The implications of smallholder agricultural productivity growth for poverty alleviation in post ...

131 Pages·2015·1.97 MB·English

The implications of smallholder agricultural productivity
growth for poverty alleviation in post-apartheid South
Africa

By
NONTEMBISO EUGENIA DWESINI

A DISSERTATION SUBMITTED IN FULFILLMENT OF THE REQUIREMENTS
FOR THE DEGREE OF MASTER OF AGRICULTURE (AGRICULTURAL
ECONOMICS)

DEPARTMENT OF AGRICULTURAL ECONOMICS AND EXTENSION
FACULTY OF SCIENCE AND AGRICULTURE
UNIVERSITY OF FORT HARE

JANUARY 2015

SUPERVISOR: PROF. AJURUCHUKWU OBI
DECLARATION

I, Nontembiso Eugenia Dwesini hereby declare that the work contained in this dissertation is
my own original work and that other scholars‟ work referred to here have been duly
acknowledged. I also declare that this dissertation has not been submitted elsewhere for a
degree.

Signed: ……………………………………………… Date: …………………………..
Nontembiso Eugenia Dwesini

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DEDICATION

To my loving and caring parents Mr Zwelibanzi Swartbooi Dwesini and Mrs Nomziwakhe
Dwesini, the reason for my existence; my sisters and a brother. I gratefully and emotionally
dedicate this Masters project to you. Thank you for being a gift and blessing from God

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ACKNOWLEDGEMENTS

First and foremost, my everlasting thanks to my grandfathers, mothers and the Lord God
Almighty for their steadfast and continual provision of wisdom and love which sustained me
hitherto. If it was not for their love, grace, guidance, peace and protection that saw me
through, I would not have reached this end.
My deepest thanks also go to my supervisor, Prof Ajuruchukwu Obi, for his encouragement
and assistance, his availability for consultation and direction made the difference in my study.
My academic development up to this level would not have been easier without you at the
University of Fort Hare. May God bless you.
Lastly, I would like to thank the staff and students of the Department of Agricultural
Economics for their support and motivation during the period of my study.

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ABSTRACT

The adoption of the Millennium Development Goal 1(MDG 1) of reducing the rate of poverty
to half of the 1990-level by 2015 has been a challenge faced by the developing countries
including South Africa. The foundations of democracy have to be continuously assessed so
that the obstacles faced by South Africa as it strives towards sustainable democracy are
addressed. With agricultural sector identified as having the potential to alleviate poverty
compared to the mining sector, manufacturing sector and services sector, it faced the
challenges that include: (i) accelerating agricultural productivity; (ii) reducing poverty and
vulnerability; and (iii) narrowing rural-urban income disparities.
The identification of the critical linkages in the agricultural development framework allows
for effective strategic planning, effective decision making and appropriate policy formulation.
Expectedly, the sector has attracted considerable fiscal policy interest and public
investments. The primary aim of this research study is to assess the extent to which
smallholder agricultural productivity growth alleviates poverty in South Africa. The
statistical and econometric techniques namely; Johansen technique of co-integration analysis
(1995), analysis of covariance and correlation, Vector Error Correction Model, are
employed in this research study. The data description, data sources, expected relationship
between variables and indexation of data are done. The drivers and cause-effect
relationships between agriculture and poverty reduction are investigated. The employed
models allowed for an exploration of plausible future growth in agricultural elasticity of
poverty and the possibility of reducing poverty level in South Africa. The data is obtained
from the National Department of Agriculture from 1994 -2013. The analysis of the results
strongly confirms that agricultural productivity has a significant inverse relationship to the
levels of poverty in South Africa. The outcome of the analysis will contribute to improved
decision making on the use of public funds in agriculture.
Key words: Agricultural growth, public agricultural expenditure, rural development, poverty,

