Measuring technical efficiency of small-scale commercial farming enterprises and their contribution to the local economy in Vhembe District, South Africa

Abstract

In rural areas of South Africa, small-scale commercial farming is regarded as an essential role player to end extreme poverty, unemployment and food shortages. As such, the South African government has been supporting this subsector through several channels such as Micro Agricultural Financial Institutions of South Africa scheme and Lima Rural Development Foundation to enhance local economic development in rural areas. While the investments by government to ensure local economic development through small-scale commercial farming is increasing, the overall economic contribution in terms of job creation and income generation by these farmers to the rural economy is not fully known. Thus, this study was undertaken to estimate the contribution of small-scale commercial farmers’ enterprise to job creation and income generation in Vhembe District Municipality. A correlational descriptive research design was employed in the study. A sample size of 217 small-scale commercial farmers in four local municipalities in Vhembe District was used. Structured questionnaires were used to collect quantitative data which was analysed using International Business Machines (IBM) Statistical Package for Social Science (SPSS) version 26, Limited Dependent Variable Mod (LIMDEP) version 11 and Microsoft Office Excel 2016. Descriptive statistics were used to characterize small-scale commercial farmers. Limited Dependent Variable Mod (LIMDEP) version 11 and Ratio analysis were used to measure technical in this current study. Ratio analysis was also used to estimate income and employment contribution to Gross Domestic Product (GDP) in Vhembe District Municipality. Ordinary Least Squares (OLS) was used to estimate the economic contribution by small-scale commercial farmers in Vhembe District Municipality. Finally, Freidman means ranking method was used to identify challenges faced in this sub-sector. Most of the respondents (93%) are above the age of 35 years, implying that there are few youths (<35 years old) practising small-scale commercial farming in Vhembe District. On average, the land size was 11 hectares of which 77% of the respondents are farming throughout the year, and 87% of this proportion rely on commercial farming as a primary source of income. The study further revealed that small-scale commercial farmers rely on cheap labour and family members as a source of employment. This might deter the farmers from optimising the resources at their disposal since cheap labour is often associated with unskilled workers. As such, the results revealed an average technical efficiency of 54,25% implying that there is 44,74% room for improving their productivity. Females farmers were found to be more technically efficient as compared to male farmers. In terms of employment contribution, the sub-sector contributes around 19800 to the labour market in the District, which translates to 6% of the total employment created in 2019 in Vhembe District. Furthermore, the sector generated gross revenue valued at R90 537 600, which translates to 9% of the Gross Domestic Product (GDP) for Vhembe District in 2019. On average, expenditure on salaries, inputs and access to credit were also found to have a positive effect on GDP in Vhembe District. The results suggest that small-scale commercial farming presents viable opportunities to improve the current level of production hence employment creation and income generation for local economic development. Considering the current level of technical efficiency, establishing agri-prenuers training programs, investing in modern farming technology and prioritise support to female farmers should improve small-scale commercial farming productivity in rural areas. However, the number of youths participating in agribusinesses is low, which threatens the sustainability of this sub-sector. Thus, professionalizing small-scale commercial farming should be also prioritised with a special focus on attracting and empowering youth which in turn can reduce youth unemployment. As such, investments in small-scale commercial farming should be carried out considering multiple structural transition strategies encompassing technical, economic approaches, age and gender imperatives.