Browsing by Author "Lyne, Michael Charles."

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Analysing the causes and symptoms of poverty in a land reform community in the midlands of KwaZulu-Natal.
(2004) Shinns, Lauren Hazel.; Lyne, Michael Charles.
The objectives of this thesis were firstly, to review existing literature in order to identify broadly accepted and measurable indicators of the possible causes of poverty and the resulting symptoms. Secondly, to gather baseline information from a group of land reform beneficiaries in order to identify the different dimensions of poverty affecting the current and future well-being of these households. Thirdly, to undertake empirical analysis to assign these households to a small number of groups exhibiting different symptoms of poverty and then explain these differences in terms of their possible causes. A census survey of 38 land reform beneficiary households - members of a Communal Property Association (CPA) established to purchase Clipstone, a 630 hectare subdivision of the farm Sherwood in the midlands of KwaZulu-Natal - was conducted in May 2002 to gather data on poverty indicators. Principal Component Analysis was used to construct an index of the standard of housing, which was then combined with variables measuring other symptoms of poverty (income, wealth and health) in a Cluster Analysis of the households. This revealed five clusters representing four distinct groups of poverty; households relatively income and asset rich, income rich but asset poor, asset rich but income poor and households with the lowest incomes and assets. Linear Discriminant Analysis was then used to distinguish the households that were relatively income and asset "rich" from those that were relatively income and asset poor, and those that were relatively income poor but "asset rich" from those relatively asset poor but "income rich". The main distinguishing indicators were found to be gender of the household head, family size, dependency ratio, education and access to markets. These findings show that there is a need to increase child welfare grants as pension earnings become less effective (due to decreasing life expectancy and high levels of dependence on pensions as a source of income) in the short run. In the long run, there is a need for increased education and vocational training - especially for women along with better access to transport, jobs and banking facilities (to mobilise savings).
Appropriate institutional and contractual arrangements for the marketing of organic crops produced by members of the Ezemvelo Farmers' Organisation in KwaZulu-Natal.
(2010) Gadzikwa, Lawrence.; Lyne, Michael Charles.; Hendriks, Sheryl Lee.
The Ezemvelo Farmers’ Organisation (EFO) is a certified organic smallholder group in KwaZulu-Natal province (South Africa) that exists as an institution to improve smallholder access to niche markets by reducing unit production and transaction costs. The study is motivated by the need to understand drivers of collective action, prevalence of internal group free-riding, and the impact of contract terms on contract performance. These three theoretical concepts are pertinent in understanding organisational and institutional issues affecting the performance of smallholder organic farming groups and in formulating policies to promote the performance of such groups. The study relies on the theoretical foundations of collective action, free-riding and contracts found within the realm of New Institutional Economics (NIE). These theories, though separate, are in fact related in certain respects. Collective action in smallholder groups, apart from being a function of a plethora of socio-economic factors, including transaction costs, could be constrained by free-riding within the group, which in turn could be influenced by flawed contractual arrangements. This study of collective action focuses on 200 farmers drawn from a sample survey of 49 non-EFO members, and a census survey of 103 partially certified and 48 fully certified EFO members. A ‘collective action’ model investigates the impact of perceived benefits and savings on production and transaction costs attributed to collective action by drawing comparisons between EFO members and non-members using a multinomial logit model. The study of free-riding uses data from 151 members of the EFO to construct an index of free-riding within the group using principal components analysis (PCA). A ‘contract model’, which also focuses on EFO members only, attempts to measure the impact of verbal contract provisions on contract performance in addition to evaluating the determinants of preferred contract terms using a combination of PCA, Ordinary Least Squares (OLS) regression, and logit models. Results indicate that continued participation in EFO is not influenced by the age or gender of the farmer, but positively influenced by growth in the net benefits of participation, and negatively by an increase in the size of the household’s cropland or on-farm earnings. With respect to production and transaction costs, the results suggest that EFO has reduced fully certified members’ concerns that crops would be damaged by livestock or constrained by inadequate technical information. However, this is not the case for other problems such as price uncertainty in conventional markets, a lack of affordable operating inputs, a lack of affordable transport, and a lack of communications infrastructure. The index of free-riding behaviour constructed using principal components analysis suggests that free-riding poses a serious threat to EFO’s collective marketing efforts. Ordinary Least Squares regression analysis of the index scores shows that members who are male, poorly educated, partially certified, aware of loopholes in the grading system, and who do not trust the buyer are more likely to free-ride. Benefits accruing to EFO members are limited and there is substantial confusion among members about the terms of EFO’s verbal contract with the pack house that purchases their organic produce. Ordinary Least Squares regression analysis of the impact that perceived contractual terms have on quantities delivered to the pack house yielded interesting findings. Perceptions that delivery calls are made by the buyer, that grading procedures are flawed and that prices are not jointly established were found to reduce quantities delivered to the pack house, after controlling for differences in farm and farmer characteristics. Logit models estimated to identify the determinants of preferred contract clauses indicate that farmers with higher levels of formal education and farm income, and lower levels of experience, favour a written contract over a verbal contract. Similarly, farmers with higher levels of formal education and lower levels of family farm labour favour a contract denominated by area rather than weight. It is concluded that EFO should recruit households that rely on farming for income and which are land constrained. EFO is more likely to survive if it continues to secure fully subsidised information, transport, fencing, and certification services for its members, and if it improves the benefits of participating by synchronising harvest and delivery dates, negotiating price discounts for organic inputs, and by maintaining an office with telephone, fax and postal services. In the longer-term, EFO should address institutionalised free-riding by issuing tradable ownership rights. In the short-term, EFO must engage with the pack house (buyer) to remove flaws in the grading process that conceal the origin of low quality produce. Transparent and mediated negotiations leading to an incentive compliant contract with the buyer may also help to build trust and reduce free-riding within EFO. It is also recommended that the terms of EFO’s contract with the pack house should be revised so that; (a) delivery calls can be made by either the pack house or by EFO during specified periods and with reasonable notice, and (b) grading procedures are fully transparent and ensure traceability so that losses caused by poor quality can be internalised to members who deliver inferior produce. In addition, it is important that prices be negotiated at the beginning of each season and that the contractual parties have recourse to pre-agreed facilitators and an arbitrator to resolve disputes on price and quality. A written contract is recommended to support these more complex terms, with the proviso that the contract is explained to current and prospective members, and that growers are fully informed of their rights and obligations.
