Proposals on Land Reform, Privatisation and Farming Models - Some Lessons from Experience in South African Agriculture

Agrekon, Vol 32, No 3 (September 1993) Van Rooyen, Coetzee and Swart

VIEWPOINT: PROPOSALS ON LAND REFORM, PRIVATISATION AND FARMING MODELS - SOME LESSONS FROM EXPERIENCE IN SOUTH AFRICAN AGRICULTURE

Johan van Rooyen Centrefor Policy Analysis, Development Bank of Southern Africa, Midrand Gerhard Coetzee Centrefor Policy Analysis, Development Bank of Southern Africa, Midrand

Danie Swart Operational Complex, Development Bank of Southern Africa, Midrand

Abstract Privatisation of farming and land use should be viewed as potentially an important strategy in the process of agricultural restructuring and land reform in view of its "empower" attributes as well as providing incentives to productively invest in farming. Privatisation, however, is but one instrument towards rural restructuring and land reform. Farming is essentially a private sector action. Ownership of assets and the right to decision-making are vital elements for successful farming. The choice of farming model will therefore be important. Present land tenure arrangements must be expected to be an additional major factor in the selection of appropriate farming models.

1. Introduction The right of decision making is seldom absolute as it is directed and supported by certain rules, rights and The concept of privatisation provides potentially a viable regulations. Such guidelines relate to aspects of econ- strategy to restructure economic activity while accommo- omics, ecological/conservation principles, regulatory and dating both growth and equity considerations. Privatisa- legal stipulations etc. Often as formulated by government tion as an approach to open up farming land and to ac- and/or the judicial system. Cultural and religious values commodate new farmers can indeed not be divorced and ethics impact on the right of decision making. It from the present debate on land reform and agricultural should thus be stated that privatisation should occur restructuring in South 'Africa. within the broad, cultural, social, political, ethical and economic milieu prevailing in a country. The need for and inevitability of agricultural restructuring in South Africa has been established inter alia The discussion of privatisation in agriculture can be di- through the White Paper on Land Reform and various rected at two levels viz. The macro-dimension and the recent professional and political statements from various micro or operational dimension. For a comprehensive groupings and parties. Access to farmland by all South discussion of some macro features of privatisation in Africans must be viewed as an important element of agriculture refer inter alia to (Brand, 1988; Swart, agricultural restructuring, (Brand, et al; 1991; Van 1991). Rooyen et al, 1992). It has been argued that a move- ment towards empowering black smallholders will This paper will focus on privatisation as it is defined achieve important gains from an efficiency and equity above and as it applies to some micro-level aspects of viewpoint. In this paper certain viewpoints on access to farmer development policy. Farmer settlement, small far- land for farmers through privatisation strategies will be mer support programmes,settlement through the outright discussed. These viewpoints are largely based on purchase of land and related mechanisms between willing "lessons from experience" from DBSA funded agricul- buyer and seller and some equity share options will be tural programmes and projects over the past ten years discussed. The purpose will be to provide a broad frame- where privatization of certain elements and land reform work of reference for further study and application. are viewed as some of the vital components for success. Farming and Farmers 2. Privatization, farming and land reform Farming is defined in this paper as those activities i) Privatization related to the primary production of basic foodstuff and fibre. Farmers will therefore be those whom utilize Various definitions of privatisation can be quoted. Es- resources in the production of basic foodstuff and fibre. sentially it argues that privatisation can be defined as: This definition accommodates full-time and part-time The transfer of the right to assets from the public sector farmers, as well as, commercial, emerging and subsis- to the private sector. The private sector includes com- tence producers and does not discriminate against panies, groups and individuals operating for their own gender, race or economic status. account. This definition also implies that: The right of decision making on the utilisation of such assets will be Privatization and Land reform transferred from the public sector to the private sector. Privatization can be a powerful tool for land reform as it involves the transfer of rights of land security and land