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TABLE OF CONTENTS
DECLARATION ............................................................................................................................................. I
DEDICATION................................................................................................................................................ II
ACKNOWLEDGEMENTS........................................................................................................................... III
ABSTRACT.................................................................................................................................................. IV
TABLE OF CONTENTS………………………………………………………………………………………..V
LIST OF TABLES…………………………………………………………………………..………….…….VIII
LIST OF FIGURES....................................................................................................................................... IX
LIST OF ACRONYMS AND ABBREVIATIONS ........................................................................................ X
CHAPTER 1 ................................................................................................................................................... 1
INTRODUCTION .......................................................................................................................................... 1
1.1 INTRODUCTION AND BACKGROUND .............................................................................................................. 1
1.2 PROBLEM STATEMENT ................................................................................................................................... 5
1.3 OBJECTIVES OF THE STUDY ........................................................................................................................... 8
1.4 RESEARCH QUESTION AND SUB-QUESTIONS ........................................................................................... 8
1.5 HYPOTHESIS .................................................................................................................................................. 9
1.6 SIGNIFICANCE OF THE STUDY ........................................................................................................................ 9
1.7 ORGANIZATION OF THE STUDY .............................................................................................................. 9
CHAPTER 2 ................................................................................................................................................. 10
THEORETICAL BACKGROUND OF THE STUDY ................................................................................ 10
2.1 INTRODUCTION ............................................................................................................................................ 10
2.2 ECONOMIC GROWTH IN SOUTH AFRICA ............................................................................................... 12
2.3 POVERTY AND INEQUALITY IN SOUTH AFRICA .................................................................................... 14
2.3.1 Poverty ............................................................................................................................................ 14
2.3.2 Poverty trends in South Africa ........................................................................................................ 14
2.3.3 The composition of Multidimensional Poverty Index (MPI) ............................................................ 14
2.3.4 The trend in poverty: comparing multidimensional and money‐metric results .............................. 16
2.3.5 The sources of decline in Multidimensional poverty ....................................................................... 17
2.3.6 The texture of poverty: the evolution of the MPI indicators ........................................................... 18
2.4 AGRICULTURAL PRODUCTIVITY GROWTH AND THE INCIDENCE OF POVERTY ....................................... 20
2.5 THE KEY COMPONENTS OF AGRICULTURAL TRANSFORMATION AND POVERTY REDUCTION IN
DEVELOPING COUNTRIES ................................................................................................................................... 21
2.6 LESSONS FROM THE RELATIONSHIP BETWEEN AGRICULTURAL PRODUCTIVITY GROWTH AND POVERTY
REDUCTION ....................................................................................................................................................... 21
2.7 INCOME INEQUALITY ........................................................................................................................... 22
2.7.1 The patterns of Income distribution across countries ..................................................................... 23
2.8 THEORETICAL LITERATURE REVIEW ..................................................................................................... 26
2.8.1 The Classical paradigm of development economics ....................................................................... 26
2.8.2 Modernisation theory: Poverty reduction through economic growth ................................................. 26
2.8.3 Basic needs strategy ............................................................................................................................ 27
2.8.4 The Dependency theory: Growth through reduction of poverty ......................................................... 28
2.8.5 The Functional form of aggregate production ................................................................................ 28
2.5.6 Endogenous growth theory ............................................................................................................ 30
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2.6.7 Transaction cost theory ................................................................................................................. 31
2.6.8 Theoretical arguments from the literature ..................................................................................... 33
2.7 EMPIRICAL REVIEW ..................................................................................................................................... 34
2.7.1 International studies ........................................................................................................................... 34
2.7.2 Developed countries ............................................................................................................................ 36
2.7.3 Developing countries .......................................................................................................................... 36
2.7.4 Studies in Africa and South Africa ................................................................................................. 38
2.8 CHAPTER SUMMARY ............................................................................................................................ 44
CHAPTER 3 ................................................................................................................................................. 46
SMALLHOLDER AGRICULTURAL PRODUCTIVITY GROWTH TRENDS ...................................... 46
3. 1 INTRODUCTION ........................................................................................................................................... 46
3.2 DEFINITION OF KEY TERMS .......................................................................................................................... 46
3.2.1 Agricultural productivity..................................................................................................................... 46
3.2.2 Smallholder farmers ....................................................................................................................... 51
3.3 AN OVERVIEW OF SOUTH AFRICA‟S AGRICULTURAL SECTOR ..................................................................... 52
3.3.1 The Contribution to Gross Domestic Product (GDP) ......................................................................... 52
3.3.2 The Gross value of Agricultural production ................................................................................... 54
3.4 SOUTH AFRICA‟S AGRICULTURAL PRODUCTIVITY .............................................................................. 55
3.4.1 Factors affecting Agricultural productivity .................................................................................... 56
SOURCE: DAFF 2013, ................................................................................................................................. 59
3.5 FOOD SECURITY IN SOUTH AFRICA ............................................................................................................. 63
