Performance evaluation of agricultural coperatives in Mpumalanga Province, South Africa

Xaba, Sharon Thembi (2020-03)

Thesis (PhD)--Stellenbosch University, 2020.

Thesis

ENGLISH SUMMARY : The role of cooperatives and agricultural cooperatives in an economy is widely recognised as being a catalyst for inclusive growth and development. Despite the role played by cooperatives, their performance in Africa and South Africa, in particular, has been contentious, based on anecdotal evidence. In South Africa literature points out that post the enactment of the Cooperative Act 14 of 2005, the registration rate of cooperatives went up from less than 250 to more than 50,000 cooperatives between 2005 to 2012. However, the mortality rate was at 88% post registration and there was also a decline in revenue from 2005 to 2012. Reasons for the failure to sustain has to be empirically investigated. The current dearth of empirical literature in this domain implies that policy makers and decision makers are constrained on evidence-based knowledge to inform their decision. As a modest effort towards bridging this knowledge gap, the study focuses on performance evaluation of agricultural cooperatives in Mpumalanga province. Performance evaluation is important for firms or organisations to diagnose underlying problems, and assists them in allocating resources efficiently. Performance evaluation also allows the optimisation of profit through rational input allocation to achieve the desired or maximum outputs and informs the firm on sustainability drivers. The study used a mixed methods approach to analyse the efficiency, profitability and sustainability of agricultural cooperatives and stakeholder perception of the drivers of performance. The study extends the traditional performance evaluation literature by making use of methodological triangulation. The study incorporates three essays to measure performance. The first essay focused on efficiency evaluation. A total of 19 agricultural cooperatives/ decision making units (DMUs) were analysed and technical efficiency measured, using secondary data from audited financial statements in the financial year 2015/16. Data Envelopment Analysis was employed. The average technical efficiency was found to be 72%, indicating the presence of 28% resource wastages. Of the 19 DMUs, only five (26%) were 100% efficient. It should be noted that the 26% that were technically efficient were also operating at constant returns to scale (optimal resource allocation). The findings signal that size or scale of the cooperative has an impact on efficiency levels. Government and related cooperative stakeholders should consider aligning support based on the scale at which cooperatives are operating, as opposed to one-size-fits-all support. The second essay examined profitability ratios, extending the analysis to an efficiency profitability matrix to measure if efficient firms were equally profitable. Return on Assets (ROA) was used as a measure, and the median score for profitability for the 19 cooperatives was 10%. Using the technical efficiency/profitability benchmark, the study employed the efficiency/profitability matrix, which separated best performers from low performers. The matrix indicated that 26% of the cooperatives had high efficiency levels with high profitability (stars). The majority of the DMUs at 42% (8 out of 19) were in quadrant 3, categorised as ‘question mark’, with low efficiency scores and low profitability ratios. Results indicate that efficiency and profitability are not always positively correlated, managers should understand a cooperative as a business as well as its social role towards economic development. The third essay applied methodological triangulation, where qualitative analysis was employed. Stakeholder views were gathered on the performance of cooperatives, and what should inform the future of the cooperatives for sustainability. Ten agricultural cooperatives were selected, where five were high performers and five were low performers, the justification for this selection was that choosing the extremes tends to provide contrasts: there seem to be shared characteristics relating to their performance or non-performance. What stood out as drivers for performance were access to funding, access to markets, members’ commitment, governance and leadership, while performance inhibitors were lack of access to finance, members’ conflict, low skills levels, and poor governance. What also came out was that there was a ‘policy–reality gap’ (from policy and implementation). The overall results across all performance measurement proxies indicated that agricultural cooperatives are not performing at optimal levels, with results indicating that they are not efficient in resource allocation, with a majority showing that they are both technically inefficient and not profitable. The performance or non-performance has been driven by agricultural cooperative members. With the above, there are a number of policy implications. With regard to efficiency, size of the cooperative matters, classification on scale should be considered. With regard to profitability, policy decisions should factor in empowering the agricultural cooperatives as firms, for them to be able to manage resources efficiently while at the same time being profitable, resulting in sustainable organisations. Policy makers should also note that there is always a gap between policy and implementation, there is therefore a need to strengthen their knowledge base on the ground, as opposed to designing policies from a hypothetical point of view. There is a need for government to reconsider support and link it with risk-sharing mechanisms. Measures to protect government investment should be applied, and risk-sharing mechanisms should be considered. This will ensure that cooperative members guard against business failure, so that they manage cooperatives as profitable businesses and achieve their intended objective of job creation and contribute towards economic development. The results of the study contribute to empirical findings linked to the performance of cooperatives. As the mixed method approach was used, the study’s contribution is from both the methodological approach and also policy influence, as the results will inform future policy development and cooperative support. The findings also provide a platform for future studies on performance of cooperatives.

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