IDEAS home Printed from https://ideas.repec.org/a/ags/agreko/8012.html

Secure land rental contracts and agricultural investment in two communal areas of KwaZulu-Natal

Author

Listed:
  • Dengu, T.
  • Lyne, Michael C.

Abstract

This study tests the hypothesis that an efficient rental market for cropland is a significant determinant of agricultural investment in the communal areas of KwaZulu-Natal. An efficient rental market creates an opportunity cost for under-utilisation, which tends to transfer resources to more effective users. The efficiency of a rental market is compromised by the presence of transaction costs that reduce returns for both lessees and lessors. Transaction costs include risk arising from a possible breach of the rental contract. Potential losses caused by a breach of contract can be reduced by introducing a credible third-party to witness the contract. Likewise, moral hazard can be reduced by contracting with trusted persons. Data from household surveys conducted in two communal areas of KwaZulu-Natal were used to estimate a regression model explaining levels of investment in crop production amongst tenant farmers. The results confirm that tenants invest more when they contract with friends or family, and if their contracts are formally witnessed by a credible third-party. Interventions that reduce potential losses caused by a breach of contract are therefore expected to promote market efficiency and investment in crop production. In the short-run, the Provincial Department of Agriculture should sanction rental contracts negotiated by lessors and lessees. Ultimately, legal reform that leads to predictable contract enforcement in the communal areas is required to improve market efficiency and levels of investment in agriculture.