129 Agrekon, Vol 32, No 3 (September 1993) Van Rooyen, Coetzee and Swart exchange via the market mechanism. Privatisation, other farm resources, or having resources transferred to however is but a mechanism towards land reform, and is them through other means. The "project approach" was not an objective on its own. Privatization however, also generally followed to structure the process of settlement has severe potential limitations where "willing buyer according to a programme. Farmer settlement through willing seller" approaches are left to market arrange- the project approach can be approached within two basic ments in societies where access to income and assets are models: skewed by various policies. Hans Binswanger(1992) of the World Bank Mission to South Africa also argues con- i) Settlement Projects (SP): vincingly that more that often "the market value of farm land exceeds the farm production value". Reasons for These schemes often have as their ultimate objective the this phenomena, commonly observed in South Africa, establishment of productive commercial farmers through can be found in policies of subsidization, taxation, a system of co-ordinated support services. The income marketing etc. These causes are well documented and earning potential of farming should therefore be suffi- debated by various authors and academic studies. The cient to compensate for commercial risk and entrepre- situation still applies in South Africa although agro- neurial effort and the substantial costs required for ecological regional variances are observed. For farming. In some situations, farmers can be established example, farm land prices in the summer rainfall areas as independent entrepreneurs right from the start of a have declined (almost by 50 percent in real terms since project or scheme. Alternatively farmers gradually be 1981) inter alia due to agricultural policy reform and come more independent in terms of a predetermined pro- reduced subsidization (Brand et al, 1991). gramme emphasising counselling, training and "learning by doing" approaches. The general concept of market value above production value however, still has relevance and should be taken On these types of schemes farmers are often supported into consideration. Privatization through market based by a service unit or co-operative responsible for the transactions will only be a viable land reform alternative management of and delivery of support services such as if market value approximate farm production value. To input supply, credit and marketing. Training, extension, use this strategy for land reform, other policies impacting counselling and regulatory and administrative arrange- on the market value of land will have to be reformed ments are centrally co-ordinated by this service unit in concomitantly. co-operation with the government service and private sector. Some examples of this model is the Mid-Letaba Privatization also has various further limitations as a land project in Gazankulu, and the Kwandebele Consolidation reform strategy. Some of these will be discussed in this Land projects. paper. It must however, be emphasised that the notion of privatization as the "only" or "major" land reform Central(or core) unit/farmer settlement pro- strategy, following on the scrapping of the land acts, will jects (CUP) be totally unrealistic in the present political economy of South Africa. The extremely skew distribution of land This is a variant of the settlement project. On these and land rights as well as financial constraints compared projects estate farming' constitutes an important produc- against "land hunger" arguments render obvious limita- tion activity. Farmer settlement, still occurs within the tions to this strategy. Legitimate land claims can also scheme. Support services are provided to farmers on the not be solved via privatization arrangements. Alternative project but these services are linked to the central estate and complementary strategies must therefore be devel- farm. Two types of CUP's can be described: oped to attend to the complexity of the land issue in South Africa ie. mechanisms such as land courts, and the An estate farm utilising agro-industrial services provision of an extended bundle of rights to accommo- which are also available to project farmers and date various forms of land use security, compensation, outgrowers (processing, packing, marketing, etc. (Van Rooyen, et al, 1992). Privatization must mechanisation etc.); and therefore only be viewed as one option for land reform and distribution in South Africa. Two features will have a central unit attending to estate farming while an important impact on land reform options viz, the also performing non- commercial type of func- choice of farming system and model and existing land tions such as extension, research and training tenure arrangements. in addition to agro-industrial services and other commercially orientated support services(input 3. Farming models and privatization strategies supply, mechanisation, fmancial and management services and marketing etc.) for the bene- This part of the discussion is largely based on "lessons fit of project farmers and out-growers. from experience" with agricultural programmes funded by DBSA between 1982 and 1992. No specific case Examples of CUP's can be found in the sugar industry or studies however, are stated. Table 1 gives an indication where agricultural products are processed into high value of DBSA's investment in agricultural and rural develop- commodities, such as tomatoes, asparagus, coffee, tea ment programmes. etc. The NCORA project in Transkei and Tyefu in Ciskei are examples. 3.1 Farmer settlement projects as a privatisation strategy 3.1.1 Some features of settlement projects: Les- sons from experience State and parastatal managed farmer settlement projects constituted the mainstay of agricultural development Agricultural investment by DBSA is indicated in Table strategies in the homeland areas during the seventies and 1. From this table it can be observed that various ap- eighties. DBSA was approached and funded various of proaches were followed ranging from small farmer sup- these projects on condition that "real" farmer develop- port programmes to community projects and rural infra- ment occur. Bank funded farmer settlement strategies structure(see Van Rooyen, 1993). Large-scale irrigation imply (at least a meaningful degree of) transfer of rights settlement projects presently accommodate near to 4 400 to assets and decision making to private farmers. Pros- farmers at a fixed cost of near to R200 000 per farmer pecting farmers can settle by buying or leasing land and and an annual variable cost of R4 500.

