die wisgewendheid van katoenproduksie het. Gelykbreekanalise toon dat met ‘n prys R3.65/kg, die gelykbreek opbrengs in Moutse en Nkomazi onderskeidelik 1073 en 917kg saadkatoen per hektaar is. Wanner die saadkatoenprys daal, moet groter hoeveelhede saadkatoen geproduseer word om gelyk te breek. Trosanalise identifiseer twee hoofgroepe boere gekategoriseer volgens hul entrepreneuriale vaardighede, naamlik hoogs suksesvolle en minder suksesvolle boere. Die hoogs suksesvolle groep word oorheers deur ‘n groep betreklike jong boere met ‘n hoe peil van entrepreneuriale vaardighede. Hierdie groep bevat ook ‘n betreklik groter persentasie risiko-aanvaarders (10%) vergeleke met 2% vir die minder suksesvolle boere. Die hipotese dat transaksiekoste en ander nou-verwante faktore ‘n invloed het op kommersialisering is empiries getoets met behulp van logistiese regressie. Ouderdom, bedrewendheid in Engels, streek, eienaarskap van vervoer, toegang tot markinligtng afstand na die mark, afhanklikheidsverhouding, vertroue lewendehawe besit en plaasgrootte was statisties betekenisvolle faktore. Die resultate van die studie ondersteun nie die hipotese dat die peil van kommersialisering met meer grond toeneem nie. ‘n Toename van een eenheid in plaasgrootte verlaag die waarskynlikheid van kommersialisering met 17%. Gebaseer op hierdie bevindings word die volgende beleidsvoorstelle aan die hand gedoen: Dit is nodig om ‘n tipologie van kleinskaalse katoenboere te ontwikkel teneinde verskillende tipes kredietskemas, gebaseer op boere se produksiepeil, opbrengs en waargenome risiko te bedryf. Tweedens is kontrakboerdery die toekoms van landbouprodukie en –bemarking en dit behoort aldus bevorder te word. In hierdie opsig is daar ‘n behoefte aan ‘n goed ontwikkelde en doeltreffende wetsraamwerk waarin die regering ‘n rol te speel het. Derdens is konsolidasie van boere se organisasie krities. Wanneer dit goed ontwikkel is, behoort banke onder andere groeps- kredietverlening te oorweeg deur met effektiewe boereorganisasies saam te werk. Laastens is suksesvolle integrasie van kleinskaalse landbou grootliks afhanklik van die keuse van begunstigdes. In toekomstige navorsingstudies behoort daar behoorlik ag geslaan word op die nie-homogeniteit van kleinskaalse boere en hul aspirasies. Daar is ‘n behoefte vir ‘n studie gefokus op eienskappe van ‘n suksesvolle entrepreneur en sulke eienskappe behoort gebruik te word in die seleksie van begunstigdes van grondhervorming.