Best institutional practices for farmworker and community equity-sharing schemes in South Africa.
(2003) Knight, Sharon L.; Lyne, Michael Charles.
Farmworker equity-share schemes were initiated by the private sector in the Western Cape region of South Africa in the early 1990's as a method of redistributing farm assets to land reform beneficiaries while maintaining the viability of commercial farming operations. This study set out to identify the institutional characteristics of successful farmworker equity-share schemes in South Africa, and to discern a set of best institutional practices that will likely promote the success of future equity-share schemes. A detailed study of nine commercial farming ventures involving partnerships with farmworkers was undertaken in the Western Cape during November 2001 to explore relationships between their institutional arrangements, worker empowerment, management quality and performance. Farmworker equity-share schemes (FWES) have received both positive and negative publicity. This thesis adds to the debate surrounding these land reform projects by comparing the results of case studies conducted by the Surplus People's Project in 1998 with more recent (2001) case studies. The latter suggest that many of the concerns raised by the Surplus People's Project, such as beneficiaries' participation and expectations, power relations between management and worker-shareholders, skills transfer and labour relations, have been addressed. The dissertation also highlights those issues that remain areas of concern, for example, beneficiaries' tenure security, literacy levels amongst worker shareholders, skill and wage differences between men and women, and exit procedures. A cluster analysis of variables measuring four constructs of a successful farmworker equity-share scheme, viz. sound institutional arrangements, effective worker empowerment, competent management and good performance, revealed positive relationships between these constructs. Best institutional practices identified by the analysis suggest that farmworker equity-share schemes should be operated as (or like) a company with voting and benefit rights proportional to individual shareholdings, but with restrictions on certain share transactions to prevent free-riding by non-workers and the loss of creditworthiness through sudden outflows of equity and managerial expertise. However, this positive relationship between best institutional practices and enterprise performance is dependent on effective worker empowerment (e.g. skills transfer and gender representation), good governance (e.g. external auditing) and competent management (e.g. schemes to reward worker performance and to resolve disputes). From a policy perspective it is recommended that public land reform grants should be awarded only to beneficiaries of FWES that have been co-financed by a bank or reputable investor as this ensures a thorough financial assessment of the project, and only to projects that can demonstrate a history of good labour relations. It is also recommended that the Department of Land Affairs should consider extending its grants to regular but seasonal farmworkers who wish to participate in an established project. While farmworker equity-share schemes may not provide all of the answers to land reform they have an important role to play in redistributing wealth and de-racialising commercial agriculture in South Africa.
Determinants of herd productivity in Botswana : a focus on land tenure and land policy.
(2006) Mahabile, Meck.; Lyne, Michael Charles.; Panin, Anthony.
This study attempts to identify factors responsible for determining differences in the productivity of cattle managed by communal and private livestock farmers in the southern region of Botswana during 1999/2000. It is hypothesised that herd productivity and investment in southern Botswana are higher on private ranches than on open access communal grazing land. This study is important because livestock, especially cattle, contribute significantly to the livelihood of farmers in Botswana. Cattle are a major source of meat, milk and draught power, and provide a store of wealth that protects against inflation and which can easily be converted into cash. Cattle production is also an important source of employment in the rural economy of Botswana. Furthermore, the export of beef is a major source of foreign exchange earnings, and cattle account for 80 percent of agriculture's contribution to Botswana's gross domestic product. A stratified random sample survey of communal and private livestock farmers was conducted in the southern region of Botswana from August 1999 to May 2000 with the assistance of four enumerators. The sample survey data were used to compute descriptive statistics and to estimate the parameters of a block recursive regression model. The model postulated relationships between agricultural credit, investment in fixed improvement, investment in operating inputs and herd productivity. Some of the equations are estimated with Ordinary Least Squares (OLS) and some with Two-Stage Least Squares (2SLS) to account for likely correlation between endogenous explanatory variables and the error term. Descriptive statistics show that levels of investment and herd productivity are higher on private farms than on open-access communal grazing. Private farmers are also better educated, more liquid, and have larger herd sizes, but do not differ from their communal counterparts in terms of age, gender, race or household size. The regression results show that (a) respondents with secure tenure and larger herds use more agricultural credit than those who rely on open access communal grazing land to raise cattle; (b) secure land tenure, higher levels of liquidity and use of long-term credit promote investment in fixed improvements to land; (c) liquidity from short-term credit and wage remittances supports expenditure on operating inputs; and (d) herd productivity increases with greater investment in fixed improvement and operating inputs. Herd productivity is therefore positively (but indirectly) influenced by secure land tenure. It can therefore be inferred that government should (a) uphold private property rights to land where they already exists; (b) privatise open access grazing to individual owner operators where this is politically, socially, and economically feasible; and (c) where privatisation to individuals is not feasible, government should encourage users to convert the grazing into common property by subsidising the costs of defining user groups and the boundaries of their resources, and enforcing rules limiting individual use of common property. This first-step in a gradual shift towards more secure tenure should be followed by the conversion of user groups to non-user groups organized along the lines of investor-owned firms where members exchange use rights for benefit and voting rights in a joint venture managed by an expert.
Distortion of incentives for farm households in KwaZulu.
(1989) Lyne, Michael Charles.; Nieuwoudt, Wilhelmus Liberté.
KwaZulu is a less developed region of South Africa. Low agricultural incomes have contributed to widespread poverty in the region. Despite intense population pressure on the land, arable resources are underutilized. Conversely, grazing resources are overutilized. Tribal tenure prevents the sale of land and has also precluded an active land rental market. Population growth has reduced farm sizes because households have an incentive to retain their rural land rights. At the same time, the opportunity cost of household farm labour has increased. As a result, the average cost of producing crops has risen relative to product prices. Households are generally able to procure food and income at lower cost by allocating better educated workers to urban wage employment. Consequently, many households have little incentive to produce crops and are deficit food producers. Arable land is underutilized because these households cannot rent land to others who would farm it. A mathematical programming model constructed from models of representative households demonstrates that output responses to higher food prices and reduced input costs are small. Furthermore, an increase in food prices harms most rural households and lower input costs do little to improve household welfare. However, the model predicts that a land rental market will have a substantial impact on crop production and could generate significant income opportunities in agriculture and its service industries. A rental market for arable land would require minor institutional changes and has equity as well as efficiency advantages. The uncultivated portion of a household's tribal land allotment is regarded as common property for grazing purposes. Access to these grazing resources is not restricted and an empirical analysis of herd data indicates that stocking rates decline when the private cost of keeping cattle increases relative to their perceived benefits. Unlike most 'solutions' to the common property problem, privatization of grazing land would not only reduce overstocking and its associated social cost, but would also improve incentives to upgrade herd and pasture quality. It is recommended that privatization of grazing land (even in the limited sense that arable land is privately controlled) should be encouraged.
