Feasible indicators for monitoring the performance of equity-share schemes in South African agriculture.

Abstract

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.