Custodianship of land can be a burden too heavy for the state to bear

Custodianship of land can be a burden too heavy for the state to bear

Essay by Theo Boshoff, Wandile Sihlobo and Prof Johann Kirsten[i]

The ad hoc committee tasked with amending section 25 of the constitution was due to submit its report to the National Assembly on May 31, but obtained an extension until the end of August. The reason? Political parties on the committee asked for more time to deliberate on what the amendment bill should look like.

The bill that was published for public comment stuck to the committee’s original mandate, namely to make explicit that just and equitable compensation for expropriation can be nil. However, there have now been calls for an amendment that would place all land under the custodianship of the state — hence the need for further deliberations. This is problematic, and we illustrate here why.

The concept of state custodianship comes from the “doctrine of public trust” contained in US law. It is rooted in the logic that natural resources such as navigable rivers and other areas of exceptional natural beauty and value are so central to the wellbeing of all people that they should not be privately owned. Such natural wonders belong to the people at large, it holds, and the state is required to manage them in trust for the good of all. However, the US public trust doctrine is largely confined to environmental law and was never meant to mean the nationalisation of land. After all, the doctrine comes from the same country that is seen as the global champion of capitalist thinking.

The concept of a “trustee” or “custodian” is critical because it does not mean the trustee/custodian is entitled to use the property for its own benefit. Our courts recognised this as far back as 1921 when they stated: “Where one man stands to another in a position of confidence involving a duty to protect the interests of that other, he is not allowed to make a secret profit at the other’s expense or place himself in a position — where his interests conflict with his duty.” The state is not the “owner” in the classical sense, but instead has a duty of care to ensure it is protected for the benefit of the population at large.

To some extent, it can be argued that this form of custodianship is closer to the manner in which traditional councils allocate land under customary law. The land does not “belong” to the traditional council but to the people, and the traditional council has a duty of care to protect the interests of the occupiers who use the land. This traditional form of tenure was, to a large extent, corrupted and misused by the colonial and apartheid authorities. With that in mind, there is a temptation to make this connection between customary land governance and the concepts of “custodianship” or “public trust” as a vehicle to restore traditional land governance, but there are a number of challenges with this approach.

First, property rights cannot be read in isolation from the rest of the Bill of Rights. Our constitution does recognise customary property rights, and they should receive the same legal recognition as common-law property rights. However, both systems must be administered in a manner that is consistent with the constitution. This means systems of administration may not be arbitrary, must be transparent and must be accountable. Unfortunately, SA does not have a great track record in this regard.

Indeed, on June 11 the high court in Pietermaritzburg set aside the controversial “PTO Conversion Project” implemented by the Ingonyama Trust. According to the project, the trust stopped issuing permissions to occupy (PTOs) in 2007 and started systematically replacing all PTOs with lease agreements. The effect was that occupiers now had to pay rent to the trust, failing which they would lose their land rights and could face eviction.

However, according to the Ingonyama Trust Act the land must be administered for the benefit of the communities and residents residing on it. In a damning judgment, the court held that the leasehold scheme violated this relationship as “the trust has effectively become a landlord rather than a trustee”. The court held that the trust acted unconstitutionally as the programme erased legally recognised land rights in a manner that was arbitrary and inconsistent with the constitution.

This example highlights the dangers inherent in a system of state custodianship where one relies on the state to act in your best interests. State custodianship would also place an impossible burden on the state. As mentioned earlier, property rights should not be seen in isolation. The constitution provides for the right to administrative action that is lawful, reasonable and procedurally fair. Even traditional, customary forms of land governance have to be transparent, accountable and procedurally fair to pass constitutional muster.

To use the same example, on Friday the court not only ruled against the Ingonyama Trust board but held that the agriculture, land reform & rural development minister “breached her duty to respect, protect, promote and fulfil the constitutional right to property of the holders of [Interim Protection of Informal Land Rights Act] rights vested in respect of the trust-held land”. In other words, the court found that the minister failed to exercise adequate oversight over the conduct of the board. If this seems like an unfair burden on the shoulders of the minister, imagine the burden if all land fell under the custodianship of the state. This is simply an impossible burden and no government would ever be able to meet this requirement.

