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Friday 9 September 2016

ANALYZING THE TECHNICAL AND ALLOCATIVE EFFICIENCY OF SMALL-SCALE MAIZE FARMERS IN TZANEEN MUNICIPALITY OF MOPANI DISTRICT: A COBB-DOUGLAS AND LOGISTIC REGRESSION APPROACH



CHAPTER ONE

INTRODUCTION


1.1 Background of the study

Agriculture plays an important role in uplifting the economy of South Africa. South

Africa is characterized by very prominent dualism in its agricultural production. On one hand, there is very well developed commercial agricultural sectors characterized by a relatively small number of producers (about 60 000 commercial farmers) owning 87% of the total agricultural areas and producing more than 95% of the marketed output. On the other hand, a subsistence or small-scale agricultural sector characterized by a very large number of producers, whose majority is settled in the communal areas, making up about 13% of the agricultural land area (Kirsten and Van Zyl, 1998 as cited by
Ngqangweni, 2000).


Various efforts to promote small-scale farming have been made in the past decade. It remains clear, however, that much more needs to be done to make a positive difference in terms of the political objective of an integrated agricultural sector. Integration will only happen when small-scale farmers fully participate in the market (Azan and Besley, 1991; Makhura, 2001).


   According to Makhura (2001), small-scale farmers in the less-developed rural areas of South Africa are generally poor and not entirely part of commercial agriculture as a result the contribution of Gross National Product (GNP) is limited.

Small-scale farmers residing in Limpopo Province are associated with poverty (Mpandeli, 2006). According to a discussion on food security by the Department of Agriculture and Land Affairs (DALA) and the Ministry of Agriculture and Land
Affairs (MALA), many households are vulnerable to food insecurity including those in the Limpopo Province (FIVIMS, 2003; Mpandeli, 2006).

The disadvantaged farmers practise subsistence agriculture in overcrowded semi-arid rural areas. Subsistence farming is characterized by low production, less opportunities of owning land, limited access to inputs and credit. Farmers tend to engage in off-farm or non-farm activities in order to generate enough income (Makhura, 2001).

The process of agricultural transformation in South Africa involves moving small-scale farmers from subsistence production to producing for the market. The latter provides a number of benefits and advantages, including rural employment and income generation (Ngqangweni, 2000). Furthermore, several studies (Delgado et al. 1998; Ngqangweni, 2000) had shown positive and strong multiplier effects of investing in agriculture, in other words, agriculture has an important role to play in fostering rural development and poverty alleviation. There are constraints, like poverty and limited access to agricultural inputs which affect small-scale farmers in the Limpopo Province.



 The small-scale sector is divided into three categories: net food buyers, intermediate farmers and net food sellers. Net food buyers are those farmers with less than 0.7 hectares who cannot produce food to satisfy their subsistence needs given the technology they use. Resultantly they remain dependent on off-farm activities. Intermediate smallholder farmers are those with land holding between 0.7 and 1.5 hectares who produce just enough for their survival but have very little for sale. Net food sellers are those farmers with land holdings of more than 1.5 hectares who produce more than their subsistence needs for survival during the year (Alwang and Siegel, 1999 as cited by Baloyi et al. 2011).

According to Coetzee (1998) as cited by Hlongwane and Belete (2005), there is a challenge in the exact definition of a small-scale farmer and the author further argues that it should be based on agricultural activity in whatever form. Small-scale is often equated with a backward, non-productive, non-commercial subsistence agriculture that is found in parts of the former homeland areas. The production level is generally low due to a traditional land tenure system, lack of physical infrastructure, lack of credit facilities and lack of extension services.

Maize is the most important grain crop and is widely produced by small-scale famers (NDA, 2004). South Africa is the main maize producer in the South African Development Community (SADC), with an average production of about 9,6 million tonnes per year over the past 10 years. Maize has a wider range of uses because of its worldwide distribution and relatively lower prices. It is used directly for human consumption in developing countries, as livestock feed and also as non-food products such as starch, acid and alcohol. Recently there has been interest in using maize for production of ethanol, a substitute for petroleum based fuel (NDA, 2004).

According to Elsamma and George (2002) production is defined as the transformation of goods and services into finished products (that is input-output relationship). The efficiency of a farm is based on its ability to produce the greatest amount of output possible from a fixed amount of inputs. In other words an efficient farm is the one that can produce a given quantity of goods by using the least units of inputs possible. In fact, the concept of efficiency is derived from a particular interpretation of the notion of production frontier. Production efficiency can be measured by two components called technical and allocative efficiency (Torkamani and Harder, 1996).

Technical efficiency is defined as the ability of a farm to obtain maximum attainable output from a given set of physical inputs. Following the classical definition of Farrell (1957), a firm is considered to be technically efficient if it obtains the maximum attainable output given the amount of inputs used and technology. Allocative efficiency on the other hand is defined as the ability of a farm to use inputs in optimal proportions given their respective prices (Rukuni,1994).
  The appropriate measure of technical efficiency is input saving, which gives the maximum rate at which the use of all the inputs can be reduced without reducing output.
Allocative efficiency deals with the extent to which farmers make efficient decisions by using inputs up to a level where their marginal contribution to production value is equal to the factor cost (Rukuni, 1994). Allocative efficiency is evaluated from the producer’s maximization point of view. The study of efficiency focuses on the possibility of increasing output while conserving resource use. Efficiency measurement provides information which is potentially useful in the formation and analysis of the agricultural policy (Wang et al. 1996 as cited by Baloyi et al. 2011).

Technical inefficiency arises when less than the maximum output is obtained from a given package of factors. It is generally assumed to reflect inefficiency due to timing and method of application of production inputs. Allocative or price inefficiency arises when factors are used in proportions which do not minimize the cost of producing a given level of output. There is failure to equate the ratio of marginal products of inputs to the ratio of market prices. Allocative inefficiency can be a reflection of unobserved differences in prices or producers’ objectives other than profit maximization e.g. utility with risk within utility function which cause different marginal conditions to hold (Farrell, 1957).

Small-scale farming can potentially contribute to agro industrial development.
Hence increasing the number of small-scale farmers can increase the demand for agricultural inputs such as fertilizers, pesticides, etc. Strategies to develop small-scale farming and linking them to rural enterprises could reduce rural poverty and limit-urban migration.
The importance of sustaining agricultural production to improve the standard has been recognized by all countries throughout the world (Ankomah, 2000).

The role of agriculture in development was considered ancillary to the modern industrial sector where most of the accumulation and growth was expected to take place. Subsequent theoretical investigations and the very disappointing performance of agriculture in many developing countries have led to the belief that the role of agriculture in development should be re-examined (Ankomah,2000).


 This study focuses on technical and allocative efficiency because it is an important subject in developing agriculture where resources are limited with high population growth being common. The food balance sheet in Africa has shifted from positive to negative. For example, between 1970 and 1980’s food production grew by 1.5% while population growth was 3%. This has led to a decline in per capita food consumption making Sub-Saharan Africa the only region in the world where average calorific intake has declined over time. This problem of stagnation in food production is reflected in growing reliance of food imports, food aid, rising poverty and increasing degradation of the natural resource base (La-anyami, 1986).
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