Farm size and economic efficiency in sugar cane production in KwaZulu-Natal.

Abstract

There is a dilemma in South African agriculture in the choice of an agrarian system that will achieve the dual goals of growth and equity. Uncertainty prevails about the viability of very small farms, and how the country's extremely limited and fragile agricultural resources can be utilized in an efficient and productive manner. In this study efficiencies in resource utilization on small and large sugar cane farms are examined, and information is provided on the implications that might hold for the reallocation of resources between farm size groups in pursuit of land redistribution. In any industry where there are specialized resources to specific firms like labour and management, it is difficult to define an efficient farm size because returns to these specialised productive factors will differ, as such influencing costs per unit, resource valuation and eventually the size of operation. In this situation there will tend to be an optimum distribution of firm size rather than optimum size of a firm. This renders any study of optimum size rather dispensable. However, in South Africa where government is encouraging small farm development, the question of efficiency and equity becomes relevant and it is not possible to simply abstract from this issue. The study is based on data collected from a sample of 160 small and large sugar cane units in the North Coast region of the KwaZulu-Natal sugar cane belt during March/April 1995. The sample was stratified to maximize the variation of the farm size variable in order to study the effect of this variable on efficiency. The study shows that small farms as compared to large farms; are deficient in human resource capital, less competitive in the credit market, incur high input costs relative to farm income, have less incentive to acquire more farming knowledge, and of less capacity to adopt better farming methods. A linear discriminant model shows that human capital capacities of farm operators, information, farm size, and wealth are important determinants of the likelihood of adoption of appropriate and improved farm practices on sugar cane farms. Major implications are that: adequate information through training on better farming methods will improve the managerial capabilities of farmers, and sugar cane farmers with different resource endowments should be targeted distinctively in the provision of extension support services. Economies of size, whereby large farms reduce their costs by spreading fixed machinery, labour and management costs, information, and transaction costs in the credit market over more output are evident in the data. Results indicate that farms producing less than 500 tons of cane (operating approximately less than 10 hectares under sugar cane) exhibit substantial economies of size. Such economies tend to decline with size of enterprise, and farms with output of about 2500 tons (50 hectares of land under sugar cane) appear to have near constant returns to scale. This implies that small farms producing less than 500 tons (ten ha of sugar cane) require significantly more resources to produce a rand's worth of output than larger farms. The major policy implications are that, if commercial farms are subdivided in the land resettlement programme, significant efficiency loss may occur if the resettled farms produce less than 500 tons. Little efficiency loss is expected if resettled farms produce more than 2500 tons (50 hectares). Finally, empirical evidence using a tobit (econometric) model suggests significant linkages between scale efficiency and farmers' education, managerial adeptness, training, age, and size of farm holdings. This implies that efficiency of very small scale sugar cane farms (producing less than 500 tons) can be enhanced by land consolidation, farm operators' education, training and extension services for expansion and propagation of modern techniques of cane production.