Measuring the financial efficiency of agricultural cooperatives in South Africa: an application of the Simar–Wilson methodology

Abstract

The SA government has favored cooperatives over other types of corporate entities in its programmes for rural development. This study examines financial efficiency and its determinants for 387 agricultural cooperatives in SA using a two-stage double bootstrap approach. Bias-corrected Data Envelopment Analysis (DEA) efficiency estimates are obtained in the first-stage for the agricultural cooperatives. Next, a Double Bootstrapped Truncated Regression model was estimated to obtain bias-corrected scores. The model was designed to obtain DEA scores for financial efficiency. First-stage results indicate that many agricultural cooperatives are relatively inefficient. Results of the second-stage analysis identified significant determinants of efficiency as age of cooperatives, size, gender of management, governance indicators and training. Governance indicators negatively influencing efficiency indicate institutions that prioritize non-financial goals and consequently compromise on governance quality. The deviation from institutional control mechanisms most likely emerges in a weak institutional environment. Various types of training influenced financial efficiency meaning that an understanding of training needs across institutions is crucial for equipping and empowering cooperatives towards financial efficiency. The study shows that the design and implementation of suitable training programs are prerequisites for addressing financial efficiency of agricultural cooperatives.

Why do agricultural co-operatives fail to attract youth and create rural employment? Evidence from a case study of Zanokhanyo in Butterworth, Eastern Cape

“…These aforementioned variables, together with poor managerial aptitude, age, size and governance, were found to be the major influential factors in agricultural cooperative efficiency, the lack of which ultimately results in cooperative failure (Yobe et al, 2020). While a majority of agricultural cooperatives in South Africa are financially inefficient (Yobe et al, 2020), the efficiency of agricultural cooperatives is an important factor, as it determines the profits and dividends for each member and contributes to the members' livelihood. Table 1 below summarises some of the commonly cited reasons for agricultural cooperative failure in South Africa.…”

“…The National Planning Commission's National Development Plan places agriculture at the centre of rural economic growth, development and employment creation (NPC, 2011). In this regard, across the globe, agricultural cooperatives have been widely acknowledged as a vehicle to uplift poor people from deep poverty in developing countries, including South Africa (see Ortmann & King, 2007;Mojo et al, 2017;Sebhatu et al, 2020;Yobe et al, 2020).…”

How the role of ATM technology encourage financial efficiency on Madura villagers?

“…Besides technology having an important role in financial efficiency, good governance and professional management have also driven financial efficiency. The oldest financial institution like cooperative becomes more efficient than new cooperative (Yobe et al, 2020). A cooperative or financial institution with long experience tends to have good and professional management.…”

“…Internet used properly also helps to create financial efficiency (Botti et al, 2014). Another research found out financial efficiency also came from good governance and professional treatment of a financial institution (Yobe et al, 2020;Botti, 2014). Even Sufian (2004) revealed that good managerial and governance in financial institutions should produce efficiency.…”

Technical Efficiency of Saving and Loan Cooperatives in Gerbangkertasusila, East Java Province: A Two-Stage Analysis

“…Furthermore, research on the efficiency of agricultural cooperatives in South Africa discovered that some cooperatives were inefficient. The age and size of the cooperative, the gender of the manager, and indicators of how to manage and train it are all factors that influence this inefficiency (Yobe at al., 2020). Farrel (1957) and Coelli (1998) distinguish three types of efficiency: technical efficiency, allocative efficiency, and economic efficiency.…”