Cattle production, commercialization and marketing in smallholder farming systems of South Africa : impacts and implications of livestock extension and market transaction costs.

Abstract

The lagging performance of agriculture in sub-Saharan Africa over the past four decades has been attributed to the underlying agro-ecological and market access conditions. Regions with high agricultural potential are often found in remote and rural areas lacking the basic infrastructure to integrate into the market economy. Such challenges are more pronounced in South Africa. The country’s livestock sector, for example, accounts for 69% of agricultural land and remains a key livelihood strategy for over three million smallholder farmers. Yet cattle markets are still characterized by low participation rates among smallholder farmers, which could be attributed to weak institutional support and high transaction costs. However, empirical evidence remains scanty. This study evaluated the impact of extension programme on cattle production and investigated the effects of extension information, market transaction costs and famers’ motivations on cattle commercialization and marketing in rural KwaZulu-Natal (KZN). The empirical analyses were based on data from a household survey of 230 cattle farmers in 13 communities of the Okhahlamba Local Municipality. Based on a propensity score matching (PSM) approach, the probit estimation results showed that the probability of participating in extension programmes decreases with education and Nguni breed farming and increases with herd size, group membership and distance from the extension office. The results of the Nearest Neighbour PSM algorithm showed that cows belonging to contact farmers and participants in farmers-to-farmer extension programmes produce more calves than their control counterparts. The results showed higher rates of use of veterinary services among participants in farmer-to-farmer extension sessions than among their control counterparts. However, these findings were not robust across different PSM algorithms. The findings, therefore, suggested that the training and visit (T&V) extension approach in the rural KZN remains largely supply-driven and achieves limited success. Based on Double-Hurdle estimation technique, the results of probit and truncated models of cattle commercialization and supply volume decisions showed that farmers with larger herd sizes are more likely to participate in cattle markets and, given positive decisions, they supply larger volumes of cattle to the market. They also showed that the likelihood of participating in cattle markets increases with membership in saving groups, Nguni farming, and cattle tagging, and decreases with proximity to water sources and unearned incomes. The results further showed that the quantity supplied increases with participation in farmer-to-farmer extension and decreases with expected price. These findings suggested that cattle commercialization in rural KZN is encouraged by farmer-to-farmer extension and discouraged by transaction costs and store-of-wealth motives. The estimation results of a multinomial logit model of marketing channel selection showed that selling during December (a festive month) increases the probability of choosing the auction marketing channel versus farm gate, suggesting a scope of market uncertainty during off-peak seasons. The results also showed that knowledge of the buyer and distance to auctions increase the probability of selling to speculators, suggesting that farmers selling to speculators face considerable challenges related to low bargaining power, while participants in dip tank sales face higher opportunity cost of time and efforts to transport the cattle. The results showed a positive effect of volume sold and age on selling at the auction, indicating that farmers spread auction-specific transaction costs over the number of units sold, and they gain the ability to co-ordinate market transaction, at much lower cost, through experience. The findings have several implications for livestock extension policies in South Africa. To be more demand-driven, extension strategists should: (i) explore advisory and facilitation models; (ii) ensure accountability of extension workers at local levels; and (iii) tap into market-led extension models. To facilitate cattle commercialization, extension workers should support farmer groups and promote non-livestock investment opportunities. Video auctioneering could alleviate the market uncertainty and high negotiation cost. Facilitating trust-based relational exchanges could help to eschew the scope of opportunism among itinerant speculators.