Technical and allocative efficiency in determining organizational forms in agriculture : a case study of corporate farming

[摘要] ENGLISH ABSTRACT: The optimal farm size and organizational form of agriculture is a widely discussed topic withlittle consensus as to which organizational form would be optimal under certaincircumstances. There is often confusion as to what constitutes a corporate farm as well as afamily farm, with the size of the farm often used as a distinguishing factor. This shouldhowever not be the case as there are many extremely large farms that are owner-operatedwithin South Africa. The distinguishing factor should rather revolve around the managementstructures of these farms. It is these management structures that would seem to limit themetamorphosis of owner-operated farms into large corporate structures.This thesis uses an analysis of both technical and allocative efficiency in determining theorganizational form chosen within agriculture. It is shown in the thesis that farm sizedetermines or improves the technical efficiency and this is brought about by the farms abilityto stay abreast with the technological times by having 'economies of size to their advantage.The evolution of farm size would therefore seem to be driven by this need to obtain'economies of size so as to be able to earn comparable wages to off-farm activities. Theattainment of this technical efficiency however does not seem to be linked to theorganizational structure of the farm; it is rather dependant of the size of the farm.While the size of the farm is an important factor in achieving technical efficiency it is not asimportant in determining allocative efficiency, with various studies arguing that larger farmsare less allocatively efficient than smaller farms. This reduced allocative efficiency seems tostem from various transaction costs and principle agent issues within the corporate settingthat are not prevalent in the owner-operated farms. This is because in the owner-operatedsettings the family are the residual claimants to profit, which suggests that they do not havethe incentive to shirk. The opposite is true for the corporate setting where the model isfraught with moral hazard and other issues of the principle-agent nature, which would seemto raise the transaction costs of this organizational form, and this has negative implicationsfor the allocative efficiency with which these farms operate at.This thesis therefore uses data obtained from such a corporate farm, where the owners of thefarms are kept on as farm managers and the company makes all the production decisions.This thesis argues that it is these agency issues and transaction costs that hamper thisorganizational form while it is shown that the technical efficiency for these farms are highsuggesting that economies of size are important in determining the technical efficiency ofthese farms.

[发布机构] Stellenbosch University