South Africa

Op-Ed: Farming is not what it used to be

By Dirk De Vos 28 February 2018

If South Africans really care about the land question then we should ask ourselves whether we know the full cost of turning the clock back to a time when farming was a much easier occupation and are happy about who will pay those costs. By DIRK DE VOS.

More than anything else, the issue of land reform has been the most bitter of all post democratic debates. The 1913 Land Act is correctly described as South Africa’s original sin. The opening lines of Sol Plaatje’s investigation into the impact of the 1913 Land Act, Native Life in South Africa reads: “Awakening on Friday morning, June 20 1913, the South African native found himself, not actually a slave, but a pariah in the land of his birth.” The details of the position in 1913 and thereafter are described in an easy-to-read research paper authored by James Myburgh.

It would be fair to say that land and land dispossession has become a symbol for all other sins of apartheid such as the deprivation of a decent education and the halting of the development of an economy where black people fully participate as equals, as workers, as professionals, as managers and as owners of capital.

And so here we are. The ANC’s last elective conference in December resolved that it will amend the Constitution, presumably Section 25, to allow for land to be expropriated without compensation. It seems extraordinary but what compensation the Constitution requires after expropriation has not been finally determined. Yet, we want to change the current wording.

The ANC’s own condition is that: expropriation must pass a “sustainability test”, so as not to threaten food security or undermine the economy. The EFF, for their part, have no reservations and have sponsored a motion to set the process in place and have issued the typical accompanying threats of what will happen if they don’t get their way.

The ANC’s December resolution puts it in a bind. Expropriation of land without compensation on any non-trivial scale will threaten food security and will almost certainly undermine the economy. Amending the property clause constitution and then sliding around it by only expropriating marginal or non-critical farms for a symbolic gesture does not seem strategic at all.

As we see, the “land can’t be expropriated/must be expropriated without compensation” shouting match is not going anywhere. Perhaps, a better debate would be to ask the question: for agricultural land to be transferred on a massive scale to black people on a sustainable basis (the compensation issue left aside), what would the necessary pre-conditions need to be?

Having significant farmland transferred and then having agriculture fail is self-defeating. By some accounts, the failure rate for farms is 80%, perhaps higher. None of these failed because the land could not be expropriated without compensation. The reality is that these failures are baked into the overall structure of the agricultural sector that developed after 1994.

What happened in the agricultural sector was analysed in a paper written by Mmatlou Kalaba, a lecturer in Agricultural Economics at the University of Pretoria. In it, he makes the point that South Africa’s decision to open its agricultural markets makes things difficult especially in a country with limited agricultural potential.

In 1994, the new government faced multiple challenges including unemployment, income inequality, food insecurity, poverty and malnutrition. Kalaba notes then that the majority of the unemployed are unskilled or have low skills and are affected by low and poor levels of education. The agriculture and mining sectors had in the past absorbed large numbers of the unskilled. But this was fast changing.

The apartheid government had supported the white farming sector through direct subsidies, subsidies through institutions such as commodity boards, price setting, subsidisation of inputs, preferential financing terms through the Land Bank and tariff protection. This support came at a cost to the fiscus. The logic was as follows: The new democratic government could not not have managed to continue to finance 60,000 white commercial farmers while an estimated 3-million smallholder and subsistence farmers did not receive support. Kalaba says that to balance the scales, it was more convenient to remove most of the support than to expand it. Opening up our agricultural and food markets beyond what was required by South Africa’s accession to the WTO or even bilateral trade deals was another decision by the new democratic government.

The consequences for our country have been dramatic. In 1994, agriculture’s contribution was at 4,6% but this has now fallen to below 3%. Competition from food imports has become much tougher. Examples include the influx of imported poultry and wheat. Kalaba writes that the area used for planting wheat has fallen by a third and cotton by 90%.

In short, commercial agriculture has undergone an extreme “Darwinian” make-over. The number of farming units fell from 66, 000 in 1990 to around 35,000 (2016 figure), a decline of over 1,800 units per annum for the period. On absolute numbers, white owned farms have been “failing” at a higher rate than new black farmers have been. Even these figures mask the full extent of the change increasing dominance of large scale, corporate and highly capitalised farming operations. By one estimate, just 237 commercial farm units accounted for 33% of total agricultural income in 2007 and 2,330 farm units accounted for 53% of gross agricultural income in 2005 . The farms sector, as a whole, owes R160-billion.