An economic evaluation of water treatment costs in the Umgeni catchment area.
(1996) Dennison, Diane Bridget.; Lyne, Michael Charles.
This study has two objectives: first, to identify the main contaminants responsible for high water treatment costs in the Umgeni catchment area, and second, to predict water treatment costs from observed levels of contaminants. Reliable information about the origin of high water treatment costs is required to inform both policy and planning decisions. Partial adjustment models of water treatment costs are estimated using ordinary least squares regression and principal component analysis. First a model is estimated for the DV Harris treatment plant, which draws water from Midmar Dam. This model highlights important policy issues and explains 61 per cent of the variation in chemical treatment costs. Environmental contaminants have a marked impact on real water treatment costs at the DV Harris plant. Water treatment costs increase when levels of alkalinity, sodium and turbidity fall. Conversely, real costs rise with higher levels of dissolved oxygen and water stability. Paradoxically, clean water - typical of Midmar Dam is expensive to treat. Water treatment costs also rise when concentrations of the algae, Chiorella, decline. Second, a model is estimated for the Durban Heights treatment plant, which draws water from Nagle and Inanda Dams. This model explains 68 per cent of the variation in chemical treatment costs. Biological contaminants have a marked impact on real water treatment costs at the Durban Heights plant. Again, water treatment costs increase when levels of, Chiorella fall. Apparently the level of Chiorella varies inversely with the level of other, more expensive, contaminants at both treatment plants. Conversely, real costs rise with higher levels of total kjeldahl nitrogen, temperature, Anabaena and Microcystis. Water treatment costs also rise when turbidity and concentrations of silica, suspended solids and iron increase. The model predicts actual water treatment costs well (except during occasional peak cost periods) and provides a useful tool for scenario testing. For example, a simulation exercise in which turbidity levels were held constant at 6 NTU (nephelometric turbidity units) indicated an annual saving of R54 531 in water treatment costs.
Expenditure elasticities and growth linkages for rural households in two study areas of KwaZulu-Natal.
(2002) Hendriks, Sheryl Lee.; Lyne, Michael Charles.
Expenditure patterns were investigated to determine the potential impact of a widespread income shock on household expenditure and to estimate the potential for growth linkages to spur agriculture-led growth in two communal areas of KwaZulu-Natal. Expenditure data were collected from 99 sample households at the rural areas of Swayimana and Umzumbe during 1997. District and wealth group expenditure analyses for commodity groups suggested expenditure elasticities of close to unity for food. Low expenditure elasticities were found for staple foods. Expenditure elasticities for meat, meat products, and poultry were close to unity, while horticultural products showed the greatest potential for demand growth within the food category. Of the statistically significant commodity categories, expenditure elasticities for durables, housing, and transport were more than double those estimated for the aggregate food category. There was little difference in the response of wealthier households (the top expenditure decile) and that of poorer households. However, wealthier households have a greater propensity for increased expenditure on transport, while poorer households show a greater propensity for increased expenditure on housing and durables. District and wealth group expenditure analyses for tradable versus non-tradable farm and non-farm goods and services suggest a less than proportional increase in the demand for tradable farm commodities, and a more than proportional increase in demand for non-tradable farm commodities, following a one percent increase in household expenditure. Expenditure on non-farm tradables (imported consumer durables) showed the greatest potential for demand growth, with expenditure elasticities ranging from 1.75 to 2.59. A one Rand increase in household income is predicted to add an additional 28 cents (multiplier of 1.28) to the local economy. However, even relatively weak growth linkages could lead to much needed new income and , employment opportunities within the local farm and non-farm sectors if the constraints inhibiting agriculture, and hence broad-based growth in rural incomes are alleviated. Agriculture-led growth in South Africa requires public investment in both physical and institutional infrastructure to reduce transaction costs and risks in all markets, encouraging greater participation by local entrepreneurs and private sector investors. In addition, the roles, functions and services offered by extension agents should be extended to promote collective marketing, facilitate land rental contracts, provide training, and technical and business support for farm and non-farm entrepreneurs.
Feasible indicators for monitoring the performance of equity-share schemes in South African agriculture.
(2004) Gray, Bernadine Claire.; Lyne, Michael Charles.; Ferrer, Stuart Richard Douglas.
This study aims to develop a robust methodology for measuring the performance of equity-share schemes in South African agriculture. Equity-share schemes are privately owned farming operations that are generally restructured as companies with the original owner and the farmworkers as shareholders. Several studies have investigated various aspects of the performance of these schemes but no single study has yet measured their performance using a comprehensive and objective set of criteria. Four categories of criteria are proposed: poverty alleviation; empowerment and participation; institutional arrangements and governance; and financial performance. This study does not aim to assess the performance of existing equity-share schemes rather a methodology for the four criteria based on empirical evidence gathered in 2004 from a land reform project in the Midlands of KwaZulu-Natal and seven established equity-share schemes in the Western Cape. Poverty alleviation is measured using a transition matrix of households grouped by four different symptoms of poverty: current income, wealth, health and a principal component index of housing quality based on building materials, access to safe drinking water and adequate sanitation. Eight. categories of indicators are recommended for empowerment and participation: control and ownership; skills transfer; understanding of the structure of the scheme; information; outcomes; trust; outreach; and participation. A scorecard applying norms based on empirical evidence gathered at equity-share schemes in the Western Cape is used to assess the indicators. A scorecard approach is also applied to institutional arrangements and governance, which are measured using three categories of indicators: accountability, transparency and property rights. Recognised indicators ;of financial performance are applied to balance sheet and income statement data provided by four of the seven equity-share schemes in the Western Cape. This analysis highlights problems with several of the conventional ratios used to measure the profitability, solvency and growth of recently restructured farming enterprises whose 'empowerment' status attracts exceptionally high levels of debt capital to finance long-term investments. To avoid these problems it is recommended that, for equity-share schemes, profitability should be measured by the return on assets or dividend return; solvency by the debt/asset ratio; liquidity by cash flow projections; growth by changes in the (estimated) real. value of shares; and workers' total returns by changes in the sum of the real wage bill, capital gains, dividends, interest and other benefits accruing to workers in aggregate. The proposed performance measures are relevant, manageable in number and have feasible norms based on empirical evidence. These indicators and their norms need to be tested on a wider scale and over time. Further research should be undertaken to estimate weights for the empowerment and institutional indicators.
