This paper presents the principles of cooperation and briefly describes the history and development of agricultural cooperatives in developed and less-developed countries, with particular emphasis on South Africa. A new Cooperatives Act, based on international principles of cooperation, was promulgated in South Africa in August 2005. The theory of cooperatives, and new institutional economics theory (NIE) (including transaction cost economics, agency theory and property rights theory) and its applicability to the cooperative organizational form, are also presented, as are the inherent problems of conventional cooperatives, namely free-rider, horizon, portfolio, control and influence cost problems caused by vaguely defined property rights. An analysis of the future of cooperatives in general, based on a NIE approach, suggests a life cycle for cooperatives (formation, growth, reorganization or exit) as they adapt to a changing economic environment characterized by technological change, industrialization of agriculture and growing individualism.
The objective of this research is to investigate whether agricultural cooperatives can facilitate smallholder farmer access to input and product markets. Farmers in two case study communal areas of KwaZulu-Natal face high transaction costs as reflected primarily in their low levels of education and literacy, lack of market information, insecure property rights, poor road and communication infrastructure, and long distances to markets. Analysis of the reasons why cooperatives were originally established in various parts of the world suggests that most of the causes (such as poverty, market failure and high transaction costs) also apply to the study farmers, as do the seven international principles of cooperation. Smallholder farmers in both case study regions have the potential to grow high-value crops such as vegetables, fruit and cut flowers. In the supply chain from farm to market, the optimum boundary for each organization involved in the chain (e.g. cooperative and investor-oriented firm) depends on the minimum operational and transaction costs for each business.
In line with the current focus of most developing countries to transfer management of communal irrigation schemes from state to users, an understanding of the determinants of farmer participation in collective activities forms the basis to improve the management of previously government-funded schemes, which are characterised by poor maintenance and performance when farmers are left to manage the schemes on their own. Cross-sectional data collected from 307 respondents in the Mooi River Irrigation Scheme (MRIS) in KwaZulu-Natal were used to identify the determinants of farmer participation in collective activities. The results of the Tobit and Ordered Probit models suggest that collective activities are negatively affected by low farmer-literacy levels. Number of consecutive days that farmers spend without access to irrigation water per week was used as a proxy for water scarcity, and was confirmed to be a significant determinant of farmer participation. The existing incentives for water-users in the MRIS need to be improved to encourage farmer participation in collective water management. This calls for strengthening of local water management systems and institutional policies to ensure maximum benefits from participating in collective activities. The study noted the complexity of managing common pool resources at a localised level, and pointed to the need to further understand the institutional dynamics in which smallholder irrigation farmers operate.
High transaction costs are detrimental to the efficient operation or existence of markets for inputs and outputs. The cost of information and the costs associated with the search for trade partners, the distance to formal markets and contract enforcement are likely to influence the marketing of food crops. This study hypothesises that the level of income generated from food-crop sales by small-scale farmers in the Impendle and Swayimana districts of KwaZuluNatal is influenced by transaction costs and certain household and farm characteristics. Regression analysis shows that the depth of marketing methods is significantly influenced by transaction cost proxies, such as cooperation with large commercial farmers and ownership of means of transport. Results from a block-recursive regression analysis show that the level of crop income generated is determined by the depth of marketing methods, the size of allocated arable land and off-farm income. Households with lower transaction costs, sizeable allocated land and off-farm income can be expected to generate higher income from food crops. Investment in public goods such as roads, telecommunications and an efficient legal system (to uphold commercial contracts), as well as farmer support services (input supply, extension, marketing information and research), would probably raise farm and non-farm income by reducing transaction costs. This would increase the effective demand for locally produced goods and services, thus contributing to rural employment and livelihoods within rural communal areas.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.