3.5.1 Food security challenges in South Africa ........................................................................................... 63
3.5.2 Consumption of food ........................................................................................................................... 65
3.6 GOVERNMENT‟S RESPONSE MECHANISMS ON FOOD INSECURITY ......................................................... 65
3.6.1 The Integrated Nutrition Programme (INP) of 1995: Department of Health ..................................... 65
3.6.2 The Integrated Food Security Strategy (IFSS) of 1996: Department of Agriculture ...................... 66
3.6.3 The Comprehensive Agricultural Support Programme of 2005 .......................................................... 66
3.7 CHAPTER CONCLUSION ................................................................................................................................ 66
CHAPTER 4 ................................................................................................................................................. 68
METHODOLOGY AND ESTIMATION TECHNIQUE ............................................................................ 68
4.1 INTRODUCTION ............................................................................................................................................ 68
4.2 MODEL SPECIFICATION ................................................................................................................................ 68
4.3 SPECIFICATION OF VARIABLES .................................................................................................................... 68
4.4 DEFINITION OF VARIABLES .......................................................................................................................... 69
4.4.1 Poverty Level (P) ................................................................................................................................ 69
4.4.2 Government expenditure in agriculture (GVT) ................................................................................... 70
4.4.3 Employment in agriculture .................................................................................................................. 71
FIGURE 4.3: EMPLOYMENT IN AGRICULTURAL .............................................................................. 72
SOURCE: ABSTRACT OF AGRICULTURAL STATISTICS, 2013 ........................................................ 72
4.4.4 Agricultural Productivity (AGR) ......................................................................................................... 72
FIGURE 4.4: AGRICULTURAL PRODUCTIVITY IN SOUTH AFRICA ............................................... 73
SOURCE: ABSTRACT OF AGRICULTURAL STATISTICS, 2013 ........................................................ 73
4.4.5 Consumption of agricultural products (CNS) ..................................................................................... 75
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4.4.6 Gross Domestic Product of Agricultural sector (GDP) ...................................................................... 75
4.4.7 An error term (ξ) ................................................................................................................................. 76
4.5 EXPECTED PRIORI ........................................................................................................................................ 76
4.6 DATA SOURCES ........................................................................................................................................... 77
4.7 ESTIMATION TECHNIQUES ........................................................................................................................... 77
4.7.1 Analysis of Covariance (ANOVA) and correlation analysis ............................................................... 77
4.7.2 Testing for Unit Root .......................................................................................................................... 78
4.7.3 Lag selection criteria .......................................................................................................................... 83
4.7.4 Cointegration analysis and Error correction model (ECM) ............................................................... 83
4.7.5 Vector Error Correction Model (VECM) ............................................................................................ 87
4.7.6 General to Specific Modeling (GETS) ................................................................................................ 88
4.7.8 Vector autoregressive model (VAR) .................................................................................................... 88
4.7.8 Diagonistic tests .................................................................................................................................. 89
4.8 CHAPTER SUMMARY .................................................................................................................................... 92
CHAPTER 5 ................................................................................................................................................. 94
EMPIRICAL ANALYSIS AND FINDINGS ............................................................................................... 94
5.1 INTRODUCTION ............................................................................................................................................ 94
5.2 THE PRELIMINARY DATA EXAMINATION ..................................................................................................... 94
5.2 ANALYSIS OF COVARIANCE (ANOVA) AND CORRELATION ANALYSIS ....................................................... 95
5.3 THE UNIT ROOT TEST .................................................................................................................................. 96
5.3 CO-INTEGRATION ANALYSIS ........................................................................................................................ 97
5.4 THE VECTOR ERROR CORRECTION MODEL (VECM) .................................................................................... 98
5.5 THE IMPULSE RESPONSE ANALYSIS ......................................................................................................... 100
5.6 THE RESIDUALS ........................................................................................................................................ 100
5.7 THE PAIRWISE GRANGER CAUSALITY TESTS ............................................................................................. 101
5.8 RESULTS OF THE REGRESSION ................................................................................................................... 103
5.8.1 Interpretation of the results ............................................................................................................... 103
5.8.2 Actual versus fitted results ............................................................................................................... 105
5.9 CHAPTER CONCLUSION .............................................................................................................................. 106
CHAPTER 6 ............................................................................................................................................... 107
CONCLUSION, POLICY RECOMMENDATIONS AND SUGGESTIONS FOR FURTHER
RESEARCH ............................................................................................................................................... 107
6.1 INTRODUCTION ................................................................................................................................. 107
6.2 POLICY RECOMMENDATIONS ............................................................................................................. 108
6.3 SUGGESTIONS FOR FURTHER RESEARCH ............................................................................................. 108
6.4 CONCLUSION ..................................................................................................................................... 109
REFERENCES ........................................................................................................................................... 110
ANNEXURE 1 (LOGARITHMIC FORM) ............................................................................................... 118
ANNEXURE 2 ............................................................................................................................................ 119