An institutional analysis of South Africa's new cooperative act : evidence from selected case studies in KwaZulu-Natal.
(2010) Nganwa, Peace.; Ferrer, Stuart Richard Douglas.; Lyne, Michael Charles.
Cooperatives are a means through which farmers may gain economic power by reducing unit transaction costs associated with production, marketing and distribution of products. In South Africa, cooperatives are promoted as a means of advancing economic development in rural areas through empowerment, development of income generating activities, improvement of human resource capacity, and increased savings and investment. The new Cooperatives Act 14 of 2005 was enacted in August 2005 to promote the role of cooperatives as organisations for pro-poor development in South Africa and to increase their chance of survival in the economy. This study uses a New Institutional Economics (NIE) framework to analyse the Cooperatives Act and its worth as a vehicle for promoting pro-poor development. A hypothetical cooperative, predicated by the new Act, was analysed using the NIE to identify institutional problems likely to constrain the collective efforts of small producers. A case study approach was then used to analyse three production cooperatives in KwaZulu-Natal that were registered post August 2005 and still operational in 2008. Interviews were conducted with individual members, directors and project managers (where applicable) between May and July 2008. Open-ended questions provided the flexibility needed to explore the institutional roots of problems identified by respondents. Free-rider, horizon, portfolio, control and influence problems were identified in the case studies. These problems, which stem from ill-defined voting and benefit rights, resulted in low equity investment, low investment in long term assets, a preference for current cash flows rather than future investment, and social conflict – all of which constrained the competitiveness and growth prospects of the cooperatives studied. In an attempt to mitigate these problems, two of the cooperatives shed their poorest members, a solution which is not consistent with the objective of pro-poor economic development. Additionally, two cooperatives opted to create their own rules to reward investors with capital gains - an institutional arrangement that is not permitted by the new Act. It is concluded that the new Act should be amended to give cooperatives greater flexibility in their institutional arrangements. In particular, cooperatives should be allowed to issue tradable equity shares that offer benefits proportional to shareholding. If these tradable equity shares carry voting rights and are offered to non-patron investors, aggregate voting rights conferred on these non-patron investors should be capped to prevent loss of control by patron members. It is further recommended that the same level of start-up support should be made available to all producer groups that formally register their business, regardless of the business model chosen, and that member empowerment should be an essential requirement for registration and public funding. Keywords: Agricultural Cooperatives, Cooperatives Act, New Institutional Economics, Case Study
Institutions to govern wildlife in the developing regions of KwaZulu-Natal.
(1995) Wynne, Adrian Theodor.; Lyne, Michael Charles.
In practice, property rights to wild flora and fauna are determined by de facto property rights to the land on which they are found. However, access to wildlife may become open regardless of land tenure due to the growing demands of expanding rural populations living at subsistence levels. This precarious outcome is more likely in areas where land is "communal". Traditional common property user groups are unstable because transaction costs become inhibitory in large groups. Non-user groups with small management teams (eg. companies and trusts) are better equipped to devise and enforce rules restricting access to communal resources. Three community-based organisations (CBO's) from KwaZulu-Natal are described, viz. Dukuduku Forest, Shongweni Resources Reserve and the Thukela Biosphere Reserve. Support for conservation rules appears to be strongest amongst communities at the Shongweni Resources Reserve where: community management organisations are formal institutions with legally binding constitutions; community representatives are broadly accepted and share decision-making power with the resource owner, and; community members get direct benefits from the Reserve. However, in all three cases change was prompted by agents who stood to lose substantially when neighbouring communities invaded or poached resources on their land. This is an important finding as it suggests a need for outside intervention in communal areas where common property institutions have collapsed and natural resources are being over-utilised. The case studies are analyzed and compared using criteria suggested by the theory of Institutional Economics to determine why some CBO's are more successful than others. It is concluded that individuals have an incentive to abide by rules if they are assured of receiving benefits in return for their compliance. Creating appropriate management institutions is a necessary first step, but it may also be necessary to subsidise their development programmes and support local enforcement owing to the high cost of protecting and instituting conservancies for commercial purposes.
Labelling to promote broad-based Black economic empowerment in South Africa : a case study of the Thandi empowerment label.
(2007) Skinner, Cliff.; Lyne, Michael Charles.; Ferrer, Stuart Richard Douglas.
Broad-based black economic empowerment (BBEE) is a policy objective in South Africa. Farmworker equity-share schemes (FWES) satisfy several of the empowerment goals specified by the proposed AgriBEE Scorecard. Information about the costs and benefits of subscribing to an empowerment label will help managers to make more informed decisions about empowerment and could therefore promote BBEE. The Thandi label is an initiative to market fruit and wines originating from FWES and farms operated by previously disadvantaged farmers. A case study of the Thandi label was undertaken to determine whether or not the accredited empowerment attribute adds value to Thandi products. An exploratory-explanatory case study was adopted basing questions largely on the theoretical propositions of asymmetric information, the benefits of product labelling and the preconditions for a successful label. Primary data were collected via in-depth interviews with managers of Capespan, The Company of Wine People and empowerment farms participating in the Thandi label. The study made use of in-depth interviews with key informants to investigate issues considered (on theoretical grounds) to be critical in establishing a successful label. Responses were subsequently tabulated and compared, where relevant, across respondents in order to check for consensus views. Results indicate that the Thandi label had not succeeded in differentiating fruit, whereas the Thandi wine label had increased sales revenue and was covering accreditation costs incurred by farms as well as the recurring costs of maintaining and marketing the label. Thandi fruit had not grown its share of the domestic or export markets and did not command a price premium, Capespan subsequently discontinued the Thandi fruit label. Thandi wine, on the other hand, had grown its export market and consumers were prepared to pay a premium for Thandi wine products. The data indicate that empowerment attributes were useful in finding shelf space for products, but that quality is essential to grow market share and to earn price premiums. In short, accredited empowerment attributes can add value to quality products sold to discerning consumers who lack information about empowerment and quality attributes at the point of sale. Empowerment labels must include quality attributes. Government should at least absorb some of the transaction costs confronting producers and marketing agencies in negotiating standards for farms and firms participating in generic empowerment labels. It could also offer auditing services to local accreditation agencies to improve their credibility. Further research estimating consumers' willingness-to-pay for products branded with empowerment labels is necessary to estimate the size of premiums that different products may command.