It is worth looking at where we are in the world. The graphic below shows the extent of agriculture producer support and how that has changed over nearly 20 years:

The graph below shows the import tariffs for a range of products to the EU

While farm income per farming unit has increased significantly to five times more than what it was in 1993, this is due to economies of scale that kicked in as the units became fewer but bigger. Although the area under maize, wheat and dairy (5% of the national herd) has decreased significantly over the last 20 years, production has remained relatively constant, indicating an increasing trend in intensified production. The farms that have survived, have generally increased their irrigation, fuel, fertiliser, mechanisation and genetically modified seed inputs and reduced the number of people that they employ per unit of output.

The decline in agriculture as a percentage of total Gross Domestic Product masks the importance of this sector. The ability to export and find markets elsewhere is a strong measure of the competitiveness of any sector. While the rest of the South Africa economy has done very poorly at growing exports, agriculture is now one of South Africa’s most globally competitive economic sectors. Even though agriculture represents only 2.5% of GDP, when upstream (input supplies of fertiliser, seed, feed, animal and plant health industries) and downstream (food processing, distribution, transport and storage, trade industries) food chains are added, its contribution is closer to 7%. However, the volume and value of agricultural exports has increased dramatically. The value of exports increased from 5% of agricultural production in 1988 to 51% in 2008. In 2016, with export earnings $9.2-billion, the agricultural sector contributed around 12% to South Africa’s total export earnings. The details of which agricultural products contribute what is set out here.

Despite the achievements, farming looks to be in a fragile position. It is a dangerous and risky proposition and requires high levels of skill and enterprise to make it work. The average age of a South African commercial farmer is 62 but it remains a very unattractive proposition for young skilled people. It is entirely understandable that young people with skills would want to avoid testing themselves in this country’s most competitive sector when far safer, less risky and more remunerative jobs exist for them elsewhere in the cities.

Let’s turn our attention to what is actually happening with Land Reform at the moment. Professor Ruth Hall of the Institute for Poverty, Land & Agrarian Studies at UWC is scathing. Her view is that R2-billion of taxpayers’ money is spent on a programme with no oversight. “The contrast between what land reform was meant to produce and what we see on the ground”, she says, “is absolutely shocking.” On a policy level, her criticism is that they assume that most farms produce a positive return but, as we see, this is far from the truth.

The budget allocated to land restitution and land reform is around R6-billion or around 0,4% of the total national budget and this allocation has been growing slowly. Sobantu Mzwakali of Tshintsha Amakhaya, a civil society alliance for land and food justice in rural South Africa, sets it out: In the current budget, the amount allocated for land restitution is R3.371-billion and for land reform, an amount of R2.723-billion.

The current government policy on land reform remains the Proactive Land Acquisition Strategy (PLAS). Former Rural Development and Land Reform Minister Gugile Nkwinti says PLAS was adopted to “ensure that we rekindle the class of black commercial farmers that was disrupted by the 1913 Natives Land Act”. Nice idea but simply tipping people with few skills, no capital, no commercial networks and little experience is never going to work. Other countries that want to develop new sectors (or even shore up what remains of them) often try to nurture these sectors by subsidising them and putting up protective barriers. Worldwide, agriculture is one of the most protected sectors.

As such, if large scale land expropriation, whether compensated or or otherwise, is to have any chance of success, resettled farmers will have to be supported as they are around the world. According to the Department of Agriculture Forestry and Fisheries, in 2017 the gross income of producers in agriculture amounted to R267-billion.

A significant percentage of that would have found its way back to the fiscus in the form of tax. If direct support from subsidies was at EU levels, or about 20% of farm proceeds, subsidies or price supports would amount to the equivalent of R53-billion per annum – more than a third of what is spent on all social grants. None of this would include the upfront costs of of the disruption of existing supply chains of all types. Moreover, import tariffs would need to be raised for almost every food type that is farmed to prevent foreign subsidised food undermining the support given directly. Raising tariffs on imports, would increase all food prices again, using the EU measure, by perhaps by 10%. It is estimated that the poorest in our country spend as much as 30% of their income on food.

At the same time, South Africa is an urbanising society. Already, 40% of all South Africans live in the five largest metros and these cities produce nearly 60% of the country’s economic output (measured as gross value-add). More South Africans are moving to urban areas. The National Development Plan estimates that by 2030, South Africa will have a 70% rate of urbanisation, with most growth in the largest metros.

None of the above says that addressing our original sin shouldn’t happen. However, it should be clear that there are no circumstances under which large-scale expropriation of agricultural land (with or without compensation) would not undermine the economy or food security. The structure of our agricultural sector makes it unavoidable. If South Africans really care about the land question then we should ask of ourselves whether we know the full cost of turning the clock back to a time when farming was a much easier occupation and are happy about who will pay those costs. We should demand the same from our politicians debating the matter in Parliament. DM

Photo: Farmers work on land outside Lichtenburg, a maize-growing area in the North West province, South Africa November 26, 2015. REUTERS/Siphiwe Sibeko

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