Performance evaluation of agricultural coperatives in Mpumalanga Province, South Africa

Thesis (PhD)--Stellenbosch University, 2020.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.AFRIKAANSE OPSOMMING : Die rol van koöperasies en landboukoöperasies in ’n ekonomie word wyd erken as ’n katalisator vir inklusiewe groei en ontwikkeling. Ondanks die rol wat deur koöperasies gespeel word, was hulle prestasie in Afrika en Suid-Afrika, in die besonder, kontensieus, gebaseer op anekdotiese bewys. In Suid-Afrika dui literatuur aan dat na die bepaling van die Koöperatiewe Wet 14 van 2005, die registrasiekoers van koöperasies gestyg het van minder as 250 na meer as 50,000 koöperasies tussen 2005 en 2012. Na registrasie was die ontbindingsyfer egter by 88% en daar was ook ’n daling in inkomste van 2005 tot 2012. Redes vir die versuim tot volhouding moet empiries ondersoek word. Die huidige skaarste aan empiriese literatuur op dié terrein impliseer dat beleidsbepalers en besluitnemers weerhou word van bewysgebaseerde kennis om hulle besluitneming te inspireer. As ’n beskeie poging tot oorbrugging van hierdie kennisgaping konsentreer die studie op prestasie-evaluering van landboukoöperasies in die provinsie van Mpumalanga. Prestasie-evaluering is belangrik vir ondernemings of organisasies om onderliggende probleme te diagnoseer, en hulle te help om hulpbronne doeltreffend toe te wys. Prestasie-evaluering laat ook die optimisering van wins toe deur rasionele inset-toewysing om die gewenste of maksimun-uitsette te verkry en die onderneming oor volhoubaarheidsdrywers in te lig. Die studie het ’n gemengde metodes-benadering gebruik om die doeltreffendheid, winsgewendheid en volhoubaarheid van landboukoöperasies en belanghebber-waarneming van die prestasiedrywers te ontleed. Die studie brei die tradisionele prestasie-evaluering-literatuur uit deur metodologiese triangulasie te gebruik. Die studie inkorporeer drie essays om prestasie te meet. Die eerste essay het op doeltreffendheidsevaluering gekonsentreer. Altesaam 19 landboukoöperasies/besluitnemingseenhede (DMU’s) is ontleed en tegniese doeltreffendheid gemeet deur gebruik van sekondêre data van geouditeerde finansiële state in die finansiële jaar2015/16. Dataontwikkelingsontleding is aangewend. Daar is bevind dat die gemiddelde tegniese doeltreffendheid 72% was, wat dui op 28% hulpbronverspilling. Van die 19 DMU’s was slegs vyf (26%) 100% doeltreffend. Daar behoort daarop gelet te word dat die 26% wat tegnies doeltreffend was, ook konstant teen opbrengs volgens bedryfsgrootte (optimale hulpbrontoewysing) gewerk het. Die bevindings dui daarop dat grootte of skaal van die koöperasie ’n impak op doeltreffendheidsvlakke het. Die regering en verwante koöperasie-belanghebbendes behoort lynrigtingsteun te oorweeg, gebaseer op die skaal waarop koöperasies werk, in teenstelling met deurgaans-een-grootte ondersteuning. Die tweede essay het winsgewendheidsverhoudings ondersoek, en die analise uitgebrei tot ’n doeltreffendheid-winsgewendheid-matriks om te meet of doeltreffende firmas ook ewe winsgewend was. Opbrengs op Bates (ROA) is as ’n maatstaf gebruik en die mediaantelling vir winsgewendheid vir die 19 koöperasies was 10%. Met gebruik van die tegniese doeltreffendheid/winsgewendheid-rigpunt, het die studie die doeltreffendheid/winsgewendheid-matriks aangewend, wat beste presteerders van lae presteerders geskei het. Die matriks het aangedui dat 26% van die koöperasies hoë doeltreffendheidsvlakke met hoë winsgewendheid gehad het (Sterre). Die meerderheid van die DMU’s by 42% (8 uit 19) was in kwadrant 3, gekategoriseer as ‘vraagteken,’ met lae doeltreffendheidstellings en lae winsgewendheidsverhoudings. Resultate dui daarop dat doeltreffendheid en winsgewendheid nie altyd positief gekorreleer is nie en dat bestuurders ’n koöperasie as ’n sakeonderneming, sowel as sy sosiale rol teenoor ekonomiese ontwikkeling, moet verstaan. Die derde essay het metodologiese triangulasie toegepas, waar kwalitatiewe analise gebruik is. Die uitgangspunte van belanghebbers is versamel volgens die prestasie van koöperasies, en wat die toekoms van die koöperasies vir volhoubaarheid behoort te bepaal. Tien landboukoöperasies is gekies, waar vyf hoë presteerders en vyf lae presteerders was. Die regverdiging vir hierdie keuse was dat die keuse van uiterstes neig om kontraste te verskaf – daar is skynbaar gedeelde eienskappe in verband met hul prestasie of nie-prestasie. Wat as drywers vir prestasie uitgestaan het, was toegang tot befondsing, toegang tot markte, die verbintenis van lede, beheer, bestuur en leierskap, terwyl prestasiestremmers ’n gebrek aan toegang tot finansies, konflik tussen lede, lae vaardigheidsvlakke en swak beheer en bestuur was. Wat ook duidelik geword het, was dat daar ’n ‘beleid-realiteit-gaping’ (van beleid en implementering) was. Die omvattende resultate oor alle prestasiemetingsvolmagte heen, het aangedui dat landboukoöperasies nie teen optimale vlakke presteer nie, met resultate wat aandui dat hulle nie doeltreffend in hulpbrontoewysing is nie, met ’n meerderheid wat toon dat hulle tegnies ondoeltreffend sowel as nie-winsgewend is. Die prestasie, of nie-prestasie, is deur landboukoöperasie-lede gedryf. Met die bovermelde is daar ’n aantal beleidsimplikasies. Met betrekking tot doeltreffendheid is grootte van koöperasies van belang, en behoort klassifikasie van skaal oorweeg te word. Met betrekking tot winsgewendheid behoort beleidsbesluite die bemagtiging van die landboukoöperasies as ondernemings in berekening te bring sodat hulle hulpbronne doeltreffend kan bestuur terwyl hulle terselfdertyd winsgewend is, wat kan lei tot volhoubare organisasies. Beleidsbepalers behoort ook daarop te let dat daar altyd ’n gaping tussen beleid en implementering is. Dit is dus noodsaaklik dat hulle hul kennisbasis op grondvlak moet versterk, in teenstelling met die ontwerp van beleide vanuit ’n hipotetiese uitgangpunt. Dit is nodig dat die regering ondersteuning heroorweeg en dit koppel aan risikodelingsmeganismes. Maatreëls om regeringsbelegging te beskerm, behoort toegepas te word en risikodelingsmeganismes moet oorweeg word. Dit sal verseker dat koöperasielede waak teen mislukking van die onderneming sodat hulle koöperasies as winsgewende ondernemings bestuur en hul voorgenome doelwit van werkskepping bereik en tot ekonomiese ontwikkeling bydra. Die resultate van dié studie dra by tot empiriese bevindings verbonde aan die prestasie van koöperasies. Aangesien ’n gemengde metode-benadering toegepas is, is die studie se bydrae vanuit die metodologiese benadering, sowel as beleidsbeïnvloeding, soos die resultate in toekomstige beleidsontwikkeling en koöperatiewe ondersteuning sal toon. Die bevindings verskaf ook ’n platform vir toekomstige studies oor die prestasie van koöperasies.Doctora