Suggested Citation

  • Dengu, T. & Lyne, Michael C., 2007. "Secure land rental contracts and agricultural investment in two communal areas of KwaZulu-Natal," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 46(3), pages 1-12, September.
    • Handle: RePEc:ags:agreko:8012
    DOI: 10.22004/ag.econ.8012
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/8012/files/46030398.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.8012?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Alan Randall, 1972. "Market Solutions to Externality Problems: Theory and Practice," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 54(2), pages 175-183.
    2. Louise Fenwick & Mike Lyne, 1999. "The relative importance of liquidity and other constraints inhibiting the growth of small-scale farming in KwaZulu-Natal," Development Southern Africa, Taylor & Francis Journals, vol. 16(1), pages 141-155.
    3. Mark Casson & Nigel Wadeson, 1998. "Communication Costs and the Boundaries of the Firm," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 5(1), pages 5-27.
    4. Hans P. Binswanger, 1980. "Attitudes Toward Risk: Experimental Measurement in Rural India," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 62(3), pages 395-407.
    5. Nieuwoudt, W. L., 1990. "Efficiency Of Land Use," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 29(4), December.
    6. Johann Kirsten & Julian May & Sheryl Hendriks & Charles L. Machethe & Cecelia Punt & Mike Lyne, 2007. "South Africa," Chapters, in: Fabrizio Bresciani & Alberto Valdés (ed.), Beyond Food Production, chapter 8, Edward Elgar Publishing.
      • Liebenberg, Frikkie & Beintema, Nienke M. & Kirsten, Johann F., 2004. "South Africa," ASTI Country Briefs 16187, CGIAR, International Food Policy Research Institute (IFPRI).
      • Liebenberg, Frikkie & Beintema, Nienke M. & Kirsten, Johann F., 2004. "South Africa," ASTI country briefs 14, International Food Policy Research Institute (IFPRI).
    7. Edgardo Moscardi & Alain de Janvry, 1977. "Attitudes Toward Risk Among Peasants: An Econometric Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 59(4), pages 710-716.
    8. Timothy Crookes & Michael Lyne, 2003. "Efficiency and equity gains in the rental market for arable land: observations from a communal area of KwaZulu-Natal, South Africa," Development Southern Africa, Taylor & Francis Journals, vol. 20(5), pages 579-593.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mahabile, M. & Lyne, Michael C. & Panin, A., 2005. "An empirical analysis of factors affecting the productivity of livestock in southern Botswana," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 44(01), pages 1-19, March.
    2. Hardaker, J. B., 1982. "Fundamental Aspects Of Risk And Uncertainty In Agriculture," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 21(2), October.
    3. Z. Bar‐Shira & R.E. Just & D. Zilberman, 1997. "Estimation of farmers' risk attitude: an econometric approach," Agricultural Economics, International Association of Agricultural Economists, vol. 17(2-3), pages 211-222, December.
    4. Annemie Maertens & A. V. Chari & David R. Just, 2014. "Why Farmers Sometimes Love Risks: Evidence from India," Economic Development and Cultural Change, University of Chicago Press, vol. 62(2), pages 239-274.
    5. Lien, Gudbrand, 2002. "Non-parametric estimation of decision makers' risk aversion," Agricultural Economics, Blackwell, vol. 27(1), pages 75-83, May.
    6. Hurley, Terrance M., "undated". "A review of agricultural production risk in the developing world," Working Papers 188476, HarvestChoice.
    7. Lagerkvist, Carl Johan, 2005. "Assessing farmers' risk attitudes based on economic, social, personal, and environmental sources of risk: evidence from Sweden," 2005 Annual meeting, July 24-27, Providence, RI 19361, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    8. Seyed Abolhasan Sadati, 2010. "Exploring the Solutions for Overcoming Challenges Facing Peasant Farming System in Iran," Journal of Agricultural Science, Canadian Center of Science and Education, vol. 2(4), pages 244-244, November.
    9. Thiagu Ranganathan & Sarthak Gaurav & Ashish Singh, 2014. "Anomaly in Decision Making Under Risk:Violation of Stochastic Dominance Among Farmers in Gujarat, India," IEG Working Papers 343, Institute of Economic Growth.
    10. Sudha Narayanan, 2012. "Safe gambles? Farmer perceptions of transactional certainty and risk-return tradeoffs in contract farming schemes in Southern India," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2012-021, Indira Gandhi Institute of Development Research, Mumbai, India.
    11. K. C. Schaefer, 1992. "A Portfolio Model For Evaluating Risk In Economic Development Projects, With An Application To Agriculture In Niger," Journal of Agricultural Economics, Wiley Blackwell, vol. 43(3), pages 412-423, September.
    12. Elaine Meichen Liu, 2008. "Time to Change What to Sow: Risk Preferences and Technology Adoption Decisions of Cotton Farmers in China," Working Papers 1064, Princeton University, Department of Economics, Industrial Relations Section..
    13. Tina L. Saitone & Richard J. Sexton & Benoît Malan, 2018. "Price premiums, payment delays, and default risk: understanding developing country farmers’ decisions to market through a cooperative or a private trader," Agricultural Economics, International Association of Agricultural Economists, vol. 49(3), pages 363-380, May.
    14. Kanchan Joshi & Thiagu Ranganathan & Ram Ranjan, 2021. "Exploring Higher Order Risk Preferences of Farmers in a Water-Scarce Region: Evidence from a Field Experiment in West Bengal, India," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 19(2), pages 317-344, June.
    15. Wynne, Adrian T. & Lyne, Michael C., 2004. "Rural economic growth linkages and small scale poultry production: A survey of producers in KwaZulu-Natal," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 43(01), pages 1-21, March.
    16. Liu, Elaine M. & Huang, JiKun, 2013. "Risk preferences and pesticide use by cotton farmers in China," Journal of Development Economics, Elsevier, vol. 103(C), pages 202-215.
    17. Ortmann, Gerald F., 2000. "Promoting competitiveness in South African agriculture and agribusiness: The role of institutions," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 39(4), pages 1-33, March.
    18. Kibet, N. & Obare, G.A. & Lagat, J.K, 2018. "Risk attitude effects on Global-GAP certification decisions by smallholder French bean farmers in Kenya," Journal of Behavioral and Experimental Finance, Elsevier, vol. 18(C), pages 18-29.
    19. Young, Douglas L. & Van Kooten, G.C., 1988. "Incorporating Risk Into A Dynamic Programming Application: Flexcropping," Regional Research Projects > 1988: S-180 Annual Meeting, March 20-23, 1988, Savannah, Georgia 272781, Regional Research Projects > S-180: An Economic Analysis of Risk Management Strategies for Agricultural Production Firms.
    20. Elaine M. Liu, 2013. "Time to Change What to Sow: Risk Preferences and Technology Adoption Decisions of Cotton Farmers in China," The Review of Economics and Statistics, MIT Press, vol. 95(4), pages 1386-1403, October.

    More about this item

    Keywords

    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:agreko:8012. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/aeasaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.