Expenditure elasticities and growth linkages for rural households in two study areas of KwaZulu-Natal.

Abstract

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.