Land redistribution in KwaZulu-Natal : an analysis of farmland transactions from 1997 until 2002.
(2004) Semalulu, Allan Kasirye.; Lyne, Michael Charles.; Ferrer, Stuart Richard Douglas.
Apartheid and colonialism left deep imprints on contemporary South African society. Nowhere are these more compellingly apparent than in the highly skewed distribution of land between whites and blacks. At the beginning of the 1990' s, it was estimated that 12 million black people lived on only 17.1 million hectares of land, whilst 60,000 white commercial farmers occupied 86.2 million hectares. Since democratisation in 1994 various modes of land redistribution have emerged in South Africa to redistribute farmland to previously disadvantaged people. In 1994, an African National Congress (ANC)-led government initiated a land redistribution programme by offering Settlement/Land Acquisition Grants (SLAG) to previously disadvantaged South Africans to purchase formerly white-owned farms on a willing buyer-willing seller basis. The aim of SLAG was to redistribute 30 per cent of the country's commercial farmland to previously disadvantaged South Africans within five years. However, by the end of the first five years less than two per cent of white-owned farmland was transferred to previously disadvantaged South Africans. Government responded by introducing a new grant programme, the Land Redistribution for Agricultural Development (LRAD) programme in August 2001 with a less ambitious objective of transferring 30 per cent of white-owned farmland to previously disadvantaged South Africans over 15 years (i.e. two percent per annum). In addition to the government's land redistribution programme, private and semi-private initiatives have emerged to redistribute farmland to previously disadvantaged people. The BASIS Collaborative Research Support Programme sponsored by the U.S. Agency for International Development (USAID) has monitored government (SLAG) and private farmland transactions in the province of KwaZulu-Natal since 1997. This study builds on these previous analyses of farmland transactions by comparing the performance of LRAD relative to private transactions in transferring farmland to previously disadvantaged South Africans during 2002, and contrasts the results with those from years 1997 to 2001. Results from the study indicate that the launch of LRAD in 2001 had a significant impact on land redistribution in 2002. In KwaZulu-Natal, the rate of land redistribution doubled from 0.5 per cent in 2001 to one percent in 2002. The results also show that LRAD has not only succeeded in drawing private resources into the land reform process, but has also been more successful in targeting women than the earlier SLAG programme. Findings further show that unlike the earlier (SLAG) programme, LRAD offers larger grants to wealthier and more-creditworthy beneficiaries and is therefore conducive to establishing farms owned and operated by individuals or by small groups of individuals. A small area (1,454 hectares) was transferred back to previously advantaged owners in 2002. Such transactions were not detected before 2002 and should be monitored to identify the underlining reasons for these sales. It is also recommended that research should be conducted to ascertain whether improvements in the rate of land redistribution in KwaZulu-Natal during 2002 will be sustained in the future.
Land redistribution in KwaZulu-Natal : an analysis of farmland transactions recorded in 1997 and 1998.
(2000) Graham, Andrew Wallace.; Lyne, Michael Charles.; Darroch, Mark Andrew Gower.
This research has two objectives: Firstly, to examine the rate of land redistribution in the province of KwaZulu-Natal during the years 1997 and 1998 as well as the performance of different modes of land redistribution. Secondly, to study the relationship between mode of redistribution, security of tenure and access to agricultural credit on land redistributed to disadvantaged households in the province during 1997. To measure the rate of land redistribution, results from a census survey of farmland transactions recorded in the province in 1998 were compared with the results from a previous survey conducted in 1997. It was found that 18885 hectares of commercial farmland transferred to disadvantaged owners in KwaZuluNatal during 1998, which implies an overall rate of redistribution of 0,35 per cent, down from 0,43 per cent in 1997. There were marked differences in the quality, quantity and agricultural performance of farmland transferred by different modes of redistribution. Private transactions accounted for the majority of the total land wealth and total land area transferred in both years, with mortgage loan transactions making the most significant impact. Also, the mode of land redistribution was an important determinant of the level of tenure security and agricultural performance. Individual households purchasing land through private transactions tend to exhibit much higher tenure security than those households which purchased land collectively under the government land grant programme. A logit model was employed to determine the probability of household agricultural borrowing. Results of the logit model on data gathered in a sample survey of 129 disadvantaged households that purchased farmland in KwaZulu-Natal during 1997 show that those farmers purchasing land through subsidised mortgage loans were more likely to borrow credit for agricultural purposes. The probability of agricultural credit use increases with more secure tenure, higher levels of wealth and liquidity, and higher education levels. These factors provide greater incentives for lenders to supply credit and for borrowers to use credit for investments and complementary inputs. The issues of tenure security and access to credit must be considered if land redistribution to the landless poor is to be successful in the long-term. It was recommended that government should reallocate scarce public funds towards programmes which assist emerging farmers to gain access to credit for the purchase and development of agricultural farmland. However, attention must also be directed towards scrapping the Subdivision of Agricultural Land Act, 70 of 1970, which currently impedes land redistribution through regulations preventing large farms from being subdivided and sold as smaller properties to viable emerging farmers. In addition, attention should be focused on converting existing government land grant projects into non land-user group schemes whereby land is set aside and managed in an effort to create a viable joint enterprise for the community to realise a benefit (income) stream.
Loan products to manage liquidity stress when broad-based black economic empowerment (BEE) enterprises invest in productive assets.
(2005) Finnemore, Gareth Robert Lionel.; Darroch, Mark Andrew Gower.; Lyne, Michael Charles.
