Written by Johann Kirsten, Stellenbosch University
The progress with South Africa’s land reform programme has not been properly monitored. This has resulted in an incorrect understanding of the real progress made to correct the racial distribution of farm land ownership in South Africa.
In 2012 the National Development Plan set a target to redistribute (or restore) 30% (or 23.7 million hectares) of all freehold agricultural land to black South Africans by 2030.
The general perception is that the land reform programme has failed to deliver a recognisable shift in ownership patterns. But the real situation is more nuanced. This is because land reform is made up of a number of initiatives. These include redistribution, restitution, financial compensation, private acquisition and state acquisition.
Some have progressed more than others. In this article I look at what’s happened to the state acquisition of farm land which is then, for the most part, leased to entrepreneurs wanting to become farmers. I identify the factors that stand in the way of its success. The list is drawn from reports as well as insights from farmers and based on my three decades of experience as an agricultural economist in the South African farming sector.
I have also identified steps that the government should take to fix the problems. These are informed partly by my view that the government should not be in the business of farming and should ideally simply be ensuring a conducive environment for businesses to thrive. The land should be in the hands and control of the entrepreneurs.
It is of the utmost importance that the government act on this ineffective and politics-ridden system of land leases and ensure that beneficiaries are getting secure rights to the land. If not, the question about why there are so few successful black commercial farmers (7% of all VAT registered farm businesses in South Africa will continue to be asked.
Land acquisition
In 1994 when South Africa held its first democratic elections, the 77.58 million ha of farmland in the country with registered tile deeds was mainly owned by white farmers.
Since then, by our calculations, the total area of land rights transferred away from white ownership – either to the state or black beneficiaries – or where financial compensation has been made, is equal to 19,165,891 ha. Our calculations will be published shortly by the Bureau for Economic Research in its update on the National Development Plan targets.
This is equivalent to 24.7% of all freehold agricultural land.
Although the number may look heartening, given that it is close to the 30% target set out in the National Development Plan, the issue of concern is that the state is now a major owner of agricultural land (more than 2.5 million hectares).
This is a problem for a number of reasons.
Flawed design
The Agricultural Land Holding Account Trading Entity is responsible for the acquisition of land and other property (movable and immovable), in terms of the Proactive Land Acquisition Scheme which was implemented in 2006. Through the scheme the land is then held by the state for the use by lessees of the programme.
By June 2023, the state had acquired 2.5 million hectares of productive farmland through the programme. Most of the roughly 2500 beneficiaries have a 30-year lease agreement with the state. There are several farms where no agreement has been signed.
The arrangement makes reference to the leasing of land. But there’s no mention of the transfer or sale of land to beneficiaries.
The acquisition strategy was a noble attempt at land reform. It had some clear objectives: acquire land of high agricultural potential; integrate black farmers into the commercial agricultural sector; improve beneficiary selection; improve land use planning; and ensure optimal productive land use.
But the programme has been disappointing. Virtually no land has been transferred to individuals. Most is leased to beneficiaries and in some cases the farms are illegally occupied. More than half of the current beneficiaries on the leased land have not shown any substantial agricultural production. This implies that valuable agricultural resources are not utilised and are lying fallow.
The factors behind this failure were set out in public in an article we recently co-authored. The article was based on findings which were first collated in a research report compiled by the Agricultural Research Council for the Department of Rural Development and Land Reform and released in 2019. However, its findings were never publicised.
I have gained further insights in conversations with farmers currently leasing land from the State. Their stories corroborate the report’s findings.
Major obstacles
Firstly, land tenure is insecure. This makes it difficult – or impossible – to invest in the land or secure loans for improvements and growth. Beneficiaries have to rely on government grants to do business. The grants are often not enough. And the process is often slow.
A second problem is bureaucratic red tape. There is clear evidence of excessive layers of approval with repetitive documentation. This causes significant delays.
Thirdly, there is a lack of access to finance. Farmers have limited credit history, collateral or access to formal financial institutions because of the nature of the lease arrangement.
Fourth, the arrangement of leasing of state land and the engagement of bureaucrats in the beneficiary selection process and management of decisions on the farms are setting beneficiaries up to fail.
Action that needs to be taken
Government has bought land on behalf of beneficiaries at market value. But the government doesn’t have the capacity and resources to manage the land assets and generate any return in the form of rents, improving the capital asset base or even performing general maintenance of the physical assets that may be on the land.
There are solutions.
Firstly, the government should transfer the asset to an institution with a vested interest and capacity to provide both oversight and finance. One such institution could be the Land Reform Agency announced by the president in his State of the Nation address of February 2021.
Secondly, beneficiaries who have managed to have commercially successful enterprises on these leased farms should get priority to acquire the land and finance.
Thirdly, lease amounts that are paid should get deducted from the purchase amount. And farmers who are up to date with their lease payments should be given preference.
Fourth, the purchase amount should be pegged at 50% of productive value (as opposed to the market value) – thus around 25% of initial purchase price by the state. Selling the farms at less than half the price they were bought for would allow farmers to grow quickly and avoid any challenges and give them the breathing space to catch up with their peers.
Fifth, the purchase price (pegged value minus lease amounts paid) should be financed over 25 years at a preferential interest rate.
Sixth, a financial institution (such as the Land Bank) should take title deeds as security and register a mortgage bond on the land.
Seventh, put a moratorium on the allowed window of reselling the farm to 10 years and let government have the first right of refusal.
Johann Kirsten, Director of the Bureau for Economic Research, Stellenbosch University
This article is republished from The Conversation under a Creative Commons license. Read the original article.
Relevant Agribook pages include “Emerging farmer support“
Photo by Nathan Lugo on Unsplash
