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This paper evaluates the impact of institutional and governance factors on the performance of 10 smallholder agricultural cooperatives in KwaZulu-Natal (KZN). Five of the cooperatives grow and market vegetables, three produce and market poultry, one is a beef production cooperative and another operates a bakery. The results of a cluster analysis suggest that the performance of the selected smallholder cooperatives is influenced by institutional and governance problems. Institutional problems give rise to low levels of equity and debt capital, reliance on government funding, low levels of investment, and subsequent loss of members. Governance problems are strongly linked to the absence of secret ballot, low levels of education, lack of production and management skills training, weak marketing arrangements and consequent low returns to members as patrons or investors. The conclusion is that appropriate institutional arrangements and good governance are important to the performance of enterprises initiated by groups of smallholders. South Africa’s new Cooperatives Act prevents smallholder cooperatives from adopting good institutional arrangements. Alternative ownership structures such as close corporations and private companies offer better institutional arrangements and opportunities for equity-sharing partnerships.


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