An effective land tenure system should also allow the government to levy funds or raise taxes for projects that benefit the public at large. Ironically, one of the arguments raised by the Ingonyama Trust was precisely that it needed to raise funds for the management of the trust, which is not possible under the PTO system. The court rightly held that the act does not allow the trust to do so, and that there was no evidence that the rent was used on projects that would benefit the community.

This does, however, raise an interesting question: how would municipalities raise revenue if all land was held by the state? The ailing state of rural municipalities has featured strongly in the media of late, and a situation whereby they could not tax landowners would only serve to weaken these institutions further.

Finally, in a time when SA is desperately seeking international investment to boost its economic recovery, is it really practical to implement a system of land tenure that is only accessible to those who live by that custom? We live in a globalised world where economies are interlinked. It is for this reason that several developing countries similar to SA are adapting their tenure systems to make them predictable and understandable to international investors.

We can only hope the ad hoc committee critically considers these points before a final recommendation is made at the end of August.

This essay first appeared on Business Day, 21 June 2021

[i] Boshoff is head of legal intelligence research at the Agricultural Business Chamber of South Africa (Agbiz). Sihlobo is the chief economist at Agbiz. Kirsten is a professor of agricultural economics at Stellenbosch University.

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Minister Didiza’s Budget Vote Speech centered on the themes of private-public-partnership approaches

Minister Didiza’s Budget Vote Speech centered on the themes of private-public-partnership approaches

Agriculture, land reform & rural development minister, Ms Thoko Didiza, delivered her budget vote speech to parliament on May 13, touching on land reform, agricultural land leases, agricultural expansion, finance and the sectoral master plans.

On land reform, the Minister emphasised the beneficiary selection criteria that emanates from the 2019 report of the Presidential Advisory Panel on Land Reform and Agriculture. It prioritizes women, youth, and people with disabilities in land redistribution. This cohort comprises more than two-thirds of the land beneficiaries thus far in the 700 000 hectares that the government announced for release in October 2020. The government has allocated 436 563 of the 700 000 hectares. Notably, the Minister acknowledged that some of this land was already occupied and her Department only had to formalise the leases in such occupied land parcels.

On agricultural land leases, Minister Didiza recognized the frustrations that farmers have experienced over the past couple of months. Some black farmers were even threatened to be removed from productive farms such as in the Rakgase, Cloete and Zigana cases.

Minister Didiza committed to accelerating the resolution on old order claims and announced that her Department has settled 240 claims in the past financial year, which covered both urban and rural claims. Disappointingly, there was no update on land tenure developments, which is important in strengthening land rights and necessary pre-requisites for investments in agriculture.

For agricultural expansion, the Minister’s speech build on the positive momentum in the sector supported by favourable weather conditions and increased plantings. There are prospects of another year of solid growth in the agricultural gross-value added, which Agbiz forecasts at roughly 5% y/y (compared with 13,1% y/y in 2020). A significant challenge that has faced the sector, which the Minister noted, is animal and plant health. South Africa has been experiencing frequent outbreaks of avian influenza, foot and mouth disease and African swine fever. These diseases tend to hinder agricultural trade and cause substantial financial losses for farmers. Unfortunately, the Minister did not provide detail of the long-term Plan of addressing these critical challenges but instead noted the near-term interventions being made by the state scientists and various programmes of the Agricultural Research Council and the Onderstepoort Biological Product. It is unclear if these two particular institutions can address the increasing incidence of animal and plant health diseases, or if there needs to be increased reliance on the private sector to address the deteriorating situation.

The more pointed intervention on agricultural expansion is the commitment to ensure land given to farmers and communities as part of land reform processes is cultivated. The strengthening of the extension officers remains a priority, and the government intends to hire an additional 10 000 extension officers over the next three years. If the extension officers are well trained, they could help new entrants’ farmers in the sector.

