Institutional constraints for smallholder agriculture: Taung irrigation case study

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Institutional constraints for smallholder
agriculture Taung irrigation case study

• By Nicolaas Kotze
• Promoter Prof Herman van Schalkwyk
• Department of Agricultural economics

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Index

• Hypothesis
• Introduction
• Role of institutions
• Institutional issues
• The role of specific institutions
• Role of CASP and ASGISA
• Conclusion

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Hypothesis
Institutional and technical constraints
increases transaction costs, inhibiting
smallholder agriculture from accessing markets
and thus hindering development in the greater
Taung area
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Introduction

• The irrigation scheme comprises 3580 ha
• 411 farmers participate in the scheme with each
  farming 7.5 - 10 ha.
• The irrigation structure consists mainly of
  centre pivot systems.
• There is also 1000-1500 ha arable land with
  sprinkler irrigation
• Farmers pay an annual water tariff of R154/ha

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Introduction

• The farmers are cultivating a winter crop and a
  summer crop.
• The winter crop consists mainly of barley and
  sometimes lucerne (monthly harvested as fodder
  for cattle) or peas.
• Summer crops consists mainly of maize and in the
  past (the period before 1994 with marketing
  boards) it was also groundnuts or cotton.
• The type of crop sown dependents on whether the
  farmers can obtain a sales contract

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Training needs of emerging crop farmers in North
West Province
Competency As perceived by farmers As perceived by extension officers
Competency Field crops Field crops
Competency
Production Techniques 54.5 43.7
Business/Financial management 27.7 32.2
Practical skills 4 9.2
Plant breeding 5 0
Soil analysis and fertilization 8.9 9.2
Generic support 0 4.6
Value adding 0 1.1
Irrigation scheduling 0 0
Source Masigo, A. and Matshego C. (2002)
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Role of institutions

• Institutions are the "rules of the game",
  consisting of both the formal legal rules and the
  informal social norms that govern individual
  behavior and structure social interactions
• Efficient markets can only be obtained when it is
  costless to transact, but since it is costly to
  transact, institutions do matter

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Institutional issues

• Lack of access to finance
• Lack of access to markets
• Lack of access to proper agricultural inputs
• Lack of economies of scale
• Lack of human capital

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Lack of access to finance

• Commercial banks mostly focus on commercial
  farmers.
• Informal commercial money lenders lend at very
  high cost to borrowers
• High risk involved in lending money to emerging
  farmers with no property rights
• Property rights

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Property rights

• Access to capital
• The user rights of the farmers can be inherited
  by their children.
• The farmers pay nothing for these user rights on
  communal land, but they cannot use it as security
  for the bank to obtain a loan.
• Communal ownership leads to the overuse of assets
  especially land and the under investment in
  things like fences

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Lack of access to markets

• Both input and output markets
• Strong competition from commercial farmers
• Emerging farmers have difficulties complying to
  supermarket standards
• Problems with both quantity and quality
• Concentration on generic low volume products

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Lack of access to proper agricultural inputs

• Low buying power of emerging farmers
• Absence of proper supplies in areas where small
  farmers produce
• Inputs normally purchased and developed for the
  needs of bigger buyers i.e. large scale farmers
• Lack of knowledge on how to use inputs
• Extension services are lacking

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Technology

• Resource exploitation model not sustainable
• Technical change endogenous
• Agricultural technology maybe location specific
• Environmentally friendly soil degradation
• Dualistic nature of Agric in SA requires unique
  approach
• Indigenous knowledge systems are poorly understood

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Lack of economies of scale

• Emerging farmers have very little leverage to
  compete for better prices
• Unable to buy inputs or sell outputs in bulk
• There is no specialization on managerial level
• Emerging farmers do not obtain lower-interest
  charges when borrowing from banks nor do they
  have access to a greater range of financial
  instruments
• Emerging farmers can not hedge against price risk
  by using futures. On SAFEX maize contracts sell
  as 100 ton contracts

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High transaction costs

• Transport costs
• Lack of infrastructure
• Imperfect information
• Packaging or handling cost
• Search, recruitment, co-ordination,
  supervision (Time)
• Management and litigation.

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High transaction costs

• Any costs that arise due to the existence of
  institutions
• Institutions are transaction cost-minimizing
  arrangements
• Include the costs of information, negotiation and
  monitoring or enforcement costs

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Lack of human capital

• Training is so fundamental that it could hardly
  be overstated it is seen as the core element of
  the capacity development component.
• There is a serious shortage of trainers that can
  provide focused and pragmatic instructions that
  properly incorporate both strategies and details
  of hardware and management modernization.
• Increased capacity and technology transfer in
  Taung, as well as education and training should
  be demand-oriented, participatory and hands-on.

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Institutional efficiency tries to measure the
effectiveness of the institutions that provide
the services. It is a function of the human
resources available, of their qualifications and
the working means that they have to carry out the
work
Juan Antonio Sagardoy
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The role of specific institutions

• Cooperatives
• Senwes
• Landbank, IDC, Development Bank
• Private sector
• SAB
• SAM
• Government

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The Role of CASP

• CASP endeavor to make interventions in six
  priority areas
• Information and technology management
• Technical and advisory assistance, and regulatory
  services
• Marketing and business development
• Training and capacity building
• On/off farm infrastructure and product inputs
• Financial support

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The role of ASGISA

• The cost, efficiency and capacity of the national
  logistics system
• Shortage of suitably skilled labour
• Barriers to entry, limits to competition and
  limited new investment opportunities.
• Regulatory environment and the burden on small
  and medium businesses.
• Deficiencies in state organisation, capacity and
  leadership

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Conclusion

• Ensuring community participation as a departure
  point rather than an afterthought
• Facilitating stakeholder empowerment through
  stakeholder involvement in every step of the
  process
• Developing socio-economically viable, practical,
  manageable and sustainable institutions, schemes
  and/or projects
• Promoting through coordinating with the other
  role-players, the availability of support
  services, such as
• capacity building and training in management and
  institutional skills
• accessible credit facilities
• real-time market and product information
• technical and agricultural support
• administrative and legal support
• effective monitoring systems in place

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Thank You