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LIST OF TABLES
Table 2. 1: Economic growth by Labour; Capital; and TFP in South Africa .......................... 12
Table 2. 2: South Africa‟s real annual economic growth: 1990-2013 ..................................... 13
Table 2. 3: A Comparison of Multidimensional and Money-metric results trends of poverty
in South Africa: 1993 and 2010 ............................................................................................... 16
Table 2. 4:Elasticity of poverty to agricultural GDP ............................................................... 20
Table 2. 5: Gini Coefficients of Inequality for eight countries, 2006 ...................................... 24
Table 2. 6: South Africa- middle – income country ................................................................ 24
Table 2. 7: Aggregate Inequality 2000/2002 (% share of Gross Domestic Expenditure) ....... 25
Table 2. 8: Trends in South African Income and Inequality, 2000-2010 ................................ 25
Table 2. 9: Employment in South Africa‟s Agricultural sector ............................................... 58
Table 2. 10: Representation of the total number of farming units across the nine provinces of
South Africa. ............................................................................................................................ 62
Table 2. 11: Analysis of covariance (ANOVA) and correlation ............................................. 96
Table 2. 12: Phillip-Perron test (PP test) ................................................................................. 97

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LIST OF FIGURES
Figure 2. 1: The composition of the Multidimensional Poverty Index .................................... 15
Figure 2. 2: The sources of deprivation among the population ............................................... 18
Figure 2. 3: The main areas of deprivation among the Multidimensional poor ...................... 19
Figure 2. 4: Percentage contribution to gross domestic product (GDP) by sector .................. 53
Figure 2. 5: Gross Value of Agricultural Production ............................................................... 55
Figure 2. 6: Agricultural Productivity estimates in South Africa ............................................ 56
Figure 2. 7: Gross capital formation, value of capital assets and farm debt ............................ 59
Figure 2. 8: South Africa‟s Agricultural Trade ........................................................................ 60
Figure 2. 9: Utilization of agricultural land in South Africa.................................................... 61
Figure 2. 10: Private consumption on food expenditure .......................................................... 65
Figure 2. 11: People Living Below the Poverty Line .............................................................. 70
Figure 2. 12: Government Expenditure on Agriculture ........................................................... 71
Figure 2. 13: Employment in Agricultural ............................................................................... 72
Figure 2. 14: Agricultural Productivity in South Africa .......................................................... 73
Figure 2. 15: Consumption of agricultural products (CNS) .................................................... 75
Figure 2. 16: Gross Domestic Product of Agricultural Sector ................................................. 76
Figure 2. 17: Preliminary data examination ............................................................................. 95
Figure 2. 18: Impulse response Analysis ............................................................................... 100
Figure 2. 19: Residuals .......................................................................................................... 101
Figure 2. 20:The actual versus fitted results. ......................................................................... 105

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