In agricultural finance, the Minister expressed the government’s commitment to stabilizing the Land Bank, which has been experiencing liquidity challenges for months.

In line with the growth, the theme was the agricultural and agro-processing master plan, which is in its final stages, with sector role-players — including community representatives, labour, the government and the private sector — set to meet for consultation in June.

Another plan which I have not written much about is the national Cannabis Master Plan, which should be completed soon as the government aims to begin issuing and monitoring permits for the production of hemp in South Africa.

Overall, the speech is positive as it centred on the theme of public-private partnerships for development and expansion in the sector and emphasised various programmes that the social partners are already working on in collaboration with the government. I share the minister’s broad view that harnessing the power of public and private sector collaboration is critical to unlocking opportunities for inclusive growth in the sector.

This essay first appeared on Business Day, 18 May 2021

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South Africa’s expropriation debate must not sap energy from agricultural master plan

South Africa’s expropriation debate must not sap energy from agricultural master plan

The department of agriculture, land reform & rural development, agribusinesses and various social partners have been hard at work for months crafting the agricultural and agro-processing master plan and, separately, blended finance instruments.

These aim to ignite growth and expansion in the agricultural sector as part of the government’s broader economic reconstruction and recovery plan. Both initiatives are set to be launched in the coming months, while the first phase of the blended finance instrument programme has already started, as evidenced by the recent launch of the R1bn Agri-Industrial Fund by the Industrial Development Corporation in partnership with the department.

These are constructive programmes with the potential to ignite growth and transformation in the sector. Agricultural organisations allocate much of their time and resources to pursuing these goals. Sadly, much of this good work takes place behind the scenes, while other major policy developments that might hinder progress grab the attention of social partners and the media.

A case in point is the renewed debate over section 25 of the constitution and the Expropriation Bill. At the end of March, parliament’s portfolio committee on public works hosted public hearings on the bill, while the committee tasked to “make explicit what is implicit” in section 25 of the constitution continued with its public hearings. The outcome will have implications for public sentiment. I hope it will not detract from the two initiatives mentioned above to drive growth and expansion in agriculture.

The success of any of these programmes depends on the private sector and other social partners jointly implementing the government’s proposals. As such, policy actions that might be perceived as not aligned with broader stakeholders’ interests present a risk and could lead to a lack of participation and stalling of the master plan and the blended finance implementation.

Procedural guarantees

The debate over amending section 25 has gone beyond the realm of agriculture as various other stakeholders have engaged with parliament. As the outcome is likely to have direct implications for the success of the department’s work programme, it would be prudent for parliament to consider the broader impact on the agricultural and other sectors of the economy while SA is in an economic reconstruction phase. Land reform is an important policy imperative, but amending the constitution is not the panacea that will lead to the desired outcome of prosperity.

It is imperative that parliament finalises the Expropriation Bill. It provides the procedural guarantees required to bring the government and an expropriated owner or bondholder on to an equal footing if expropriation occurs. Unlike the section 25 amendment, I broadly support the need for legislation to regulate expropriation but oppose the provisions relating to “nil” compensation. Expropriation should always be used as a last resort and cannot substitute for well-formulated and well-implemented programmes to effect transformation in the sector.

There are various existing public-private partnerships (PPPs) for land reform, some of which were highlighted by the presidential advisory panel on land reform and agriculture and chapter six of the National Development Plan, which the government could use to accelerate land reform. There is also an ample supply of land that the government has not efficiently distributed or transferred to potential beneficiaries — some estimates put this area at more than 2-million hectares.

We are also bombarded daily with news headlines of corruption and inefficiencies at the local government level, some of which threaten the same black farmers the government intends to support. Hence, PPPs have been my favoured approach to land reform. The master plan is designed in the spirit of the joint venture. A continuation of this approach to policy implementation could yield positive results for expansion in agricultural production. However, the approach that will be taken in parliament concerning section 25 could distract stakeholders from these necessary economic reconstruction plans.

