Determinants of profit efficiency among smallholder sheep farmers in South Africa

Livestock production contributes significantly to the agricultural sector in South African partly because it is a source of cash income especially for smallholder farmers who depend on agriculture for their livelihood. This article analyzes the competitiveness and profitability of smallholder livestock farmers and its impacts on their livelihood in South Africa. We applied the stochastic profit frontier approach to account for the factors influencing the productivity of sheep production and the profit efficiency of the farmers. The results of our analysis show that education and household size increase the profitability of the farmers while gender (female) and sheep loss negatively influence the profitability of the farmers. The average profitability (profit efficiency) score was estimated at 65.5% meaning that an estimated 34.9% of the profitability is lost due to the combination of technical and allocative efficiencies in production. This implies that the smallholder farmers are not producing at full capacity and thus have the ability to increase production, profitability, and their competitiveness in the farmers. Education and training and technological innovation in production can increase the profitability of the farmers.