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

Abstract

ABSTRACT Post-1994, the South African government has favoured cooperatives over other types of corporate entities in its rural development programmes. An improved understanding of the key drivers underpinning the performance of cooperatives is important for informing government programmes and policies that target cooperatives. This study examined the financial efficiency, and its determinants, of 387 agricultural cooperatives in South Africa, using the Simar–Wilson methodology. Bias-corrected Data Envelopment Analysis estimates for financial efficiency were obtained in the first stage. The results indicated that many agricultural cooperatives are relatively inefficient, compared to the three best-performing cooperatives on the efficient boundary. In the second stage, a double bootstrap truncated regression model was used to obtain bias-corrected scores that excluded the best-performing cooperatives. The statistically significant efficiency determinants identified from the analysis were the age and size of the cooperative, the gender of the principal manager of the cooperative, its governance and the training indicators. The observed relationship between governance and efficiency may be attributed to institutions that prioritise non-financial goals by being relatively more willing to compromise on governance quality. Furthermore, deviations from sound institutional control mechanisms are more likely to emerge in cooperatives that have weak institutional and organisational arrangements.