This essay first appeared on Business Day, 06 April 2021

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South Africa’s agriculture and land reform: How far are we from an integrated and inclusive rural economy?

South Africa’s agriculture and land reform: How far are we from an integrated and inclusive rural economy?

Essay by Prof Johann Kirsten and Wandile Sihlobo

Chapter six of the National Development Plan (NDP) sets out the parameters for an integrated and inclusive rural economy. It opens with: “By 2030, SA’s rural communities should have greater opportunities to participate fully in the economic, social and political life of the country. People should be able to access decent basic services that enable them to be well-nourished, healthy and increasingly skilled. Rural economies will be supported by agriculture and, where possible, by mining, tourism, agroprocessing and fisheries.”

Agricultural expansion, more agroprocessing, job creation and land reform are central to growing rural economies. It rests on goals such as promoting irrigated agriculture and high-value and labour-intensive industries; bringing unproductive land in former homelands and underutilised land reform farms into production; increasing productivity; and expanding access to new export markets.

It needs to encourage inclusivity by extending these activities to former homeland areas. Redistributing 30% of commercial farmland formerly under white ownership is another important goal.

Good quality and regularly reported data is vital to measure if we are reaching these targets. We report here on indicators for which long-term series of good quality data is available from official resources.

You can read the full article by clicking here (no paywall). The article was written for and first published on Business Day.

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South Africa’s agriculture and land reform: How far are we from an integrated and inclusive rural economy?

State of the Nation Address a mixed bag on agriculture

Similarly, to 2020, in this year’s State of the Nation Address (SONA), President Ramaphosa reaffirmed the government’s commitment to ensuring that agriculture continues to be amongst the key sectors that will drive growth and job creation in South Africa. The President’s message centered around the Agricultural and Agro-processing Master Plan’s potential role in driving expansion and development in the sector, with success already evident in the sugar and poultry master plans. The broader Agriculture and Agro-processing Master Plan is nearing completion, and we expect its launch within the first quarter. The strength of the master plan is the joint-venture approach amongst social partners that underpins it. The President pointed to a similar emphasis, stating that “this provides an opportunity for further public-private partnership in agriculture to promote transformation and ensure sustainable growth.”

Trade is another important aspect highlighted, focusing on the African Continental Free Trade Area (AfCFTA), which came into operation on 1 January 2021. South Africa’s agricultural sector is export-orientated, and the African continent is its largest market – accounting for 38% of the US$10,2 billion exported in 2020. The AfCFTA offers an opportunity to expand agricultural exports beyond the SADC region, where South Africa’s agricultural exports are currently concentrated. A first step to make this a reality would be to improve the flow of goods across borders. The inefficiencies and delays and border posts will not support the AfCFTA if it is not dealt with immediately.

Nevertheless, we were disappointed to hear the continuous emphasis on the expropriation of land as one of the leavers that government is committed to utilizing for land reform purposes, mostly if this still leans on the potential amendment of Section 25 of the Constitution and not just the updated Expropriation Bill. This emphasis unfortunately will discourage investment in agro-processing and agriculture which is needed to enhance the growth prospects of the sector.

There was also limited information about the planned land and agrarian reform agency, which will be utilized to fast-track land reform. We look forward to getting more details about how such an agency will be structured and what will ensure a greater level of efficiency than how the government has been managing land reform.

We would have preferred the president to implement a clear and well-tested proposal for the District Land Committees documented in the National Development Plan (p206-207). This would bring real fast track land reform on a sustainable basis and create real business opportunities for black entrepreneurs.

We were also disappointed that the government did not commit to releasing more state land to potential beneficiaries. We understand the State has already acquired over two million hectares of land through PLAS programme. Such land could be utilized for real commercialization of black farmers, especially if it is accompanied by a transfer of land rights to potential beneficiaries instead of a non-tradable lease, as is the case with the recent 700 000 hectares currently being released beneficiaries.

