The changing role of grain cooperatives in the transition to competitive markets in South Africa

South African grain cooperatives have responded to market reforms by changing their activities and increasing their efficiency. Prior to deregulation, they supplied inputs and marketed outputs through marketing boards and also acted as financial intermediaries by implementing discriminatory policies that favored commercial farmers. Using stochastic production frontiers, we show that the cooperatives have become market-based agri-business firms concentrating on reducing the transaction costs of their members instead of extensions of the state control apparatus involved in financial intermediation. From data envelopment analysis, we demonstrate that the increased competition resulting from deregulation and the removal of subsidies has led to increased efficiency levels. Journal of Comparative Economics33 (1) (2005) 197-218.