How to promote effective land reform in South Africa

Michael Lyne, associate professor at New Zealand’s Lincoln University and honorary professor at the University of KwaZulu-Natal, recently presented the 2014 FR Tomlinson Memorial Lecture to the Agricultural Economics Association of SA. Here are excerpts pertaining to land reform.

How to promote effective land reform in South Africa
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Land reform in South Africa has its own historical context, complexities and nuances. The South African government’s land redistribution, restitution and tenure reform strategies were first publicised in the 1994 Reconstruction and Development Programme. The underlying principles were also entrenched in the Constitution approved by Parliament in 1996.

Initial goals for land redistribution quickly gave way to somewhat less ambitious targets of transferring 30%, or about 25 million hectares, of white-owned farmland to 800 000 previously disadvantaged farmers by 2014.

By 2012, the redistribution and restitution programmes had transferred a total of 7,95 million hectares. At that rate, the total area transferred by government programmes would have grown to about nine million hectares by 2014, with an almost equal split between redistribution and restitution.

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This estimate falls a long way short of the target, but is understated because official statistics relate only to land purchases financed by the government. Private land transactions between white sellers and black buyers are excluded from the official statistics. The implication is that government-assisted land purchases benefited approximately 460 000 rural households in the past 20 years.

Clearly, redistribution did not become the leading edge of land reform. Funds were moved from land redistribution to land restitution, firstly in an attempt to settle all land claims by the 2008 deadline, and secondly to pay for court orders when the deadline was missed, with several thousand claims still needing to be adjudicated.

The rapid passage of the Land Rights Restitution Amendment Bill through the National Assembly and National Council of Provinces in March this year, suggests that restitution will dominate land reform in the future, with an estimated 397 000 claims to be lodged in the next five years.

Proposal unlikely to be accepted
The Final Policy Proposals on Strengthening the Relative Rights of People Working the Land, released just before the elections, captured public attention with its bold proposals. It entails purchasing half of every commercial farm for long-serving workers, without compensating the landowner in a ‘just time and manner’. Despite its title, it was in fact a draft policy that had not been approved by the minister. In the unlikely event that these proposals are approved and survive parliamentary interrogation, they will inevitably stumble when tested in court.

The 2004 Communal Land Rights Act suffered a similar fate.
By contrast, the seemingly innocuous State Land Lease and Disposal Policy is truly daunting and is already mandated by existing legislation. This policy applies to land redistribution and restitution, both financed by the Recapitalisation and Development Fund. In essence, farm land that is redistributed or restored to claimants will be purchased by the state and leased to households that have the ability to farm the land productively. Those who succeed commercially can exercise an option to purchase the land at its market value.

For the restitution programme, this means that land will not be restored to all successful claimants. Presumably, the majority of these claimants will be compensated in cash, or with rights to benefit from income earned by their Communal Property Institution (CPI). The implications for government are onerous.

It is now responsible for identifying and purchasing commercial farms, subdividing the farms into smaller units, assessing applicants and their business plans, selecting tenants, monitoring their performance, collecting rent, and evicting those who do not perform. The problem is that, unlike private landlords, civil servants do not have strong incentives to perform these functions well. Past experience has shown that agreement on farm size is also difficult to achieve.

Charging successful tenants market prices to purchase their farms will pose a formidable barrier to private ownership, due to cash flow problems associated with high levels of debt finance. Clearly, there is a lot that can go wrong, and it will be very difficult for government to shift the blame for delays and failures.

Workable solutions
In this regard, the following suggestions are offered to government:

  • Offer emerging commercial farmers a range of farm sizes, but facilitate sub-letting, so that tenant farmers can adjust the size of their farming enterprises to match their own abilities and resources. Let this secondary market establish the size and boundaries of farms that successful tenants can buy. The secondary market will also attach an opportunity cost to land which tenants underutilise or leave idle, so encouraging voluntary transfer to more effective farmers.
  • Introduce a finite, diminishing interest rate subsidy for mortgage loans offered to emerging commercial farmers who wish to purchase land. Channel this subsidy through commercial banks to assess the creditworthiness of applicants. Commercial banks have an incentive to do it well, as the subsidy will reduce the risk of loan default, while leaving that risk with the banks.
  • The National Development Plan recommends that new financial instruments be investigated for the purpose of facilitating land reform.
  • Do not assume all responsibility for land reform. Acknowledge private land transactions between white sellers and historically disadvantaged buyers, and facilitate these transactions by removing legal restrictions that constrain the subdivision of farms. The Subdivision of Agricultural Land Act was repealed in 1998 but has never been brought into force. The long delay has been attributed to the absence of universal zoning regulations, which would have prevented the irreversible loss of good quality farm land to non-agricultural uses.

This argument will soon fall away as the Spatial Planning and Land Use Management Act of 2013 requires every municipality to adopt zoning regulations before August 2018. Unfortunately, the longevity of the Subdivision Act may have less to do with the law than with a mistaken belief that part-time farming is inefficient. We need to encourage subdivision and reduce its costs. We also need to measure the quantity and value of farmland redistributed through private land transactions.

  • Establish unitised trusts or private companies as parallel CPIs to manage commercial enterprises on farms owned by CPIs. Avoid co-operatives until co-operative legislation has been amended to permit investor-share co-operatives. Exempt landholding CPIs from capital gains tax if they lease land and assets to business-orientated CPIs. There is nothing new about using tax concessions to achieve desirable policy outcomes.
  • Commission experts to develop a code of good institutional practice for agents that design and broker community private partnerships (CPPs).
  • Lastly, and most importantly, pay market prices for land purchased or expropriated from current landowners for land reform. The consequences of compensating landowners at prices below market value, or in a manner or time that harms them, will put the entire nation at risk.

It is reassuring that the State Land Lease and Disposal Policy recommends that even state-owned land sold to land reform beneficiaries, should be transacted at a market-related price.

Email Prof Lyne at [email protected], or visit

The views expressed in our weekly opinion piece do not necessarily reflect those of Farmer’s Weekly.

25 July 2014