Overall, the agricultural message within the SONA was a mixed bag; an acknowledgement of the farming potential to create jobs and foster growth, yet a hazy view on land policy and support programmes for land reform beneficiaries. There may also be an over-reliance on the master plans; time will tell if it will genuinely deliver on its promise.[1]

I wrote this commentary as part of Agbiz official notes

[1] President Cyril Ramaphosa: 2021 State of the Nation Address:

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Minister Didiza’s Budget Vote Speech centered on the themes of private-public-partnership approaches

South Africa’s agricultural policy in 2021

Wandile Sihlobo, Johann Kirsten and Sifiso Ntombela[i]

From the Reconstruction and Development Programme of President Mandela to the Accelerated and Shared Growth Initiative of President Mbeki, the National Development Plan of President Zuma and recently the Reconstruction and Economic Recovery Plan of President Ramaphosa, agriculture has always been tipped as a key generator of jobs and economic activity in rural South Africa.

For agriculture to live up to its expectations, it requires a stable, predictable and conducive policy environment. It is not always clear that South African agriculture is blessed with this situation. Therefore, it is remarkable that the value of South Africa’s agricultural output has more than doubled in real terms since 1994, although employment trended downwards slightly. This has been achieved amidst decreasing support to commercial agriculture and various inconsistencies in implementing policies and programmes. Government inefficiencies, delays, and failures, particularly at the provincial and local levels, have made farmers’ lives challenging.

Nevertheless, farmers’ ingenuity, ability to adopt new technology, and find new markets have helped the sector survive and grow despite the government’s induced constraints (the depreciating exchange rate also helped export earnings). On the other hand, new entrant farmers are suffering due to the poor coordination and implementation of basic government functions at all three tiers of government. As a result, the output growth, employment growth and transformation are not at the levels it could have been, had we had an efficient government system. Market failures and cases of anti-competitive behaviour in some value chains have also contributed to slow progress in transformation and agricultural development.

The start of every year presents an opportunity for business to review strategies, and some governments departments to review policies. In 2020, the Department of Agriculture, Land Reform and Rural Development focused on four broad policy guiding themes for driving agricultural expansion, inclusive growth, job creation and integrated rural areas and eradicating hunger, namely;

  1. Transformation and redistribution;
  2. Addressing inefficiencies;
  3. Growth and expansion.
  4. Coordinating policies and investments for the integrated rural economy

First, after limited action in 2019 the land reform programmes showed some notable progress in 2020 with the release of 700 000 hectares of state-owned land to beneficiaries. While this is not all new land, and some are already occupied, the decision nevertheless shows a small step towards the fast release of all land acquired by the state for land reform purposes – more than 2 million hectares! This should all be released in 2021 to bring about much more substantive progress on the pillar of transformation and redistribution. Our criticism of the recent release of land has been that the government should have released the land with tradable leases or offered the beneficiaries an option to buy the land after a minimum of five years working the land. On the tradable lease option, the government could include a “first right of refusal” clause to guard against reversing gains already attained in the redistribution of land. Moreover, the land release should simultaneously go with a farmer support programme to ensure newly settled farmers have access to working capital.

Another significant development on the land reform front was the new Expropriation Bill which was gazette in 2020, outlining a uniform process for all expropriations to take place and a uniform means to calculate just and equitable compensation. The National Policy on Comprehensive Producer Development Support and Blended Finance were other programmes that saw some progress in 2020 and should be completed and launched this year. The effectiveness of the programmes, however, is yet to be seen. The development of the Land Donation Policy, which encourages private landowners to participate in the redistribution of land voluntarily, is one of the policy changes that could accelerate the redistribution of agricultural land if all the incentives are properly aligned as detailed in the report of the Presidential Advisory Panel on Land Reform and Agriculture.

