Wednesday, January 21, 2015

For Herman, Theo and Dr. Peace (if they are reading)

During a recent discussion with some people on a different platform, the land reform issue popped up yet again, so this piece that takes into account all that we’ve discussed amongst ourselves is mostly for their benefit. I don’t propose to see everything, know everything and have all the answers, thus I seek a discussion and input from readers; even if it is only for my own personal development.


If we are to make any sense of why the agrarian reform system in South Africa is not quite working at the moment, then we must first attempt to understand the underlying economic and social issues that the industry faces as they will complicate things as time goes by.


The sheer size of things

It is an often expressed fact that South Africa has tons of farmland in the hands of a few wealthy landowners and this issue is beyond dispute, but what we should clearly understand is that this phenomenon is not unique in the South African milieu nor is it the work of some mysterious supremacist faction or force. It has happened due to both a natural and economic progression.


As any economy shifts focus from the primary (agriculture, mining, fishing, forestry) economy and into the secondary (manufacturing) and tertiary (service) economy, there is a natural desire among younger generations to move along with it, since the new focus implies greater income and security. The effect this had on the farming industry is that many children of farmers, especially post 1994, simply did not have any interest in farming, so when their parents passed away, the farm was simply sold and most often to existing farmers in the area, thus leading to a growth in the average size of farms.


The second aspect that requires consideration is the fact that commercial farming is very much becoming an economy of scale industry. Due to the frankly massive increases in necessary inputs like fuel (roughly 550% since 2000 at current prices) and electricity (300%+ since 2008) farmers required ever increasing amounts of farmland in order to continue running profitable businesses and most small scale commercial farms were simply gobbled up in the process.


While it may seem an unrelated issue, this truth about our agrarian sector raises two very real problems for our land reform process. Firstly, we must keep in mind that the amount of agricultural land we have is finite, so any attempt form government to buy a large amount of farmland will lead to an increase in the price of farmland; it is basic economics. The second problem we must factor in is the fact that much of the infrastructure on previously smaller farms have fallen into disrepair or have since been demolished because they take up valuable space. If the large farms are then subdivided among beneficiaries of the process, they have to be capitalised in terms of housing, barns, equipment, et cetera in a project of which the cost can easily run into the hundreds of billions of Rand. This problem is very much a co-determinant of how fast we can proceed with the restitution project.


We simply do not have a clue

Another economic factor that further clouds and complicates the issue of massive commercial farms is the sheer lack of accurate information we are currently faced with. To my knowledge, there is currently no way for us to quickly and definitively determine who owns what amount of farmland; there is no register. Combined with this problem is the fact that we simply do not know what amount of farmland currently constitutes an economic unit, i.e. the amount of farmland in a particular area that would allow a farmer to make a decent living.


The truth is that continuing without this information means that we are effectively fumbling in the dark and could easily create a situation where we assign people a piece of farmland that they cannot make a living on, which would defeat the purpose of the entire exercise.


It is a tricky business

Commercial farming as a business comes with its own set of unique challenges, chief among which is the fact that the local market as a whole has very little power when it comes to setting the price farmers can expect for their goods. The SAFFEX price reported on the news every day is primarily determined by what is happening in the mega producing countries like the USA and Russia, so knowing then to write the futures contract for your goods is a specialised field on its own. The problem this creates for farmers is that they have to commit themselves to delivering a set amount of product of a set quality, but with an unsure outcome; they simply do not know if they will meet the terms of their contract until harvest day. If they do not, they then have to pay certain penalties stipulated by the contract. This, of course, determines the operating capital they have available for the next harvest season, so if the contract is written at the wrong price, in the wrong quantity or if some natural element prevents the farmer from meeting his contract, even a lot of vastly experienced farmers go under in this fashion.


The question here, and I might get lambasted for this, is how many people who qualify for land restitution (hell, how many people in general) have the required skills and knowledge to successfully navigate these challenges and what use is there in restoring them to farmland when there is a large chance that they do not and would most likely fail? This is, in my view, the sole reason for almost 80% of all land restitution projects failing or the land being resold within the first twenty four months of the transfer taking place.


It is very much socio-historic

Everything else aside, we must always keep in mind that we are talking about more than just mere assets here; we are talking about the livelihoods of current landowners who have committed no crimes and the historical injustices done to claimants. We also know from a debate that’s been raging for almost as long as we’ve been calling ourselves democratic that this is the major stumbling block in the entire process and while I will not even attempt to object to or discredit the social imperative of land restitution the historic nature of the claims do create an economic problem.


