Global Land Affair Trends Affect Sa

    International trends on utilising land for production by farmers are having an impact on South Africa. Even the government is having a change of heart with regard to land affairs.

Globally, the market for agricultural land is very active. Enterprising approaches and initiatives to fully unlock production value are the order of the day, and emotions are not taken into account. South Africa is not unaffected by these global market trends.

A shift in the government's policies for land reform hails the birth of an active local agricultural rental market. According to many people, the success of emergent farmers depends not on land acquisition but on establishing sustainable agricultural businesses. Government support is still required, though, and the administrative credit scheme, Mafisa, should be overhauled for this purpose.

According to Dr Mohammad Karaan, chairperson of the National Agricultural Council, it is normal in South Africa and elsewhere in the world that the size of farming units increase owing to market pressures, but increased demands for land for purposes other than agriculture drive prices upward. This trend is in line with the multifunctionality of agricultural land as a producer of food and a source of lifestyle and tourism opportunities.

Trends in agriculture itself also have an effect on the direction the land market is moving. Agriculture currently favours an active land market. "In agriculture, certain parties are in the process of being weeded out. Fewer farmers and more outsiders are buying agricultural land. We need more research on how active the land market in South Africa currently is," says Karaan.

Internationally, larger producers have become the primary and direct providers in the supply chain, while smaller producers provide products to the larger ones.

Primary producers realise the importance of the size of their enterprises and their business acumen. This leads to a form of prescribed farming in which farmers farm according to the value chain's directives. Producers expand using their own resources, or outsiders invest in the necessary infrastructure and logistics. Because investments come from the outside, it is easier for such producers to rent land instead of buying it, says Karaan.

A country like Argentina is an example of this approach. Although the land models of that land may not be exactly the same as those of South Africa, our country does follow certain international trends, says Karaan. He recently attended an agriculture business tour of that country, organised by the Agricultural Chamber of Commerce (ACC).

In Argentina, farming units are family-bound, but businesses operate commercially. Following this country's financial collapse a few years ago, land is regarded as a form of savings.

Local experts who went along are of the opinion that agricultural land rental could be a partial solution to South Africa's land issue, similar to the Argentine situation.

According to Karaan, the most important trends in South Africa are the grouping together of land and the formation of companies. In this way, farmers become share holders in farming companies. If a farmer's piece of land is too small, if he has insufficient business acumen or if his neighbour knows the market better, they put their land together and use the same labour.

An example in the Overberg is a grain and sheep farm that joined forces. The farm markets its products directly and enlarges its participation in the value chain. In this way, it achieves scale economy. "People in South Africa are too possessive when it comes to land, but business units will eventually increase in size. We are now in the beginning stages of it," says Karaan.

According to him, the emotional side of land is often blown out of proportion. The economic reality of owning land is bigger than mere emotion. "If a farmer is unable to make a living, he will sell the land, because land is expensive to keep."

The government is currently pursuing a policy of active land acquisition. In this way, the government can lay its hands on land for a specific goal before specific applicants have been identified, and retain ownership of the land for a period of time. The possibilities exist for establishing a land company and using the land on a rental or contract basis, he says.

It could be a while before such a system is put into place, though. In practical terms, it means that an established commercial farmer rents the land from the government and in so doing expands its market, but operates within a framework of contractual duties for example training and provision of expertise to emerging farmers. Although Karaan thinks that this new approach by the government could push up land prices, he believes that it can be contained. "It will only succeed if done in consultation with established farmers and not via real estate agents."

According to him, the government has already decided to buy the land without upsetting the market. This means that the government will quietly maintain its policy of willing buyer and willing seller.

Businesses should take initiative to develop the land for black emerging farmers, says Karaan. The establishment of a rental market will be important.

He believes that the government is well aware of the pressure on agriculture and it realises that emerging farmers have had little success to date. "For this reason, Mafisa should be taken out of the hands of the Land Bank and be allowed to germinate within agricultural businesses."

According to Dr Tobias Doyer, chief executive of the LCC, agricultural businesses and especially co-operatives have been the major role player in supporting emerging and commercial farmers for many years. Support for acquiring production resources and credit, information centres and access to markets were top priorities. Although these strategic areas coincide with the goals set by Mafisa, the government isn't using agricultural businesses to provide such support. The government still liaises directly with the farmers. "As a result, the situation has become fairly critical."

Agricultural businesses are well aware of farmers' circumstances, and information centres know when farmers are suffering, says Doyer. The government is making a big mistake by deliberately excluding agricultural business through Mafisa and the Land Bank.

The Land Bank pays out money, but creates a vacuum. Only agricultural businesses can help someone in the system because they have a direct interest in the successful establishment of emerging farmers, unlike Mafisa and the Land Bank.

Doyer thinks the situation has become somewhat political, though. The government and politicians aren't happy that businesses owned by (white) commercial farmers will be enriched by placing funds for support, eg Mafisa, into their hands.

Agricultural businesses must therefore implement black economic empowerment as soon as possible and make emerging farmers co-owners of their businesses. All of the benefits from possible help should be fed directly to the emerging farmers. In this way, the existing system can be utilised and confidence be build.

According to Mr Willem Farmer, manager of agricultural services at Cape Agri, although lending money to emerging farmers is generally viewed by financial institutions as very risky, there's no reason why the government shouldn't establish Mafisa on the level of agricultural business.

He says that the administration of Mafisa could, in certain cases, have bigger cost implications for agricultural businesses. From a risk point of view the scheme will, however, offer peace of mind. The money will be administered by the businesses themselves and the payment process should be quicker.

When in such a system an emerging farmer qualifies for a Mafisa production loan, the money will not be paid directly to him or her. An agricultural business in his or her area will create a credit facility after supplying a pre-prepared business plan in which the production resources required are set out.

Recovering granted production loans within the current administration of Mafisa will be problematic for agricultural businesses. Loans of less than R25k require no security.

Cape Agri is currently investigating a model for overcoming this challenge. Emerging farmers from a certain geographic region will be expected to co-operate as a co-operative in an attempt to decrease risk.

At the end of Cape Agri's financial year such a co-operative will receive back a percentage of collected Mafisa loans so that it could use this money in its own development process, says Farmer.

In a bid to solve the problem of a lack of money for establishing emerging farmers, Cape Agri and the seed company Agricol are currently finalising a co-operation agreement. According to the agreement, the seed company can conclude a seed increase contract with previously identified farmers.

The seed company supplies the seed for a specific product as well as a guarantee to buy back the seed at a fixed price. Then, Cape Agri gives a discount on a percentage of the contract. This qualifies as security to create a credit facility for buying production resources.

According to Mr Naas Joubert, manager of developmental agricultural land at NTK Limpopo Agric, the future of agricultural businesses lies in the development of emerging farmers. There is still a lack of trust between the government and agricultural businesses, though. The ideal would be to transfer Mafisa to agricultural businesses, but the government is not likely to bite easily.

According to him, land reform should really get into gear. The challenge for many agricultural businesses is that established farmers with land claims on their farms do not want to spend money on capital expansion.

The transfer of knowledge will be a problem for at least one generation, says Mr Ben Lombard, chief executive of MGK. Mafisa money will, however, enable agricultural business to get involved with production credit and risk management. He can't see an alternative for emerging farmers, especially in the light of the amounts of money the previous regime had spent on commercial farming. – Jean-Marie De Waal.

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