This “transformation and redistribution” pillar is likely to gain momentum in 2021 as the majority of these land policies will be introduced to parliament for endorsement. We are likely to see progress on the release of the land, and this will be an essential area to watch as it promised transparency this time around and that there will be bias towards the youth, women and other vulnerable groups; unlike the past where a disproportionally higher number of older men benefited on land reform. Another critical area worth keeping an eye on is the broader discussion about the amendment of Section 25 of the Constitution to enable land expropriation without compensation. There was little discussion on this point in 2020 as the work of the committee that was tasked to “make explicit what is implicit” in the current wording of the Constitution was interrupted by the pandemic. This year there will likely be momentum on this discussion. We are however of the view that the new Expropriation Bill already covers what is hoped the amendment of Section 25 would have achieved.

Second, the government promised to address the inefficiencies that exist in its processes and systems as well as with government infrastructure needed to support the sector. Addressing the inefficiencies will mean better management and efficiency in all divisions within the Department of Agriculture, Land Reform and Rural Development. There should also be a much stronger political will to work closely with the private sector and broader social partners. Such a relationship would entail leveraging the private sector networks, capital, know-how and goodwill to bring about the growth and transformation of the sector. The interventions to address the inefficiencies will differ from subsector by subsector. For example, some subsectors might require improvements on export-related and water efficiency matters, while others might need increased efficiencies on the registration of certain input products to increase productivity. For the export of red meat products to fix animal health and meat, the hygiene system will be an urgent priority. An essential requirement for the government is to be proactive in engaging with the private sector and broader social partners about their specific needs and commitments to agricultural development. On the infrastructural matters, we are less optimistic that there will be notable progress in the near term given the fiscal constraints and continued pressure to contain the spread of the pandemic and secure vaccines. Importantly, this is not a task carried out by the Department of Agriculture, Land Reform and Rural Development per se, but by other line departments.

Lastly, the anticipated launch of the Agricultural Master Plan in 2021 should effectively deal with the issues raised above and provide direction to the Department of Agriculture, Land Reform and Rural Development’s approach to broader farmer development initiatives this year. There is a danger that the Master Plan might primarily focus on the problems and the diagnosis by looking back and not effectively plan what should be done. The drafters should not aim to be to “Build Back Better”; but to “Build Forward Differently”. The plan should spell out clearly what will be done to address inefficiencies, engage with the private sector, and modernize and streamline the support system and improve access to markets and finance.

Trade will also continue to be a part of the policy discussions as the South African agricultural sector will seek more markets than the existing ones. Moreover, an increase in production will need to be anchored on increased export potential and domestic agro-processing capacity to replace food imports, where it is feasible.

Other essential points that did not dominate the policy discussion in 2020, but are likely to surface in 2021 are agricultural finance and commercialization of black farmers. The agricultural finance discussion will immediately have to deal with the Land Bank’s current crisis and include the search for new and efficient financing methods. Perhaps the Land Reform Fund raised in the Presidential Advisory Panel for Land Reform, and Agriculture report could offer a solution in creating an affordable blended finance instrument.

Agriculture still has the potential to boost employment, transformation and economic activity in rural South Africa. But this hinges on the stable, predictable and conducive policy environment, along with dedicated and driven officials at all spheres of government.

[i] Sihlobo is Chief Economist of the Agricultural Business Chamber of SA. Kirsten is Professor in Agricultural Economics at Stellenbosch University and Director of the Bureau of Economic Research. Ntombela is Chief Economist of the National Agricultural Marketing Council.

The essay first appeared on Business Day on 24 January 2021

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South Africa’s expropriation debate must not sap energy from agricultural master plan

What next for the land the South African government wants to distribute?

By Wandile Sihlobo and Prof Johann Kirsten[i]

Agriculture, land reform & rural development minister Thoko Didiza’s announcement that 700,000ha of agricultural land will be released for distribution is a positive step for agricultural expansion and inclusive growth.

However, the fact that so much land is owned by the state, mainly due to the government’s Proactive Land Acquisition Strategy, confirms the global experience that governments tend to be good at acquiring land for the purpose of redistributive land reform, but lack efficiency and effectiveness in redistributing it to beneficiaries.

It is for this reason that many scholars (ourselves included) have argued for a decentralised approach to redistributive land reform. In an ideal situation, the idea would be to keep bureaucrats and politicians out of the land redistribution process so that individuals can negotiate the terms of transactions themselves.

