University of Stellenbosch Business School (USB)

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Browsing University of Stellenbosch Business School (USB) by browse.metadata.advisor "Coetzee, G. K. (Gerhardus Koch)"

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    Investigating the costs and value to smallholder farmers participating in the deciduous fruit value chains in South Africa
    (Stellenbosch : Stellenbosch University, 2020-03) Mjonono, Mfusi; Marwa, Nyankomo Wambura; Coetzee, G. K. (Gerhardus Koch); Stellenbosch University. Faculty of Economic and Management Sciences. University of Stellenbosch Business School.
    ENGLISH SUMMARY : Integration and development of smallholder farmers into the deciduous fruit value chains continues to be a challenge and smallholder farmers are struggling to compete with large commercial producers. As in any other value chain involving smallholder farmers, the most cited reason for the challenge of value chain participation by smallholder farmers is the issue of transaction costs. Various studies have looked at direct costs associated with participation in the value chain. However, these studies have not investigated other hidden or intangible costs such as, economics costs, regulatory and compliance costs, social and cultural costs, and psychological costs, which may have a tremendous effect on farmer’s participation in the value chain. This leaves a knowledge gap in understanding the overall costs incurred by smallholder farmers participating in the value chain. A framework was developed and transformed into a cost model with corresponding hypotheses that could be used to study these cost constructs. In this framework, an endogenous latent variable “cost to participate” was developed with five exogenous latent variables: direct financial costs, economic costs, psychological costs, regulatory and compliance costs, and social and cultural costs. It was hypothesised that all these costs have a positive relationship with the cost of participating in the value chain and may determine participation. Participation of smallholder farmers in the value chain is also determined by the ability to capture value, which is created at various stages and by different actors along the value chain. Again, various studies have focused on evaluating smallholder farmer upgrading, which is referred to as functional value, as a benefit in participating in the value chain. However, little attention has been given to the capture of their experiential value of participating in the value chain. Evidence on experiential value for the smallholder farmers participating in the value chain is important in order to understand the overall value proposition. On this premise, a framework and experiential value model was developed in order to empirically examine the experiential value for smallholder farmers participating in the value chain. In this framework, an endogenous latent variable, experiential value was developed, with five exogenous latent variables: act experience, feel experience, relate experience, return on investment, satisfaction and think experience. Five hypotheses were developed in order to assess these constructs included in the model. Ability to capture value, which is referred to as functional value in this study, requires financial investments and therefore access to finance becomes crucial in the process of smallholder farmer integration in the value chain. Access to finance is often cited as a major obstacle for smallholder farmer’s participation in the value chain. A conceptual framework was developed and transformed into a functional value model with four hypotheses in order to examine these constructs. This framework consists of an endogenous latent variable, functional value, with four exogenous latent variables: product upgrading, process upgrading, functional upgrading and access to finance. To analyse the results of the models, a Partial Least Squares Structural Equation Modelling technique was used with Smart PLS software and Statistical Package for the Social Sciences. Structural Equation Modeling (SEM) is an important statistical tool in social and behavioural sciences and has an ability of modelling nomological networks by expressing theoretical concepts through constructs and connecting these constructs via a structural model to study their relationships. Due to the fact that the study examined investigative research constructs that were less developed or still need theoretical development, the Structural Equation Modeling technique was found to be appropriate. The study used primary data collected from 101 smallholder farmers participating in the deciduous fruit value chain from three provinces of South Africa, namely Western Cape, Eastern Cape and Northern Cape because these provinces produce 96% of the deciduous fruit in South Africa. Deciduous fruit industry was chosen because it is one of the important high value chains within the South African agriculture. Deciduous fruit refers to the fruit trees that lose their leaves during winter. The deciduous fruits includes apples, peaches, pears, nectarines, plums, peaches, apricots and cherries. The deciduous fruit industry has well developed value chains and is labour, capital and technology intensive which makes it very challenging for new entrants. The results of the cost model, indicated that direct financial costs, psychological cost and regulatory and compliance costs have a positive and significant relationship with cost to participate in the value chain. It is therefore concluded that these constructs constitute a good measure of the cost to farmers of participating in the value chain and argued that the costs highlighted above constitute a more complete construct to consider and could be a determining factor for participation. On the experiential value model, the study revealed that feel experience, satisfaction and think experience have a positive and significant relationship with experiential value and therefore are the distinct dimensions of experiential value. It is therefore inferred that these three constructs – feel experience, satisfaction, and think experience – constitute a distinct measure of experiential value for smallholder farmers participating in the deciduous fruit value chain. In the functional value model, all the constructs – product upgrading, process upgrading, functional upgrading and access to finance – had a positive and significant relationship with functional value. The results shown in this study indicate that through participation in the value chain, smallholder farmers gain access to the requisite investment possibilities through timely and affordable access to finance. Based on the findings, smallholder farmers incur costs from participating in the value chain; therefore, there is a need for policy interventions focusing on reducing these costs. The study recommends lowering of transaction costs through use of digital innovation, improved coordination and organisation of smallholder farmers’ and collaborations between public–private institutions participation in the value chain. Improved coordination and organisation could also reduce the number of transactions for the processors and exporters in the value chain, thereby reducing the cost to farmers. Coordination with fellow producers to increase economies of scale for the supply of produce could also reduce transaction costs. Furthermore, coordination and organisation of smallholder farmers strengthens their voices and improves their bargaining power in the negotiation of contract schemes and funding/financing mechanisms, and thus reduces costs of participating in the value chain. Collective action is a vital feature of public–private partnerships and can help to reduce transaction costs and promote participation of smallholder farmers in the value chain. There is a need for public–private partnerships within the value chain. This collaboration could include public institutions, agribusiness companies, financial institutions, non-governmental organisations, agro-enterprises, farmer organisations and individual farmers. Government should be supportive of these formations and have open channels of communication. The development and integration of smallholder framers into high value chains necessitates a fundamental reconsideration of the role of government in policy making. In this study, it was found that access to finance is another dimension of smallholder farmer upgrading strategies. Government intervention could take the form of provision of a regulatory and legal framework, which is required for these mechanisms to function. Government could also play a role in co-financing seed money to facilitate the start-up of these instruments/mechanisms.