Renosterrivier study – enough for policy changes?

Almost a year ago, a group of prominent Afrikaner business leaders launched a study aimed at breaking the current vicious cycle of land reform failures.
Issue Date: 30 March 2007

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A stripped farmhouse at a collapsed land reform project near Brits.

Almost a year ago, a group of prominent Afrikaner business leaders launched a study aimed at breaking the current vicious cycle of land reform failures. Their report, packed with sensible suggestions and some bold new ideas, was recently presented to President Thabo Mbeki. By all accounts the president was impressed with the results. Stephan Hofstätter unpacks the implications.

Failed land reform farms have become an increasingly common and depressing feature of rural South Africa. Commercial farmers, emerging farmer lobbies, land rights activists and agribusinesses have warned for years that giving agricultural land to people without the necessary farming, farm management and financial administration skills, without adequate finance for improvements and production costs, and above all without a bankable business model that takes producer prices and market trends into account, is tantamount to setting them up for failure. R ather than heed these warnings, government has pressed ahead with numerous ill-conceived projects and now intends a dramatic escalation of land handovers to enable it to meet the target of transferring 30% of white-owned farms to black people by 2014, fuelling fears of a corresponding spike in the number of failed farms that can tip entire districts dependent on agriculture into economic collapse. A ll of which makes President Thabo Mbeki’s reaction to the Renosterrivier land reform proposals cause for cautious optimism.

From the braai to the presidency Renosterrivier is a commercial cattle ranching district in the northern Free State where a pilot study into viable land reform farming was launched almost a year ago by a group of prominent Afrikaner business leaders and academics, including Naspers chairperson Ton Vosloo, FirstRand chairperson GT Ferreira and former Afrikaanse Handelsinstituut president Mof Terreblanche. The study included findings from a comprehensive review of agricultural potential in Renosterrivier conducted by the Free State University, a review of 36 farms already transferred, and recommendations for another 2 000ha the government was in the process of buying. O n 22 February a report containing key findings was presented to president Thabo Mbeki, land and agriculture minister Lulama Xingwana and her deputy Dirk du Toit.

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Nothing in the proposals handed to the president hasn’t been discussed before at workshops, conferences, in boardrooms and around braai fires. Practical suggestions for fixing institutional and policy flaws are backed by solid empirical research, lending it some weight. That its key protagonists have the president’s ear is what makes Renosterrivier more likely to have a lasting impact on government. Some were among the first Afrikaners to break the apartheid mould and hold discussions with the ANC in exile in 1990, and most have attended biannual meetings with Mbeki since 2000, followed by an informal braai.

The report emphasises two key points. First, it highlights that the current narrow focus on land delivery rather than creating viable farming businesses often results in failure. Second, it states there are conditions peculiar to farming that require tailor-made interventions. In particular, farming requires a high level of investment and individual effort for low returns, which is why current efforts to deracialise the sector with limited and poorly targeted and implemented state support are doomed to fail. By all accounts the message was well received by Mbeki.

A participant at the informal presidential presentation said the president welcomed the practical suggestions to avoid mistakes of the past, and minister Xingwana’s body language suggested she shared the president’s view. The participant regarded this as evidence of “pragmatism at the highest level”. This was confirmed by a researcher, who requested not to be mentioned, who said president Mbeki was “extremely positive” about the findings. “His main response was he hoped the model could be replicated nationally,” said the researcher.

Clearly the commitment to support land reform, including financially, shown by these business leaders helped sway the president. They have pledged R1,5 million over three years to fund the Renosterrivier Support Centre, expected to be operational by June, and secured another R5 million in operational capital loans. The centre will offer support to the provincial Department of Land Affairs and Agriculture on existing and new projects, help draft business plans, and to establish new farmers on the land through partnerships with commercial farmers.

The focus will be on integrating emerging farmers into mainstream agriculture through a partnership between two emerging farmers and a commercial farmer who jointly feed and market cattle. Future variations will include contracting new farmers to supply local feedlots, and sharing farming equipment, transport and marketing channels. Hold your horses President Mbeki’s backing of the Renosterrivier proposals does not imply a sudden change in land reform policy.

Success in land reform has always been measured in the number of hectares transferred, and the president and land and agriculture minister have repeatedly insisted land targets are not negotiable. According to the Department of Land Affairs, the ANC government inherited a country where about 60 000 white farmers owned 82 million hectares of SA’s total surface area of 122 million hectares. A target was set of transferring some 24,6 million hectares (30%) to black people by 1999, later extended to 2014, but by 2006 less than three million hectares had been handed over through government programmes (though this probably doubles with private sales). This year, efforts to speed up delivery have gained fresh momentum. A state entity to pool resources from different departments to implement a new policy of aggressively buying land on the open market for redistribution is planned.

Government will also step up expropriation of claimed land when negotiations deadlock. A time limit of six months for haggling has been imposed, after which expropriation procedures kick in. Earlier this year the Lutheran Church was handed an expropriation order for its Northern Cape farms, and recent announcements by senior officials suggest some properties in Limpopo, North West and Mpumalanga will soon follow suit. Later this year the Expropriation Act is expected to be amended to make it possible for land earmarked for redistribution – rather than claimed land only – to be expropriated. But there seems to be an understanding at the highest level of government that current models aren’t working, and as land delivery is scaled up, so too, must efforts to ensure land reform farms thrive commercially. That the private sector must be given the space and incentives to become a key catalyst is understood. But whether this thinking has filtered down to ground level is questionable.