Investments in productive assets by broad-based black economic empowerment (BEE) enterprises in South Africa (SA) during the 1990s have been constrained, in part, by a lack of access to capital. Even if capital can be sourced, BEE businesses often face a liquidity problem, as conventional, equally amortized loan repayment plans do not take into account the size and timing of investment returns, or there are lags in the adjustment of management to such new investments. The aim of this dissertation, therefore, is to compare five alternative loan products to the conventional fixed repayment (equally amortized) loan (FRL) that lenders could offer to finance BEE investments in productive assets that are faced with liquidity stress, namely: the single payment non-amortized loan (SPL); the decreasing payment loan (DP); the partial payment loan (PPL); the graduated payment loan (GPL); and the deferred payment loan (DEFPLO-2). This is done firstly by comparing loan repayment schedules for the six loans using a loan principal of R200 000, repaid over 20 years at a nominal contractual annual interest rate of 10%. Secondly, data from five actual BEE loan applications to ABSA Bank and Ithala in KwaZulu-Natal (KZN) during 2003 are used to compare how the FRL, SPL, DP, GPL, and DEFPLO-l, affect investment profitability, and both the borrower's and the lender's cash-flows, assuming that the lender sources funds from a development finance wholesaler. Results for the first part of the study show that the SPL has smaller initial annual repayments than the FRL (R20 000 versus R23 492) that ease liquidity stress in the early years after asset purchase, but requires a nominal balloon repayment of both interest and principal in year 20 of R220 000. The SPL is also the most costly loan, with total nominal and real repayments that are R130 162 and R43 821, respectively, more than the FRL. The PPL has the lowest total nominal and real repayments assuming that the borrower can make the nominal balloon repayment in year 5 of R202 173. If not, the ending balance of the loan in year 4 would have to be refinanced at current market interest rates. In this situation, the PPL uses very similar financing terms to that of the variable rate long-term loans already used in SA, and thus may not be a useful option to consider for BEE investments facing a liquidity problem. Interest rates may have risen over the last four years of the loan, encouraging lenders to add a premium into the interest rate for the refinanced loan, which could worsen the liquidity position of the BEE enterprise. The DP requires higher initial nominal annual loan repayments (R6 508 more than the FRL) that do not ease the liquidity problem in the early years of operation. The DP loan, however, has total nominal and real repayments that are R59 838 and R23 118, respectively, less than the FRL. A GPL with diminishing, finite interest-rate subsidy seems to have the most potential to ease the BEE investment's liquidity stress. The 17YRGPL used to buy land had total nominal and real repayments that were R84 634 and R67 726 (after subsidy), respectively, less than the FRL. If the GPL was used to purchase machinery-type assets, then the 6YRGPL would have required total nominal and real repayments of R13 957 and R12 596, respectively, less than the FRL. Finally, the DEFPLO-2 loan required a total nominal repayment of R531 128 (R61 290 more than the FRL) and a total real repayment of R345 358 (R26 095 more than the FRL). Clearly, the GPL and DEFPLO-2 loan repayment schedules can partly resolve the liquidity problem in the early years (assuming no major income shocks), although the DEFPLO-2 plan requires higher total repayments than the FRL. The question remains whether lenders would be prepared to implement these two financing plans for BEE investments in productive assets, where the funds to finance the diminishing, finite interest-rate subsidy or the deferment would be sourced, and how the interest-rate subsidy would affect asset values. In the second part of the study, the profitability of the five proposed BEE investments in KZN during 2003 was compared for the five loan products using the Net Present Value (NPV) and the Internal Rateof- return (lRR) capital budgeting procedures. The loan terms, interest rates, principal and characteristics of each BEE firm are different with current rates of return on equity varying by business type. Companies A (five-year loan) and C (10-year loan) are agribusinesses with a higher expected current rate of return of 8% on machinery investments, while companies B (eight-year loan), D (15-year loan), and E (20-year loan) invest in farmland with a lower expected current annual rate of return of 5%. The five business plans may not be representative in a statistical sense of all BEE firms in KZN, but were used because they were readily available. Initially it was assumed that donor/grant funds from a development finance wholesaler were lent to an intermediary (like a commercial bank), which in turn, could finance the five investments using any of the five alternative loans, with the lender's repayment to the wholesaler being via a FRL. It was then assumed that the lender could repay its borrowed funds using the same loans, or combinations of them, that it had granted to these companies. Results show that GPLs and DEFPLs can resolve the liquidity problem associated with investments like land in the early years after purchase provided that projected business performance is adequate, while the SPL and GPL are preferred for BEE projects with stronger initial cash-flows like machinery investments. The study also shows that the loan product that best improves the borrower's liquidity is not always best suited to the lender. In most cases, the GPL suited the borrower, but in four of the five cases, the lender would prefer the SPL and to repay the wholesaler using the SPL. The SPL, however, is unlikely to be used, given the large negative real net cash-flows that it generates when the final payments are due. Recent SA experience with the GPLs (interest rate subsidies funded by private sector sugar millers via Ithala) and the DEFPLs (via the Land Reform Empowerment Facility (LREF) which is a wholesaler of funds in SA) suggests that there is scope to alleviate the liquidity problem if a wholesaler of funds can offer such terms to private banks and venture capital investors who then on-lend to finance BEE asset investments that are otherwise considered relatively high credit risks. This would shift the liquidity problem away from the client to the wholesaler of the funds, but requires access to capital at favourable interest rates. Such capital could be sourced from dedicated empowerment funds earmarked by the private sector, donors and the SA government. The lesson for policymakers is that broad-based BEE could be promoted in other farm and non-farm sectors in SA using similar innovative loan products to complement cash grant funds via financial intermediaries, bearing in mind the limitations of the GPL and DEFPL - such as how to finance the subsidy or deferment, and the impact of income shocks. Donor and National Empowerment Fund capital could be used to allocate grants to provide previously disadvantaged individuals with own equity and also to fund finite, diminishing interest-rate subsidies via GPLs, or to fund DEFPLs (many LREF loans have been leveraged by a cash grant component). This could create an incentive for public/private partnerships, as public/donor funds could be then used to attract private sector funds to finance broadbased BEE investments in SA that satisfy empowerment criteria. The five case studies did not show how the GPLs and DEFPLs could make all profitable (positive net present value) but financially infeasible (returns do not match the size and timing of the lender's financing plan) BEE investments in productive assets under the FRL feasible, except for Company E that showed a positive NPV and IRR when the 19YRGPL was used. They did, however, show how the alternative loans could improve liquidity for investments with either strong or poor cash-flows. The financiers consulted to source case studies in KZN in 2003 at the time of the study could not provide the researcher with any profitable, but financially infeasible, BEE business plans. This raises some concern about how effective these empowerment loan products could be in the future as there is uncertainty over how many potential BEE investments in productive assets in SA are likely to be profitable but financially infeasible. Further research is thus needed to assess the impact of these alternative loans on a wider range of broad-based BEE investments, particularly non-farm projects, than considered in this dissertation.
