The financial and social efficiency of rural cooperatives in South Africa

Abstract

Identifying the type of organization for achieving social efficiency for agricultural development remains a challenge. In this study, the relationship between the financial and social efficiency of South African agricultural cooperatives was examined. Data, comprising 1788 agricultural cooperatives, were obtained from the Cooperative Data Analysis System database. Only 387 observations without missing values were predicted in the empirical model. Data envelopment analysis scores for the financial and social efficiency indicators were computed. A two-stage residual inclusion method estimated the social efficiency model. The results show that social efficiency is positively influenced by financial efficiency and other factors. These include the number of employees, the enterprise type, and compliance with internal control practices. The social efficiency of agricultural cooperatives decreases for institutions that have recently been trained and that comply with the annual financial audits and profit tax. Social efficiency also decreases with age, but it increases with the square of the agricultural cooperative’s age. This suggests that financially-efficient agricultural cooperatives may achieve social efficiency, that young agricultural cooperatives are not the ideal candidates for addressing the social efficiency challenges of agricultural cooperatives, and that the current training received by agricultural cooperatives does not empower them with social efficiency.