Research and Policy Brief: Government should privatise land reform - 2nd November 2010

The leaked green paper on land reform proposes a new policy to drive down land prices through new taxes, land holding restrictions, watered down land rights, capped land prices, and below market value expropriation. These radical proposals may have caused enough consternation within the Government to explain why it has missed its own deadlines in releasing the green paper. Hopefully there are some in Government who are cautioning about the risks of declining food production and rising food prices, which must surely follow the implementation of the new proposals. This is especially so in an environment that has already seen 90% of farming enterprises handed to black South Africans cease production and/or collapse. Against this background, the Government should perhaps consider something even more radical - privatising its land reform campaign.
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You are here: Home Reports & Publications Research & Policy Brief Research and Policy Brief: Government should privatise land reform - 2nd November 2010

Research and Policy Brief: Government should privatise land reform - 2nd November 2010

The leaked green paper on land reform proposes a new policy to drive down land prices through new taxes, land holding restrictions, watered down land rights, capped land prices, and below market value expropriation. These radical proposals may have caused enough consternation within the Government to explain why it has missed its own deadlines in releasing the green paper. Hopefully there are some in Government who are cautioning about the risks of declining food production and rising food prices, which must surely follow the implementation of the new proposals. This is especially so in an environment that has already seen 90% of farming enterprises handed to black South Africans cease production and/or collapse. Against this background, the Government should perhaps consider something even more radical - privatising its land reform campaign.

Of the over 400 000 hectares of agricultural land targeted for redistribution in 2010 only 100 000 had been redistributed in the first six months of the year. The media reported the reason as being that the Government was so busy trying to recapitalise the 90% of already redistributed, but now failed, farming ventures that they could not focus on new redistribution.

This suggests that the department in question cannot manage two processes at the same time. Certainly no successful private sector company would ever say that it could not develop any new business because it was so busy pursuing its many previously failed business ventures!

The implications for the Government’s land reform policy, which seeks to develop new black commercial farmers, are dire unless something radical is done to improve management practices in the departments of land reform and agriculture. As a worst case scenario failure to ensure more successful land reform efforts may lead to a rise of both political and racial recrimination with the exasperated Government deflecting its own shortcomings by blaming white commercial farmers for ‘resisting transformation’. As a result land reform becomes a lose-lose scenario for the country as a whole.

For all the above reasons the Government should perhaps consider the radical alternative of outsourcing its land reform commitments to the private sector. The proposal is as follows:

·         The Government could issue tenders for private sector firms to bid for land reform contracts across a number of agricultural regions and/or sectors.

·         Tenders could for example be issued to develop a certain number of black commercial enterprises within the dairy industry in the Western Cape within a certain time span.

·         Alternatively tenders could be issued to develop a certain number of black agricultural enterprises in a particular geographical region.  

·         These firms would be responsible for sourcing suitable land and for sourcing suitable black commercial farming candidates and then for bringing the two together.

·         Most importantly these firms would be responsible for the ongoing mentoring and financial support needs of the new farmer and ensuring that the business model developed for a particular venture becomes self sustaining. It would be wise therefore for these business models to consider partnerships with current producers and markets as a best practice model for new black farmers to follow.

·         The firms would be required to work to targets and would be remunerated on the basis of how well they did in meeting those targets.

·         Failing to meet targets could see a firm’s contract not being renewed.

·         The Government’s only responsibility would be to release its current and future land reform budgets through these firms for them to purchase agricultural land and capitalise new farming ventures.

·         The firms would have to meet their own staffing and overhead costs through the remuneration agreements signed with the Government.

Government budgets combined with private sector efficiency might overcome many of the bottlenecks retarding current land reform initiatives. Of course such a scheme can only work if the firms in question do not themselves fall victim to the tender rigging, fraud, and incompetence that characterise so many newly ‘empowered’ companies doing business with the Government.

A second obstacle confronting this proposal is that the Government’s land reform budgets are pitifully too little to fund and capitalise more than a handful of new agricultural business. Related to this point is that in seeking to drive down land prices the Government demonstrates a lack of understanding of how agricultural markets and businesses work in the country. The value of land holdings is often the main source of collateral for commercial farmers against which to raise loans to fund their businesses. Reducing the value of land reduces the amount of collateral and taken too far will cut farmers’ access to capital to such an extent that that their business folds. High land prices therefore remain an important ingredient in ensuring the success of new farming ventures.

