Can Small-Scale Farmers Be Linked To Agribusiness? The Timber Experience

The objective of this paper is to contribute to the design of agribusiness smallholder contracting linkages in South Africa. A fresh approach to design is adopted that combines a case study in the timber industry, the lessons of history and the economics of organisational architecture. The results confirm that the transaction characteristics of the grower-processor supply chain influence the level of managed co-ordination, that small-scale farmers generate incremental transaction cost and that medium and small-scale farmers can compete with larger growers in the supply chain. The results, however, are inconclusive with respect to the role of contracting as an institution to overcome the barriers of entry to the timber industry. A series of proposals are then developed in order to reduce transaction cost and achieve higher levels of contract enforcement in smallholder contracting arrangements with agribusiness. This paper concludes that large numbers of small-scale farmers can be effectively incorporated in the supply chain but only if specific measures are taken to reduce transaction cost.