Marketing constraints faced by communal farmers in KwaZulu-Natal, South Africa : a case study of transaction costs.
(2002) Matungul, Maliem Pierre.; Ortmann, Gerald Friedel.; Lyne, Michael Charles.
Farmers engaged in small-scale agriculture in Africa generally have limited access to factors of production, credit and information. Empirical studies throughout the African continent have shown the extent to which high transaction costs constrain or prevent access to information and markets, especially for small-scale farmers. Despite these constraints, farmers in two communal areas of KwaZulu-Natal (Impendle and Swayimana) have managed to produce food for both own consumption and marketing. This study draws heavily on the New Institutional Economics, and particularly Transaction Cost Economics, which have demonstrated the important role of transaction costs in constraining economic activity, and of institutions developed to lower these costs. Transaction costs are the costs of exchange, including costs of information, negotiation, monitoring, coordination and enforcement of contracts. These costs can be implicit or explicit. The main objective of the study is to assess marketing constraints faced by communal farmers in the Impendle and Swayimana regions of KwaZulu-Natal, South Africa. Data were drawn from random sample of 120 household heads in each of the regions. In Swayimana, data were collected in January and February 1999 whereas the survey in Impendle was undertaken in April and May 1999. The empirical analysis attempts to identify factors determining the quality and number of marketing channels used (i.e. depth in marketing methods), which in turn affect the level of income generated from crop sales by small-scale farmers in the two study areas. The identification of such factors might support initiatives to create a more viable small-scale farming sector in the communal areas of KwaZulu-Natal. A block-recursive model was formulated and estimated using ordinary least squares (OLS) and two-stage least squares (2SLS). Empirical analysis of the OLS equation suggested that transaction cost variables are important in explaining the choice of, and depth in, marketing methods. Results of the combined samples indicate that cooperation with neighbouring commercial farmers, and the interaction of distance and ownership of a vehicle were the most important factors in the choice of marketing methods. Other factors such as the age of household head, having a formal bank account and the area of allocated arable land, also significantly and positively influenced the depth of marketing methods. At a regional level, the same equation revealed that while COOP was the most important factor in Swayimana, DISTRA and ACC were the main determinants in Impendle. The 2SLS regression analysis indicated that greater depth in marketing methods, which reflects lower transaction costs faced by growers, has a strong and positive impact on the level of crop income generated; i.e. the lower the transaction costs faced, the greater is the depth in marketing methods, and the higher the level of crop income. The results imply that formal marketing channels are associated with low transaction costs and higher levels of crop income. The area of cultivated arable land and income from non-agricultural activities were the other two important determinants of crop income. It is concluded that accessibility to formal market outlets is limited by considerable farm-to-market distance, poor infrastructure (roads, telecommunications), and inadequate transportation. Recommendations give due consideration to the development of a better physical and institutional infrastructure which would effectively link these production areas to market centres and improve market knowledge by providing relevant market information and farming skills.
Rural economic growth and small-scale poultry production : the economic and technical constraints.
(2002) Wynne, Adrian Theodor.; Gous, Robert Mervyn.; Lyne, Michael Charles.
Small-scale commercial poultry enterprises are often used in development projects to (a) improve food self-sufficiency, and (b) to generate income. The analysis of survey data gathered from the rural areas of KwaZulu-Natal shows that the majority of small-scale poultry producers come from previously disadvantaged communities and have significantly lower enterprise growth rates than larger producers. Principal Component Analysis is used to determine underlying "dimensions" of the main technical poultry production parameters, which with the aid of a t-test indicate that management practices and equipment use are significantly different for small-scale and larger producers but that feed utilisation and disease reduction practices are similar. The results of a block-recursive regression analysis indicate that enterprise growth rate is constrained by poor access to credit, high transaction costs and unreliable local markets. Using growth linkage concepts it was found that smallscale poultry enterprises have the potential to initiate economic growth by drawing under-utilised resources such as labour into production when their products are "exported". The impact of the subsequent multiplier effect is strongest in the nontradable, non-agricultural sector. To enhance this multiplier through increased rural economic growth government policies should focus on reducing transaction costs by improving education and physical infrastructure, sponsoring training and assisting with mentoring services. Facilitating the development of appropriate business institutions capable of managing co-owned resources is particularly important as well as legal and fmancial management instruction. Economic growth also requires a stable, equitable and well-adapted institutional environment where the potential threat of a functional and affordable conflict resolution mechanism is crucial to discourage opportunistic behaviour. Many disputes associated with poultry production in KwaZulu-Natal currently remain unresolved because legal court action is prohibitively expensive and legal uncertainty arises where informal tribal authorities administer conflicts. Setting up small-claims courts is one option of correcting these inefficiencies; the desired effect would be to strengthen property rights, reduce transaction costs and promote economic growth. Poultry has established itself as an appropriate vehicle to stimulate economic growth in rural KwaZulu-Natal and its impact is expected to be greater if growth constraints are alleviated for a large number of small enterprises rather than encouraging a few larger enterprises to grow bigger.
A study of land rental markets and institutions in communal areas of rural KwaZulu-Natal.
(1996) Thomson, David Neville.; Lyne, Michael Charles.
