Rural household sources of income, livelihoods strategies and institutional constraints in different commodity contexts - Institutional Constraints to Small Farmer Development in Southern Africa - page 41

In a globalised world, there is increasing vertical integration and alliance formation in the
agricultural marketing channels and markets, in an effort to meet consumer needs. Such
alliances include contract farming, cooperatives and farmer organizations. Agribusiness
firms favour contracts with medium to large-scale farmers, such that individual smallholder
farmers cannot be part of these contracting arrangements (Key and Runsten, 1999;
Kherallah and Kirsten, 2001). Lack of facilitation in the formation of producers associations
or other partnership arrangements makes it more difficult for smallholder producers to
participate in formal markets. The greater the degree of organisation in the market, the
smaller the transaction costs are likely to be and the easier it is to benefit from the exchange
opportunity (Frank and Henderson, 1992). Unfortunately, lack of collective action among
smallholder farmers denies them entry into formal market channels.
2.8.6 Legal environment
Legal institutions influence the activities performed on the market and the costs of exchange.
Minot and Goletti (1997) affirm that the formal institutional development of a society
has a considerable influence on transaction costs. Thus, if trade laws are transparent then
agreements can be legally enforced, leading to information accessibility and lower costs.
In other words, effective legal institutions may improve the organisation of the marketing
channels and decrease marketing costs.
In many developing countries, laws are not always executed and enforced correctly,
bribery and cheating are often not penalised, courts are out of reach for the majority of
the population, and market rules are often not transparent to the producers and traders
(Ruijs, 2002). In addition, formal contract enforcement mechanisms are weak (Fafchamps,
1996). It is even worse for the smallholder farmers because they lack lobbies in the legal
environment. As a result, rural trade prospers where trust has been developed based on
repeated transactions or informal relationships (Randela, 2005). Thus, an unfavourable
legal environment creates a significant barrier to entry into formal food trade and limits
participation by smallholders in the modern marketing system.
2.9 Marketing challenges faced by the Nguni project beneficiaries
Productivity of cattle in communal areas is affected by diseases and parasites, lack of feed
resources and poor rangeland management (Chimonyo et al. , 2000; Bester et al. , 2003;
Montshwe, 2006; Musemwa et al. , 2007). However, for the Nguni farmers, production-
related challenges are likely to be minimal due to Nguni's resistance to tick-borne diseases
and ability to survive under harsh environmental conditions. Therefore, market-related
constraints such as lack of information, high transaction costs and poor infrastructure are
more likely to be important concerns for Nguni cattle producers.