However, in SA efforts to deal with redistributive justice and the reduction of racial inequality in land ownership requires government intervention. This could include land acquisition grants, subsidised finance, an effective farm support system and a number of other requirements for efficiently operating a farm.

It is unfortunately also true that access to these grants and support mechanisms provided by the state requires beneficiary selection, application processes and red tape, which are open to abuse and long delays. Again, for a rapid land reform process, these approval processes need to be quick, effective and based on merit.

The government has promised efficiency and no corruption in the process of distributing the 700,000ha of state land to beneficiaries. The selection process will be through three broad structures — district, provincial and national — and could take up to two months after the approval of applications, which opened last week.

So far, it is unclear what criteria the selection committees will follow, as no final version of the beneficiary selection and land allocation policy has been published since the draft was gazetted earlier in the year. The published eligibility and exclusion criteria give limited information, aside from the fact that applicants must be previously disadvantaged — Africans, Indian, coloured or Chinese — SA citizens; that priority within the target groups will be given to women, the youth and disabled; and that all employed public servants are not allowed to apply.

Prioritising women and the youth stems from the work of the presidential advisory panel on land reform and agriculture; these categories of applicants have also been given priority in the 135,117ha of land that the government has released since February.

The selection process will need robust and transparent criteria to bring confidence that it has not been corrupted. This is an important area that was also emphasised by the presidential advisory panel, and there are already concerns about the process:

  • It is not clear whether the land is currently unoccupied. It could be that there are already successful black farmers on that land and that they have already shown their ability to farm sustainably. Why can’t they be allocated full ownership? Why should they be dispossessed once more or forced into insecure 30-year lease agreements?
  • It is also unclear whether the land in question is productive agricultural land and whether all on-farm infrastructure is well maintained or the assets (orchards, fences, irrigation pipes, electric cables) and farm buildings have been stripped by criminals. Each farm might be in a different condition from the next because some might have been bought by the state years ago and the infrastructure might not all be in usable condition. A clear assessment of this, and upgrades where necessary, will be required before the new beneficiaries take over the farms.
  • The decision to provide only a 30-year lease contract is not real land reform. It merely ensures further dependence on the state and will not bring real empowerment. It would have made more sense to include an option to buy after five years of full-time farming, during which beneficiaries could prove their ability to farm sustainably. The rental payments for the five years could then be deducted from the final purchase amount. In the meantime, the state needs to ensure beneficiaries have access to affordable production finance because commercial finance will not be available due to the fact that a lease agreement is no good as collateral. The only other avenue is where a commercial financier will get involved to secure access to the output of the farmer through some form of the contractual relationship.
  • 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 that should include financial and business management courses as well as specialised training in the commodities beneficiaries wish to focus on. There is also a need for 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 organisations, specifically the ones with development programmes that focus on grooming farmers. This would be in the spirit of promoting private-public partnership engagements. Various commodity organisations are already involved in farmer development programmes, with which the government can partner.

The major challenge we foresee is financing. The release of this land is taking place in a year when even established farmers are struggling with access to finance on the back of liquidity constraints at the Land Bank, which has implications for the broader agribusiness community. The commercial banks have grown more risk-averse due to uncertainty caused by the pandemic. This is a tough financing environment even for farmers with long-term tradable leases and title deeds.

Once the process of contracting with beneficiaries has started the restrictions placed on the lease will enable us to fully assess the degree to which the beneficiary, the government and private sector financiers can share the risk of private or blended finance. Once beneficiaries have passed the rigorous selection process outlined above, the option to buy the farm should be granted at an early stage of the five-year lease. This would provide the state with an ideal opportunity to assess the beneficiary’s potential to become a fully-fledged landowner. 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.

Written for and first published on Business Day on 22 October 2020

[i] Wandile Sihlobo is chief economist at the Agricultural Business Chamber of South Africa (Agbiz). Johann Kirsten is professor of agricultural economics at Stellenbosch University.

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