The majority of land claims in the country do not stem from individuals but from certain tribes that still exist within the broad South African population and the problem this ultimately creates is that communal land ownership is very rarely productive as is evident from the experiences and histories of land restitution in other African countries. Zambia is a chief example and what their experience has shown is not only the fact that internal squabbles often leave large tracts of agricultural land lying fallow, but that you are inevitably faced with a massive skills flight from the sector, since those with the most recent and up to date skills and knowledge regarding farming methods, et cetera are no longer within the industry.


But what about tomorrow?

The often unspoken fact of the matter is that as a nation, our food security is already under pressure. Due to economic considerations, many farmers are making the move from planting seasonal staple crops like wheat and corn to planting more lucrative permanent crops like pecans in order to avoid the yearly input costs required by seasonal crops. Additionally, evidence is beginning to surface that farms along the Vaal River and lower Oranje River systems (after it joins with the Vaal) are becoming less and less productive due to the regression in the water quality coming from higher up in the system. This is primarily due to the poor management of human waste in municipalities along the upper Vaal River and the increased amount of mine acid draining into the system.


To this point, we must come to the realisation that this project can have far more severe consequences for our society via greatly increased food prices and knock on inflation if we do not proceed with the utmost circumspection.


So how do we solve it?

While I am sure that other observers will point out a myriad of other problems, the ones that I have mentioned seem to be the larger broad economic problems facing the land reform process in South Africa today, but ultimately the number one problem with the land reform process has been political and that’s what needs changing before anything else.


Up until this moment in time, we have cited redress for historical injustices as our reason for attempting agrarian reform. While I am not attempting to rewrite or even defend our sordid history, we have to recognise that this stance immediately clouds the issue since it brings a lot of emotion and a victim vs. perpetrator orientation into the fold; this also causes us to dismiss legitimate concerns regarding the system as a victim mentality or attempts to protect white privilege. It therefore causes all of us to be on our heels or high horses and talk past one another instead of speaking with each other. This cannot continue.


I am truly of the opinion that we need to make a mental shift from historical redress and begin to put agrarian reform forward as a measure to economically develop our country and our people that will ultimately also address the societal and economic imbalances caused by our racially divided past. Once we’ve been able to do this, then sorting out the problems regarding agrarian reform merely becomes a matter of implementing a few tweaks to the system and I put forwards the following proposals.


Primarily, we really need to pay attention to our lack of information, since it hampers our ability to plan this properly. I believe that we should first find out who owns what land, who has a claim to what land and how much will be required in order to provide people with a decent living off the land. This will also go a long way in sifting out all the bullshit that is currently clouding the issue and when we do take on land restitution afterwards we can then create private land ownership for the maximum number of individuals with a reasonable certainty that they will be able to make a decent living as farmers.


As explained, I am diametrically opposed to the current system of the wholesale transfer of farmland to communities and it is not only because of the upwards pressure it puts on land prices, the additional pressure it places on our food security or the historic inefficiencies of communal ownership, but also because our budget for this is only so big. By purchasing the farm over a period of time (say 20% biannually over 10 years or one or two subdivided plots per year) you not only reduce the pressure on land prices, but also the impact that would be felt if the project happens to fail, while greatly increasing the odds that we can salvage projects in the event that they should fail. Additionally, you have the current farmer, who probably has vast experience farming in the area, on hand to act in a mentorship role to the benefit of the emerging farmer, thereby facilitating the transfer of skills from one generation of farmer to the next.


What should be clear is that there is no use in just replacing a white farmer with a black owner as we’ve been doing, but that we need to take steps to ensure that the necessary skills required by commercial farming are transferred to the new owners of the farm. It is currently estimated that Government owns about 14% or some 16.8 million hectares of farmland in the country. What we therefore need to do to ensure a transfer of skills and reduce the odds of the restitution project failing is to establish agricultural colleges and “proving” or rather “training” farms tailor made for people with no agricultural experience on parts of the Government owned land and use the remainder as possible restitution locations for future land claims in order to boost food security or merely to speed up the process as this land needs not be bought, but is readily available.


Since the lack of financial support and economic pressures in general have been pointed out as problems facing both the industry and our social imperative in recent years, we not only need to take steps to ensure that emerging farmers have access to sufficient operating capital and certain business support services like accountants during the first year or two, but that our farmers in general are adequately supported financially, as is the norm in most developed economies in the world. I mean, we can save farmers as much as 20% of their annual fuel-spend if we simply put a mechanism in place by which they can reclaim certain levies they pay on fuel from Government or receive a tax discount for it.


It turned out to be way more than two cents’ worth in the end, but hey, at least it is out there now and I won't charge you more than a penny.