The role of commercial agriculture in meeting sustainable development goals in South Africa: Evidence from municipal-level total factor productivity analysis

Abstract

Improving agricultural productivity is critical, both locally and globally, particularly in the pursuit of the Sustainable Development Goals (SDGs) of eradicating poverty (SDG 1), increasing food production for food security (SDG 2), and promoting efficient use of agricultural resources and sustainable farming practices (SDG 12). This study examines and compares total factor productivity efficiency (TFPE) in the South African commercial agricultural sector, along with its drivers, using local municipal-level data. We used the Färe-Primont index to assess municipalities' TFPE levels, considering both traditional (economic) factors (labour, land, and operating expenses) and environmental variables (temperature, rainfall, and soil moisture index). Our TFPE index results are not only lower, but they show more variation across municipalities than the economic TFPE index, which is commonly used in agricultural productivity research. This implies that ignoring environmental variables may bias analysis; therefore, future studies should consider including environmental factors in their analyses. We then used hierarchical clustering to group municipalities with similar TFPE levels and components, followed by fractional regression to identify the drivers of efficiency levels. The cluster analysis results reveal that the best-performing municipalities are in cluster 4, comprising municipalities from the Western Cape Winelands specialising in horticulture production, municipalities near urban areas with better market proximity, those engaged in the global value chain, and those with a high proportion of farmers who own most of their farmland. Furthermore, the fractional regression results show that age, gender, race, market proximity, land use types, and production diversification are significant drivers of TFPE and its components. Our study offers insights into the divergent agricultural TFPE performance among municipalities and the underlying factors causing these disparities. The findings can inform the development of targeted strategies, particularly at the local level, aimed at enhancing agricultural productivity and making significant contributions to achieving the SDGs.