4.3 A NALYSIS AND D ISCUSSION OF THE R ESULTS OF THE S ECTOR M APPING E XERCISE FOR THE W ATER S ECTOR IN THE C ONTEXT OF
4.3.1 Analysis of Governance
Analysis of governance aims to investigate the rules which govern the value chain sets, the system of coordination between actors, the regulations and control mechanisms which govern their functions and interactions. Analysis of the official and informal governance structures will clarify the levels of participation and interaction of rural poor communities present in the value chains selected.
4.3.1.1 Demand and Supply Conditions of the Value Chain
The water sector under the compulsory licensing mechanism of allocation is dominated by the supply constraints of finite water availability. The demand for water is determined by the usage function in the sector map, partially governed by the opportunities within the revenue boundary and partially by the physical constraints such as seasonality of agricultural production and climate. The ability for participants to create benefits depends on access to additional factors of production and support services (Backeberg, 2007). The rural communities have low levels of access to additional resources and little linkages and interaction with value chain supporters (Shandu, 2006). As a result, demand for water therefore does not necessarily correlate with the most efficient allocation for water, and the dominant coordination arrangements become an essential constraint to achieving equity and empowerment.
Actors require resources such as land, water, machinery, labour and other inputs to produce goods and services, thereby creating a flow of benefits. The demand for any inputs, such as water
“depends therefore on the existence of demand for the goods that it helps to make” (Lipsey, 1983:
351). The derived demand for water as an input into the agricultural sector prioritised is illustrated qualitatively in the following flow diagram (Figure 9). The qualitative concept of who is likely to have greatest demand for water as an input reflected in this diagram is backed up by the data gleaned from the interview questionnaire (Appendix 6). Those producers who firstly produce crops which have a value adding facility as a contracted buyer, and who secondly produce crops for those processors whom have strong and steady markets have the greatest opportunity to produce under contract and therefore have the strongest demand driven production. The organised nature of the
94 processing companies has a notable influence on the strength of the primary producers who supply them. Thus, this relationship between organised markets and primary producers creates stable and safe opportunities within the value chain for participants.
Is water an
essential input? No
Yes
Is there an over or under supply of product?
Over Under
Do you have physical access?
Do you have institutional access?
What goods are mainly produced?
Do the suppliers have contractual relationships with the buyer?
Can the product be easily value added?
Is the product easily transportable?
Can existing suppliers meet the demand?
Are there organisational structures for groups of suppliers?
Few Buyers Requires processing
Yes
No
No
No No
Yes Yes
Yes
Yes
No
Good opportunity for value adding, provided production requirements and marketing conditions are met.
Low levels of opportunity
Stable and safe opportunity in value chain.
Low levels of opportunity
Low levels of opportunity
Good opportunity for value chain entry
Good opportunity for value chain entry
Figure 9: Demand Conditions and Opportunities for Agricultural Production, implying Derived Demand for Water as an Input
95 The demand for water allocations is dependent on the derived demand for products, and in the agricultural value chain in the Mhlatuze Catchment, this is mainly sugar cane, due to high levels of capital requirement and skills for other irrigated crops, such as citrus and horticulture (Chadwick, 2007). The demand for water then is ultimately dependent on the dominant coordination
arrangement in the water sector which clearly is the commercial farming sector.
4.3.1.2 Dominant Coordination Arrangements Affecting Water Allocation
Allocation of water, as previously explained, is undertaken by institutions comprising the CMA and DWAF, and thus the allocation function of water entitlements is coordinated through institutional nodes in the sector map. Demand for water is considered under the framework of the NWRS and CMS, and allocations are made accordingly. In addition, water allocations must take into account the ability of entitlement holders to utilize water for creating benefits so as not to result in a situation where allocations are not used (Pott, pers comm., 2006) and thus the geographic nodes which coordinate access to water resources impact the effectiveness of the allocation mechanism in achieving its goals of equity, efficiency and sustainability in water resource allocation.
The rural poor communities, as represented in the sector map, do not have a large presence in the selected value chains, and those that are participating are primarily low value users of water under the schedule 1 authorisation (domestic or small garden purposes), or through general authorisations (for livestock and game) and few under water licenses (R 135 per 12 600 m³.ha (Armitage et al., 1999)). This is mainly because the main agricultural value chains present in the Mhlatuze which rely on water as an essential input (irrigated sugar cane and citrus) are directed value chains. A directed value chain describes a value chain where there is a major buyer of the end product in the area (Felixton Sugar Mill, 16 citrus pack houses) exerting major influence over the producer base regarding value chain governance. As the sector map indicates, this results in a high level of vertical value chain coordination, decreasing opportunities for new participants into the sector. The producer then is left to function only at the lower value level of the value chain as a price taker, and provide raw produce to the higher level value adding agro-industries in the form of the Felixton Sugar Mill and the commercial citrus pack houses.
4.3.1.3 Analysis of Rural Poor Community Participation in the Value Chain Sets.
The governance structure in which few processors and commercial farming units dominate the
96 process of water allocation and use of water in the value chains as described in the previous section, are in part due to a lack of off-take alternatives for marketing of produce is due to the sophisticated sugar and citrus retail sector standards, rules and regulations set by the market (Chadwick, 2007;
Matthews, 2008), and in part due to the lack of participation of other actors, including the rural communities and farmers, in the coordination of the value chain.
The sugar industry has specific marketing history whereby the main retail market for sugar is refined granular sugar (Matthews, 2008) and the sugar industry is highly regulated in terms of pricing and marketing. In addition, Matthews informs that the export of sugar from South Africa is governed by international marketing regulations. The citrus industry is also mainly aimed at export, and the regulations governing the sale of citrus are subject to, not only marketing standards and treaties, but by phytosanitary, disease and pest control rules and regulations which preclude primary producers based on their inability to meet these industry governance mechanisms. Additional influence over the rural poor communities positioning in the agricultural value chains, therefore, are high barriers to entry resulting from extremely high capital requirements to meet marketing and institutional regulatory control.
Figure 10 offers an example of possible positions of participants in the value chains in terms of functions undertaken and levels of coordination in the value chains. Under the current value chain governance structure, rural communities only undertake one function (usage for production) in the water value chain, but do not take on additional functions (value add) due to geographic constraints to water access, financial constraints accessing complimentary production resources and relatively low skill levels (de Villiers, 2006). The rural poor communities therefore are positioned in quadrant 1 of the areas of participation (Figure 10), resulting in low levels of governance of water allocation within the water sector.
97
The analysis of governance of the value chains in the water sector allows the analysis of the participation of rural poor communities (Figure 10) in water resource sharing in the context of the areas of empowerment. In the next phase of analysis, the geographical and social linkages are identified between actors in the water sector value chain sets, and with supporting actors. The linkages between the rural poor communities and other actors are of particular interest to assess the impact these linkages have on the communities.