Poverty Traps in South African Agriculture

ABSTRACT

The article analyses the operation of poverty traps in South African agriculture through an analysis of the 2007 agricultural census. The poverty trap is a self-reinforcing mechanism in the market in which small variances in initial conditions can result in bimodality into differential economic steady-states resulting in multiple equilibria. Reasons for this include the savings trap, creating locally increasing rates return due to indivisible lumpy capital inputs; the technological trap in which the diminishing marginal rates of technological substitution diminishes productivity growth; the demographic trap in which population growth reduces the capital-labour ratio, increasing consumption and pure time costs; the stochastic returns trap in which producers without access to risk smoothing mechanisms assume greater risks; and the liquidity trap in which present and future capital values exceed current agricultural revenues. The study demonstrates that the failure of land reform and small-scale agriculture assistance programmes is thus a product of market failures, not policies. The analysis indicates that locally increased returns, symptomatic of the savings trap exists with initial average expenditures of smaller firms exceeding the average incomes. The technology trap is also evident with average incomes of small firms is also very low relative to the average capital asset values. The mean productivity of workers in terms of revenue per employee supports the argument for productivity declines in small firms due to the demographic trap. Initial declines in income per ton outputs of smaller firms validate the stochastic returns poverty trap.