Written for and first appeared on Fin24, October 5, 2020
The growth of South Africa’s agricultural fortunes and job creation will, in part, depend on the expansion of agricultural activities in the underutilised former homelands regions and farms that government acquired through the land reform process. Hence, this past week’s announcement by the Minister of Agriculture, Land Reform and Rural Development, Ms Thoko Didiza, that government would be availing 700 000 hectares of agricultural land is broadly positive.
The government promises efficiency in availing the land to potential beneficiaries. The selection process, which will be through three broad structures – district, provincial and national — could take approximately two months. So far, it is unclear what criteria will the selection committees follow as no final version of the Beneficiary Selection and Land Allocation Policy has been published since the draft was Gazetted early this year. One hopes that the foundations of that policy have been retained as robust and transparent criteria is critical to bring confidence that there aren’t any corrupt activities in the process. This is an important area which was also emphasized in the Advisory Panel on Land Reform and Agriculture.
Moreover, the Advisory Panel report had recommended that the government should have more bias towards the youth and women in the beneficiary selection criteria for land redistribution process was mirrored in the Department’s recent statement. This will likely be part of the important aspects to be considered when selecting beneficiaries for the available 700 000 hectares of land. In the 135 117 hectares of land that the government has released since February 2020, women and youth were prioritized in beneficiary selection. What the current committees will, however, have to ensure is that this process is fair and transparent going forward.
Now, availing government land is one step of contributing to the growth of agricultural fortunes and job creation. Other important aspects will be the (1) readiness of the beneficiaries to farm, which is their know-how of farming, as well as (2) resources such as finance and infrastructure of the farms.
Firstly, the government states that beneficiaries will be subjected to a compulsory training programme before gaining full access to the farm. This is an important step as there might be young people aspiring to join the sector but have minimal experience. The training programmes should encompass financial and business management practices, and yet also cater to specialized training for commodities that a beneficiary wishes to focus on.
Also, there will need to be active extension officers or mentors to assist the new farmers. Another important avenue would be for the potential beneficiaries to work closely with various agribusinesses and commodity organizations, specifically the ones with development programmes that focus on grooming framers. These recommendations are broadly in line with the Policy on Comprehensive Producer Development Support currently before Nedlac.
Secondly, the state of the infrastructure on these farms is unclear at this point. Each farm might be in a different condition from the next as some might have been bought by the State a couple of years ago and the infrastructure might not all be in a suitable condition. A clear assessment of this, and an upgrade where necessary, will be key before the new beneficiaries take over the farms. In some cases, beneficiaries with large capital resources might be better placed to refurbish the farm infrastructure. To gain capital, it will be vital that the blended finance products being developed jointly between the government and the private sector is operationalized as soon as possible.
Importantly, these farms will be issued a non-tradable, 30-year lease, which means the potential beneficiaries might not be able to use the land as collateral to access production finance unless a stepping-in right is registered over the lease. This could be a potential major challenge in ensuring that these farms are productive and contribute towards growing the South African agricultural fortunes and job creation. Once the process of contracting with beneficiaries commence, it will be interesting to take note of all restrictions placed on the lease so as to fully assess the degree to which the beneficiary, government and many private sector financiers can share the risk of the beneficiaries apply for private or blended finance.
If the lease is non-tradable as appears to be the case, I think the option to buy should be granted at an early stage of the lease, perhaps after five-years as this would provide the state with an ideal opportunity to assess the beneficiary’s potential to become a fully-fledged landowner. The payments in the initial renting stage should also be calculated as a down payment on the purchase value. This process would ensure that the new entrant farmer has the flexibility to use the land as collateral and access capital to further develop the farm. This process also entails a non-monetary incentive of ensuring that the beneficiary takes good care of the land as it will be their property. This process would also perhaps assist the State to make a judgement after five years of whether the beneficiary was an appropriate person for the farm. This will, of course, have its downsides for farmers who aspire to focus on long term crops such as fruit, as five years would be a shorter period to make a judgement of whether they are succeeding or not. That said, such farming venture is capital intensive and would thus benefit from the method we are proposing.
In a nutshell, the government’s action is a right step towards improving the growth of the agricultural sector. But the financing of the new farms could prove to be a challenge as we have seen in the past land redistribution programmes where beneficiaries have no tradable leases on the land and the efficacy of the blended finance proposals are yet to be tested.
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