Cooperatives are a means through which farmers may gain economic power by reducing unit transaction costs associated with production, marketing and distribution of products. In South Africa, cooperatives are promoted as a means of advancing economic development in rural areas through empowerment, development of income generating activities, improvement of human resource capacity, and increased savings and investment. The new Cooperatives Act 14 of 2005 was enacted in August 2005 to promote the role of cooperatives as organisations for pro-poor development in South Africa and to increase their chance of survival in the economy. This study uses a New Institutional Economics (NIE) framework to analyse the Cooperatives Act and its worth as a vehicle for promoting pro-poor development. A hypothetical cooperative, predicated by the new Act, was analysed using the NIE to identify institutional problems likely to constrain the collective efforts of small producers. A case study approach was then used to analyse three production cooperatives in KwaZulu-Natal that were registered post August 2005 and still operational in 2008. Interviews were conducted with individual members, directors and project managers (where applicable) between May and July 2008. Open-ended questions provided the flexibility needed to explore the institutional roots of problems identified by respondents. Free-rider, horizon, portfolio, control and influence problems were identified in the case studies. These problems, which stem from ill-defined voting and benefit rights, resulted in low equity investment, low investment in long term assets, a preference for current cash flows rather than future investment, and social conflict – all of which constrained the competitiveness and growth prospects of the cooperatives studied. In an attempt to mitigate these problems, two of the cooperatives shed their poorest members, a solution which is not consistent with the objective of pro-poor economic development. Additionally, two cooperatives opted to create their own rules to reward investors with capital gains - an institutional arrangement that is not permitted by the new Act. It is concluded that the new Act should be amended to give cooperatives greater flexibility in their institutional arrangements. In particular, cooperatives should be allowed to issue tradable equity shares that offer benefits proportional to shareholding. If these tradable equity shares carry voting rights and are offered to non-patron investors, aggregate voting rights conferred on these non-patron investors should be capped to prevent loss of control by patron members. It is further recommended that the same level of start-up support should be made available to all producer groups that formally register their business, regardless of the business model chosen, and that member empowerment should be an essential requirement for registration and public funding. Keywords: Agricultural Cooperatives, Cooperatives Act, New Institutional Economics, Case Study / Thesis (M.Sc.Agric.)-University of KwaZulu-Natal, Pietermaritzburg, 2010.

This dissertation investigates the impact of institutional and governance factors on the performance of 10 selected smallholder agricultural cooperatives (case studies) in KwaZulu- Natal (KZN). All the selected cooperatives were traditionally structured (e.g., one-member, one-vote system). Due to logistical and administrative constraints, the selected smallholder cooperatives were drawn from the EThekwini and UMgungundlovu Districts (the latter comprising of two sub-districts, namely Camperdown and Msunduzi), which incorporate the major cities of Durban and Pietermaritzburg. Five of the cooperatives grow and market vegetables, three produce and market poultry, one is a beef production cooperative and another operates a bakery. Information from the interviews suggests that members of the selected smallholder cooperatives do not fully understand cooperative principles and have high expectations of potential benefits of being members. Descriptive analysis of the case studies describes total membership of each selected cooperative; average number of management meetings per month; gender and age composition of cooperative members; the characteristics of chairpersons of these cooperatives (e.g., gender, age and education); the initial capital structure of these cooperatives; annual turnover; growth opportunities; and institutional and governance factors influencing the performance of these cooperatives. The results of a cluster analysis suggest that the performance of the selected smallholder cooperatives is influenced by institutional and governance problems. Institutional problems give rise to low levels of equity and debt capital, reliance on government funding, low levels of investment, and subsequent loss of members. Governance problems are strongly linked to the absence of secret ballot, low levels of education, lack of production and management skills training, weak marketing arrangements and consequent low returns to members as patrons or investors. The conclusion is that appropriate institutional arrangements and good governance are important to the performance of enterprises initiated by groups of smallholders. South Africa’s new Cooperatives Act prevents smallholder cooperatives from adopting good institutional arrangements. Alternative ownership structures such as close corporations and private companies offer better institutional arrangements and opportunities for equity-sharing partnerships. / Thesis (M.Sc.)-University of KwaZulu-Natal, Pietermaritzburg, 2009.

Collective smallholder farming has been widely promoted as a vehicle for smallholder agricultural development in South Africa. As a result, agricultural co-operative registrations in South Africa are increasing. However, research suggests that South African co-operatives have generally not been effective, successful and functional. This study investigated the elements constituting an effective and functional primary agricultural co-operative among three smallholder agricultural co-operatives. It is expected that identification of these elements may enable institutions that offer support to co-operatives make better decisions to improve smallholder farming through primary agricultural co-operatives. Understanding of these elements could inform the efforts for members of co-operatives to achieve their set objectives and thus improve smallholder agriculture profitability. Three rural agricultural co-operatives in the Local Municipalities of Mooi-Mpofana, Mkhambathini, and Richmond in the Umgungundlovu District Municipality were purposively selected for the study because they were registered agricultural co-operatives. Inyamvubu Co-operative (from Mooi-Mpofana) was larger in membership, and well established compared to Umphumela (from Mkhambathini) and Ingwe-Mndeni (from Richmond). The sample included the purposively selected members and non-members of agricultural co-operatives to explore the differences and provide insight to the knowledge, opinions and perceptions of collective farming. A framework for analysing the effectiveness of agricultural co-operatives was developed using literature of objectives of agricultural co-operatives, success factors of smallholder agriculture and organisational effectiveness. This framework was used to analyse the effectiveness of the three co-operatives. Focus group discussions, Force Field Analysis and a survey were used for data collection. The study revealed that the three co-operatives have clearly defined group objectives aligned to those set out by the South African government. The main identified objectives of farming for the three co-operatives included; creation of employment and income generating activities, improving access to funding, strengthening market access and strengthening human and community development. Activities carried out by the three co-operatives took advantage of opportunities in the value chain including production, marketing, and transportation of produce to markets. However, farmers’ activities were hampered by a number of constraints. Production capability of the three co-operatives was hampered by resource constraints such as lack of access to land, machinery and equipment, finances and information relevant to production. Marketing, transportation and financial management capability of the three co-operatives was hampered by poor networking skills, poor infrastructure and low literacy levels. Management capability in the three co-operatives was challenged by complex group dynamics characterised by conflict of opinions and issues related to free-rider, horizon, and portfolio problems. Low capability of the three co-operatives to mobilise resources, use the limited resources available and low capability to manage institutional arrangements rendered the co-operatives ineffective in achieving their set objectives. The study recommends strategies for ensuring the effectiveness of agricultural co-operatives. These include strategies for addressing internal and external issues affecting the co-operatives. Direct intervention from government was recommended to improve production through revising land allocation systems, improving extension services and strict monitoring of effective use of government resources provided to farmers. Government should improve access and training to relevant technologies to improve the processing and packaging capabilities of co-operatives. Marketing and management activities should be supported through provision of improved infrastructure and relevant training. Farmers themselves should consider pooling resources for market rental of crop land, engage in value added activities, and develop informed marketing programs and cost-effective distributing mechanisms. Farmers should elect an effective board of members that will ensure enforcement of agreements and constitution. / Thesis (M.Agric.)-University of KwaZulu-Natal, Pietermaritzburg, 2010.