Transformation through share-equity schemes seems the best way of empowering people.
There is a big difference in the way in which various groups in South Africa understand ‘empowerment’. On one hand, there are those who see it in strict mathematical terms. The composition of sports teams, say, must reflect that of the national population in terms of race.
The land issue is regarded in the same way – 30% of all farm land must be under black ownership by 2014. Then there are those who view transformation and empowerment in a broader, economic sense. For them, empowerment means that people are enabled to enter the mainstream economy, get regular jobs and obtain a house and provide for their children’s future care and education.
This is probably the main goal for the majority of South Africans. Unfortunately, politicians have fostered the misconception that land is equal to wealth and that farmers are wealthy because they own land. But farmland has no intrinsic value. It gains value when used for various purposes. Handing out parcels of land to people does not create wealth for them – as too many large-scale land reform projects have shown.
Farmland only creates wealth if it is used in conjunction with other production factors, such as labour, capital and management, to produce products with a value higher than the cost of producing the product. In many cases, the cost of the capital inputs is equal to or more than the value of the land.
Farmers also use their farmland as security for loans to finance the inputs needed to produce food. On average, SA farmers owe 33% of their asset value to banks and other credit suppliers. If land values are threatened, this will limit farmers’ creditworthiness with commercial banks and other creditors and prevent them from obtaining sufficient operating capital.
Models of transformation
The current proposed ‘super dairy’ at Vrede in the Free State is a good example of a large-scale commercial empowerment project likely to fail before much production is delivered. Similar projects have been recapitalised several times without any real results.
A reason for the failure of such projects is the very high production estimates used to show a positive cash-flow projection. In the case of the Vrede dairy, milk production per cow is estimated at 45l/day. This is higher than any other SA dairy farmer can achieve with a 500-cow herd.
In addition, many beneficiaries do not understand the difference between gross income and profit and put pressure on their own elected managers to pay out all income received. In time, the project starts selling production animals or equipment and then fails.
While most of the beneficiary-driven empowerment projects have failed and more will do so in future, many successful empowerment projects have been developed with the co-operation of farmers, farm labourers, government and financial institutions. These share-equity schemes enable farm workers to become part owners in lucrative agricultural businesses.
The recipes for successful share-equity schemes are well-known and there are many agricultural consultants who can guide farmers wanting to develop such a project. The social benefits of having farm labourers as part-owners of farm businesses outshine the extra effort and cost of developing these projects. Apparently, black organised agriculture is opposed to these schemes, for reasons that are not entirely clear. However, the projects remain to date the only way of successful and sustainable transformation.
In the former homelands, people have been farming since long before 1994. In most cases, they are already good stockmen and have the skills needed to become full-scale commercial farmers. Every year the producer organisations and agricultural writers acknowledge the successes of these farmers. Small-scale farmers can compete with commercial farmers for a number of reasons. The opportunity cost of their own labour is very low and in most cases, zero, and they can sell directly to neighbours, thereby limiting marketing cost.
Over the past 19 years, many models for land reform have been developed and used. Currently, though, it seems as if only the share-equity schemes and the mentoring of existing small-scale farmers hold any promise. Farmers are willing and ready to use these models. Unfortunately, the level of corruption within the system makes it difficult for farmers and producer organisations who want to remain ethical to get plans approved.
Dr Koos Coetzee is an agricultural economist at the MPO. All opinions expressed are his own and do not reflect MPO policy.
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