Social grants are an important instrument of social protection in South Africa, reaching millions of the poor each month. Although social grants have been found to reduce poverty and promote human development, considerable uncertainty remains about some of their incentive effects. This study uses a sample of 984 rural households selected from KwaZulu-Natal, South Africa, to investigate the potential incentive/dis-incentive effects of social grant-dependency on rural households' participation in farming activities. The data are analysed using the generalised propensity score (GPS) matching method and ordinary least squares. The results showed that the effect of social-grant dependency on households' farm participation levels varies at different dependency levels. While social grants had a negative effect on the households' farming participation levels when social grants income contribute 20-60 %, they had a positive effect at lower (60 %) dependency levels. The positive effect of social grants at the lower and higher levels supports the hypothesis that social grant beneficiaries use part of the grant income to alleviate financial constraints in agricultural production. However, the negative effect at the 20-60% dependency levels is consistent with the dis-incentive hypothesis, suggesting that social grants may generate dis-incentives to farm production. The study identified several policy variables that affect the participation of rural households in smallholder farming activities, highlighting the importance of expectations of farming success as a key motivator.
Human Sciences Research Council (Sat,) studied this question.