Measuring the financial efficiency of agricultural cooperatives in South Africa: An application of the Simar-Wilson methodology

The SA government has favored cooperatives over other types of corporate entities in its programmes for rural development. This study examines financial efficiency and its determinants for 387 agricultural cooperatives in SA using a two-stage double bootstrap approach. Bias-corrected Data Envelopment Analysis (DEA) efficiency estimates are obtained in the first-stage for the agricultural cooperatives. Next, a Double Bootstrapped Truncated Regression model was estimated to obtain bias-corrected scores. The model was designed to obtain DEA scores for financial efficiency. First-stage results indicate that many agricultural cooperatives are relatively inefficient. Results of the second-stage analysis identified significant determinants of efficiency as age of cooperatives, size, gender of management, governance indicators and training. Governance indicators negatively influencing efficiency indicate institutions that prioritize non-financial goals and consequently compromise on governance quality. The deviation from institutional control mechanisms most likely emerges in a weak institutional environment. Various types of training influenced financial efficiency meaning that an understanding of training needs across institutions is crucial for equipping and empowering cooperatives towards financial efficiency. The study shows that the design and implementation of suitable training programs are prerequisites for addressing financial efficiency of agricultural cooperatives. Key words: Agricultural cooperatives, Data envelopment analysis, Financial efficiency, Two-stage double bootstrap method, South Africa JEL codes: Q10, Q12, Q13