INTEGRATION OF EMERGING COTTON FARMERS INTO THE COMMERCIAL AGRICULTURAL ECONOMY

• Main Author: Randela, Rendani
• Other Authors: Dr ZG Alemu
• Format: Others
• Language: en-uk
• Published: University of the Free State 2006
• Subjects: Agricultural Economics
• Online Access: http://etd.uovs.ac.za//theses/available/etd-09122006-112320/restricted/

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 farmersâ 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 farmersâ 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 farmersâ 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 typolo gy of small-scale cotton producers in order to operate different kinds of credit schemes based on farmersâ 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 farmersâ 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 non-homogeneity 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.