A third obstacle confronting this proposal is that the Government is often ideologically hostile to the idea of the private sector doing what the Government sees as ‘its’ mandate. This despite the fact that Government admits to not having the expertise, efficiency, or budget to carry out ‘its’ land reform mandate.

Our proposal is therefore a simple one: that the Government researches the viability of introducing this land reform model on a trial basis and on a small scale. If successful, the lessons learned can be exported more widely.  If unsuccessful, the land reform process certainly will not be any worse off than it already is. 

-          Frans Cronje        

IRR TV

Of the over 400 000 hectares of agricultural land targeted for redistribution in 2010 only 100 000 had been redistributed in the first six months of the year. The media reported the reason as being that the Government was so busy trying to recapitalise the 90% of already redistributed, but now failed, farming ventures that they could not focus on new redistribution.

This suggests that the department in question cannot manage two processes at the same time. Certainly no successful private sector company would ever say that it could not develop any new business because it was so busy pursuing its many previously failed business ventures!

The implications for the Government’s land reform policy, which seeks to develop new black commercial farmers, are dire unless something radical is done to improve management practices in the departments of land reform and agriculture. As a worst case scenario failure to ensure more successful land reform efforts may lead to a rise of both political and racial recrimination with the exasperated Government deflecting its own shortcomings by blaming white commercial farmers for ‘resisting transformation’. As a result land reform becomes a lose-lose scenario for the country as a whole.

For all the above reasons the Government should perhaps consider the radical alternative of outsourcing its land reform commitments to the private sector. The proposal is as follows:

·         The Government could issue tenders for private sector firms to bid for land reform contracts across a number of agricultural regions and/or sectors.

·         Tenders could for example be issued to develop a certain number of black commercial enterprises within the dairy industry in the Western Cape within a certain time span.

·         Alternatively tenders could be issued to develop a certain number of black agricultural enterprises in a particular geographical region.  

·         These firms would be responsible for sourcing suitable land and for sourcing suitable black commercial farming candidates and then for bringing the two together.

·         Most importantly these firms would be responsible for the ongoing mentoring and financial support needs of the new farmer and ensuring that the business model developed for a particular venture becomes self sustaining. It would be wise therefore for these business models to consider partnerships with current producers and markets as a best practice model for new black farmers to follow.

·         The firms would be required to work to targets and would be remunerated on the basis of how well they did in meeting those targets.

·         Failing to meet targets could see a firm’s contract not being renewed.

·         The Government’s only responsibility would be to release its current and future land reform budgets through these firms for them to purchase agricultural land and capitalise new farming ventures.

·         The firms would have to meet their own staffing and overhead costs through the remuneration agreements signed with the Government.

Government budgets combined with private sector efficiency might overcome many of the bottlenecks retarding current land reform initiatives. Of course such a scheme can only work if the firms in question do not themselves fall victim to the tender rigging, fraud, and incompetence that characterise so many newly ‘empowered’ companies doing business with the Government.

A second obstacle confronting this proposal is that the Government’s land reform budgets are pitifully too little to fund and capitalise more than a handful of new agricultural business. Related to this point is that in seeking to drive down land prices the Government demonstrates a lack of understanding of how agricultural markets and businesses work in the country. The value of land holdings is often the main source of collateral for commercial farmers against which to raise loans to fund their businesses. Reducing the value of land reduces the amount of collateral and taken too far will cut farmers’ access to capital to such an extent that that their business folds. High land prices therefore remain an important ingredient in ensuring the success of new farming ventures.

A third obstacle confronting this proposal is that the Government is often ideologically hostile to the idea of the private sector doing what the Government sees as ‘its’ mandate. This despite the fact that Government admits to not having the expertise, efficiency, or budget to carry out ‘its’ land reform mandate.

Our proposal is therefore a simple one: that the Government researches the viability of introducing this land reform model on a trial basis and on a small scale. If successful, the lessons learned can be exported more widely.  If unsuccessful, the land reform process certainly will not be any worse off than it already is. 

-          Frans Cronje        

Free Society Project