Most rural households in KwaZulu engage in wage employment and have little incentive to make good use of their arable land for crop production. Crop incomes are low relative to off-farm incomes and many households find it cheaper to buy food than to grow it themselves. However, this does not explain why - despite intense population pressure and acute poverty - arable land is left idle in KwaZulu. The anomaly arises because there is no rental market to transfer unused arable land to people who can and would farm it. A rental market offers farmers an opportunity to expand their operations for either subsistence or commercial production while other households, unwilling or unable to farm, earn rental income from land they previously left idle. More important, these efficiency and equity gains are not achieved at the expense of creating a landless class. Initially it was hypothesised that land rental in K waZulu was constrained by high transaction costs, including risk. It seemed that potential lessors were reluctant to lease land out as they risked losing their land permanently. Institutional changes were introduced in the Upper Tugela Catchment to promote an active land rental market. Tribal authorities agreed to support the market and to uphold rental contracts in customary courts. Despite this assurance, households were reluctant to enter into lease agreements. Many households were willing to lease land out, but few were prepared to farm additional land. The fundamental problem was insecure land tenure. Survey data gathered in the Upper Tugela Catchment and at Tugela Ferry revealed that livestock were invading arable lands during the summer and damaging crops. In effect, crop farmers had lost their exclusive rights to arable land. The first step taken to improve tenure security in the Upper Tugela Catchment was to reinstate customary rules, particularly those assigning exclusive rights to arable land. Tribal councillors agreed to the establishment of a representative 'Rules Committee', whose initial task was to define an annual 'planting date' after which all livestock had to be removed from arable lands. Dispute procedures were also clarified and compensation rates set for crops damaged by stray livestock. Results the following season were encouraging as the numbex of respondents suffering crop damages caused by stray livestock declined from 71 to 31 per cent. Overall, efforts to reduce risk perceptions and to improve tenure security raised the number of rental transactions from three to 17 - an increase from four to 25 per cent in the number of households engaged in rental transactions. The average area rented increased from 0.63 hectares to 1.71 hectares. Lessees farmed their land more intensively than lessors. They applied inputs at five times the rate that lessors did, made greater use of contractor services, and invested much more in tractors, ploughs and planters. Equity also improved. Land transferred from larger to smaller farmers, while income transferred from wealthier to poorer households.
Sustaining a rental market for arable land in the communal areas of KwaZulu-Natal.
(2002) Crookes, Timothy John.; Lyne, Michael Charles.
In the communal areas of KwaZulu-Natal (hereafter referred to as KwaZulu 1 ), most households have little incentive to farm and land is cultivated extensively as farms are uniformly small, and food and income can be acquired by wage workers at lower cost. Rental markets in KwaZulu are constrained and land remains idle as there is no opportunity cost to penalise idle or under-utilised land. An efficient rental market would improve allocative efficiency because households would rent out their idle or under-utilised land to more effective farmers rather than forgo rental income. Equity is also improved in a land rental market. Rental transactions are voluntary and land transfers from land 'rich' to land 'poor' households whilst rental income transfers to households who cannot or prefer not to farm. Land rentals are temporary and do not interfere with residential rights. Land rental markets are constrained by high transaction costs and tenure insecurity. Between 1993 and 1996, Thomson made a concerted effort to stimulate a rental market for arable land in the Upper Tugela Catchment region of the former KwaZulu homeland. Small, incremental changes were made to customary institutions in order to improve tenure security and reduce risks and other transaction costs constraining the rental market. The number of rental transactions increased with associated gains in equity and efficiency. This study re-visits the market and examines its performance in the year 2000. Two household surveys were completed in Thomson's original study area during 2000. (Footnote 1. Communal areas refer to the tribal wards of Kwazulu-Natal which are characterised by customary forms of land tenure. The terms communal and tribal are used interchangeably.) First, a sample survey of 160 households, which included 23 percent of Thomson's original respondents, was conducted. This was followed by a census survey of 39 households participating in a total of 73 rental transactions. Data show that the number of rental transactions and market participants declined. A decrease in the number of lessees suggests that fixed transaction costs increased which prevented prospective participants from entering the market. However, the area of land transacted increased dramatically, suggesting that variable transaction costs declined. Lessees remaining in the market are participating in more rental transactions and are consolidating larger areas from several different lessors with gains in both equity and efficiency still evident. A discriminant analysis distinguishing lessors from lessees confirmed the claims of efficiency and equity. Land transfers from lessors who have a higher incidence of widowed household heads and larger, better quality land holdings to lessees who have greater agricultural training and who invest more in fixed improvements and implements. Changes in variable transaction costs are explored by examining changes in the type of rental contracts observed over time. The data revealed growth in the variety and length of rental contracts, supporting other evidence of declining variable transaction costs. In particular, a linear regression model estimated to quantify the partial contribution of factors affecting contract length shows that the introduction of witnessed written lease agreements has facilitated longerterm rentals for a wide range of contract types, even in cases where the lessor and lessee are strangers. Results of this study suggest that government should invest more in public goods such as physical infrastructure to reduce fixed transaction costs. Government extension staff could play a key role in sustaining rental markets for cropland in communal areas by absorbing some transaction costs, training tribal councillors and disseminating information.
Use of credit and its impact on small-scale farmer development in KwaZulu-Natal.
(1998) Fenwick, Louise Joy.; Lyne, Michael Charles.
In 1995, the Strauss Commission of Inquiry was appointed to investigate rural financial services in South Africa. The inquiry was premised on the traditional view that the provision of financial services is a key strategy for rural development. New Growth Theory correctly emphasises that emerging farmers may face other, more binding constraints than liquidity. The first part of this study attempts to identify and prioritise liquidity and other constraints facing small-scale farmers. Credit becomes a relevant issue when low levels of liquidity are identified as an important factor constraining small-scale farmers. The second part of the study investigates factors responsible for external and internal credit rationing by small farmers. Data for the analysis were gathered from farm households in two districts of KwaZulu. A logit model is used to examine the extent of liquidity constraints relative to other constraints inhibiting small-scale fanning in KwaZulu-Natal. These other constraints include poor access to land, labour and information, and high transaction costs. The results suggest that liquidity is very important, while imperfect land markets, information, and high transaction costs are also significant inhibiting factors. The Heckman two-stage procedure is used to identify and rank the determinants of internal and external credit rationing in rural households. The results show that high transaction costs faced by rural households' limit their access to formal credit markets. Income and savings levels are significant determinants of the level of credit obtained, with savings acting as a substitute for credit rather than a source of information and collateral for lenders. Ownership of livestock does not contribute significantly to the level of credit used, but this is not surprising in view of their high collateral-specific risk. Better access to credit markets in rural areas will require public investment in infrastructure, literacy and vocational training, and legal reform in order to reduce transaction costs, improve income levels, and facilitate the efficient use of collateral.