Development workers in rural areas complain of promising deals torpedoed by junior officials suspicious of private investors’ motives, or jealous of a perceived threat to authority. Reports abound of bona fide offers of support from commercial farmers being snubbed for similar reasons. But land affairs director general Glen Thomas says perception of government hostility towards private sector proposals are unfair. “We welcome the involvement of the private sector, where it has a role to play.” He declined to comment on the broader policy implications of the Renosterrivier report, but said the findings had more relevance to agricultural support than to land reform in its narrow sense of reversing racially skewed land ownership patterns.

Report shortcomings
A major gap in the report, as its researchers concede, is a failure to take into account the needs of millions of subsistence peasants traditionally rooted to the land and with little prospect of employment or other sustenance. Managing their expectations and helping them out of poverty remains a major political and developmental challenge. The report treats land as an asset if it can create value and income streams, and as a liability if it cannot. Researcher Stephen Hobson admits this economic analysis does not factor in emotional attachment or historical ties. “But we are not arguing about the bottom half of the sector. Our argument is that government should decide on the most effective way to alleviate poverty, which is not necessarily giving people land.” For Mof Terreblanche, who farms in the Renosterrivier district and is the driving force behind the project, land reform must shift from being an emotive issue to an operational one. “If people don’t end up with viable farms, it will all be in vain.” There needs to be an understanding that success should not be measured by visible results of high capital investment, he says. “You don’t need big tractors and 4x4s to start. My father started farming with a few cattle and he became successful.” Above all, new entrants must know farming is not a high-return business, says Terreblanche. “It’s a slowly but surely business. You need to take small steps, one at a time.” |fw

SA’s land reform: flaws and recommendations

Land reform flaws

Five years ago, when Thoko Didiza was appointed land and agriculture minister, policy shifted from land reform for resettlement to encouraging the creation of a black class of commercial farmers. Officials were instructed to prioritise applications from individuals and families rather than large groups. As an analysis of Renosterrivier shows, in reality land grant structures still favour large groups. The report shows about 4 000 beneficiaries in the district received R4 700 each to buy 36 cattle farms ranging from 14ha to 500ha. Each farm must sustain an average of 113 beneficiaries. This means people without the aptitude, commitment or desire to farm became beneficiaries. The veld’s carrying capacity is 4ha to 6ha of veld per livestock unit (LSU), although most farmers practice 7ha/LSU for better recovery.

Government assumed land values could translate into returns. In the study area the price of land varies between R1 200/ha and R2 000/ha, which means a 500ha farm would cost about R750 000. However, the productive value of the land is around 40% to 45% of the selling price – typical for agricultural land. New entrants who must pay off even a part of their farms can’t finance production costs, leading to dwindling production and eventual bankruptcy.

Accredited business plans used to evaluate allocation of Comprehensive Agricultural Support Programme (Casp) grants are based on unrealistic assumptions, given the number of beneficiaries and the carrying capacity of the land.

Marginal land is transferred to beneficiaries.

Provincial agriculture departments cannot deliver Casp services.

Extension officers don’t have farming experience and aren’t up to date with the latest marketing trends and production technologies.

Renosterrivier report recommendations

The state, or its special purpose entity, should buy land and initially retain ownership.
Suitable beneficiaries don’t pay the full price of the land. The state subsidises all or most of the transaction cost, so beneficiaries can get on with farming profitably. In the long run this would not represent a major drain on the fiscus, and probably end up cheaper than continually bailing out failed projects. In 2003 the average cost of agricultural land was around R1 500/ha. If this has doubled, the total cost for buying 20 million hectares needed to meet targets comes to R60 billion. This represents an investment in rural stability, job creation and economic growth, compared to R89 billion expected to be spent this fiscal year on social security.

Potential beneficiaries must be screened for suitability before they’re allocated land. Suggested screening criteria include two years’ formal training at an agricultural college or two years’ internship with a commercial farmer.

Rights to start farming should be subject to strict mentorship from agricultural experts such as commodity groups or commercial farmers who will be professionally remunerated, with emerging farmers sharing in profits and management according to performance. After five to six years under a mentor’s management, with an exit strategy for poor performers, those with the best aptitude to farm should obtain full ownership, 100% share in profits and sole management of land resources.

Farmers must join forces to add value to primary production and new farmers must be absorbed into mainstream marketing chains. Here, private sector commitment will be vital.

Carrying capacity of farm land must be assessed by experts from provincial agriculture departments, the Agricultural Research Council and agribusinesses.

Attach extension officers to commodity industries where they gain the necessary skills. Use the expertise of retired extension officers and commercial farmers for mentorship.

Ensure farmers produce what they can sell, not sell what they can produce.

District governments should be given the power to deliver Casp services, as they are closer to farmers.

The settled farmer must be made to understand that financial success in farming coincides with intense effort and management.