Bring in the bean counters to work out viable budgets for land reform
From irrigated orchards to arid pasture areas, the costs and profits for each hectare of farming land vary wildly
The SA agricultural sector will only grow through the implementation of logical, specific and well co-ordinated actions and plans, executed through the committed and combined effort of the public and private sectors.
Real capital and people to drive inclusive agricultural transformation are required for the transfer of land in a just and sustainable way. There is no lack of plans, and we have the benefit of learning from our mistakes over the past 25 years, as well as those of other countries. What SA needs now is greater emphasis on implementation.
In the previous articles in this series the elements of co-ordinated actions and plans were highlighted that can bring about fast and sustainable land reform. These will also secure agricultural growth and sustain many more livelihoods than current mechanisms have achieved thus far.
To understand the dimensions of sustainable land reform and what funding is needed, SA’s agro-ecological realities have to be taken into consideration. This determines the amount of land available, the nature of the farming operation, the skills and experience required to manage the operation, the amount of capital and operational expenditure, how many livelihoods can be sustained, and the cost of related support programmes, mentorships and co-investments that are needed to ensure a productive utilisation of the land.
If we take the distribution of SA’s agro-ecological regions and land resources into account, the land where redistribution has to take place can broadly be categorised into areas suitable for field crops (extensive — dryland; and intensive — irrigation), horticulture (orchards and vegetables) and livestock farming (extensive grazing on natural veld in arid areas and intensive pastures in higher rainfall areas). The diagram sketches the harsh reality of SA’s natural resource base.
More than half of SA’s agricultural land can be classified as extensive pastures/natural veld with marginal agricultural potential (the Karoo and Northern Cape). In practice this means you typically require about 10ha per small livestock unit (sheep/goats) and more than 40ha per large livestock unit (cattle). The total capital and operational expenditure (capex and opex) typically amount to R1,200/ha and gross margins are about R100/ha per annum. However, over the past five years many of these marginal areas have been severely affected by the drought, which implies that even farms of more than 20,000ha are not economically viable or self-sustaining business enterprises.
On the other extreme, orchards make up 0.4% of SA’s agricultural land. Capex and opex typically exceed R850,000/ha and gross margins can exceed R200,000/ha. These farms are capital and labour intensive, focus mainly on export markets and require highly skilled and intensive management practices to run sustainably.
Dryland crops, such as maize, soybeans, sugar and sunflower seed cover only 13.7% of all agricultural land. Expenditure and gross margins per hectare differ vastly, with the eastern part of the country typically higher than the western production regions, which have also experienced severe droughts during the past five years. It is obvious that farming enterprises across and within different subsectors require various levels of capital investment and operating expenditure and offer vastly different revenue-generating potential.
If we take into account agricultural land lost to mining and urban sprawl since 1993, white people owned 77,5-million hectares of farmland (of the available 93-million hectares) before taking into account redistribution statistics. After more than two decades, a comprehensive land audit still has not been undertaken, which should be the key building block of an executable and fast-track land reform programme.
However, based on a combination of official statistics and best estimates on redistribution and restitution (and registered private sales to black individuals or companies), a total of 11.44-million hectares have changed hands away from white farmers since 1994. If the original 30% target (of the 77,5-million hectares freehold farmland) is to be considered, we need to redistribute a further 8.9-million hectares and allocate the unused land already in state hands (2,9-million hectares) to black individuals, families or communities. Higher targets will obviously require larger redistribution of land.
This calculation also excludes a total of 15.5-million hectares of farmland in former homeland areas where alternate ownership and tenure models will have to be considered, as indicated in the final report of the presidential advisory panel on land reform and agriculture. Often agricultural land in the former homeland areas remains underutilised, which implies potential still exists to intensify operations and upgrade value chains. It is estimated that as much as 50,000 hectares of irrigation land could be lying idle in the former homelands.
The total costs of this process — in terms of land acquisition, capital expenditure, support funds as well as operational expenditure for the redistributed farms — need to be estimated so that the size of a land reform fund can be established. At the same time, these estimates will help the government understand the contribution the private sector and farmers can make to this important process.
Furthermore, it is possible with the latest data to estimate the “in-kind” contribution of various redistributive mechanisms such as land donations and land already owned by the state, as all of these processes will have zero land costs but will involve funds for capital improvements, support and financial arrangements for the first few years of operations. For the final calculations, a far more detailed breakdown of the various agro-ecological zones of SA will have to be considered.
Aside from land acquisition, one would have to budget for post-transfer support, which would unlock the economic value of the aforementioned areas. The required budget for sustainable land reform is therefore much more than just the land acquisition cost, and would include:
- Costs of land preparations and irrigation infrastructure.
- Fixed farm improvements and movable assets in cases where these are run down or not yet in place.
- Operational expenditure (for three years of operation of a farm).
- Support programmes in terms of agricultural extension, research and market access).
This list of requirements seems long, but if incentives are structured in a way that benefits all stakeholders that are promoting transformation in the sector, it becomes manageable.
The good news is that over the past few years many proactive engagements between black and white farmers with support from industry organisations and blended finance approaches have delivered a new class of emerging farmers entering the sector with a market-led, sustainable approach where agro-ecological realities are taken into consideration.
In fact, in its latest Baseline, the Bureau for Food and Agricultural Policy argues that this category of new farmers has grown the fastest of all potential areas of growth identified in chapter six of the National Development Plan.
• Prof Kirsten is director of the Bureau for Economic Research at Stellenbosch University. Prof Meyer is director of the Bureau for Food and Agricultural Policy.