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Table 1: The loan portfolio of DBSA for Rural and Agricultural investment 1982 - 1992)

Year Community Developm. Farmer State Settlement Other Total Support Planning Support Farming Projects (%) (R) , (%) (%) (%) (%) (%)

1982 - - - - 88 12 28 907 240 1983 - - - 2 76 . 22 23 121 280 1984 - - 13 3 .78 6 25 754 730 1985 - - 55 23 22 - 11 725 000 1986 55 7 7 14 , 17 - 16 953 •050 1987 1 - 46 - 53 - - 53 788 865 1988 7 2 - 34 57 - 50 273 815 1989 - - 61 - 35 4 24 480 420 1990 15 - 24 - 53 11 40438 820 1991 - 5 73 - 22 - 14 940 780 1992 13 0,4 41 , - 5 38 , 96 789 000 . Total 22313 280 3 415 760 144 404 120 23 606 080 132 849 920 64 275 840 391 865 000 (R) _

From an assessment of literature, research reports, pro- A danger however, is that farm units are "over planned" ject design and evaluation and experience during imple- and "over capitalized" or planned from the head office so mentation the following can be highlighted: that settlers are not allowed freedom to deploy farm resources within their own capacities of objective i) Farmer selection: functions.3 Under such conditions settlers tend to become "pseudo-farmers" who are operating within a Formal farmer selection processes are a most apparent system over which they have little control and objectives feature of farmer settlement schemes. It is however, with which they do not necessarily associate. This situ- virtually impossible to select potentially successful far- ation can be viewed as the one single factor which mers from the outset with a high degree of accuracy. In contributed most to the failure of agricultural settlement practice it is experienced that the "market mechanism" projects. Under such circumstance settlers are inclined remains one of the most effective selection mechanisms not to accept accountability and therefore also not the for viable farmers, as this process will eventually ensure responsibility for any failure which may result. The that those who are unsuccessful are "moved" out of far- unwillingness to pay back farm debt due to this "owner- ming while the successful entrepreneurs will strengthen ship" problem is widespread. This was for example their position. Up-front selection can therefore at best be noted on the Taung irrigation project in Bophuthatswana. viewed as a "screening exercise". It is however,import- Recent changes however, have had a positive impact. In ant to ensure that an initial selection process takes place. effect such an approach easily lead to a "labourer" This process should (a) be as objective and non-discrimi- attitude, favouring the earning of a fixed wage, rather natory as possible; (b) should attend to the technical than that of an independent entrepreneurial farmer. inclination of a person; and (c)should place emphasis on managerial attributes as well as business know-how and It is therefore recommended that farm planning be direc- experience. This must be followed with a "learning by ted to provide for a flexible implementation of farming doing" process whereby the "winners" will be afforded systems. Settlers should also not be captured by tech- the opportunity to continue and "losers" to opt-out. nical parameters over which they have little or no control. They should rather be empowered to develop an ap- In practice one of the major problems with selection/- propriate technical environment on their farming units. screening processes is that of interference whereby cer- The concept of an "organic evolving" farming system is tain individuals are favoured above others. In some therefore promoted. cases blatant political interference and nepotism was observed. In other cases more fundamental issues such as The Project Cycle, Project Management, historical land rights came into play. The transparent, planning and control: impartial and objective application of agreed upon selection criteria must be viewed as an essential part of A structured approach is required for the design and im- a successful settlement project. plementation of settlement projects. The major reason for this is the requirement to ensure settlement within a It furthermore proves difficult for non-performing co-ordinated and integrated system: consultation and par- farmers to exit schemes. Procedures to provide for the ticipation of locals are a very important ingredient; trai- measurement of successful farming as well as arrange- ning must take place; various operations co-ordinated; ments for "opt-out" and "out-placement" of unsuccessful farmers screened; etc. settlers should therefore be an essential part of the agreed upon contractual arrangements. Farmers should know It has been found that where centralized management and right from the outset what is expected of them and how control were directed towards (a) the management of the they will be measured in this regard. Equity consider- agreed upon "rules"' applicable on the project; (b) the ations are also strained by the selection of certain management of support services; and (c) where an ap- members of a community to be favoured. proach of consultative management between the implementing agent and settler farmers was followed, positive II) Planning of farms: development resulted. The transformation of the unsuccessful Phokwane maize project in Lebowa to a broad As a settlement project represents a structured interven- farmer support programme can be quoted. On the other tion into the rural and farming environment, project hand where central management was directed towards planning is required before and during implementation. controlling the production and marketing activities of

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settler farmers, projects often failed in terms of their between individual farmers. A third argument refers to developmental objectives and long term community the opportunity costs of farming sustainability. for different farmers. The original NCORA irrigation project in The opportunity cost is a subjective evaluation Transkei is an example. by each A balanced approach is thus re- individual, so again optimal farm size will differ between quired with emphasis on individual responsibilities and individuals. The "status" of accountability a farmer ie. whether full of settler farmers for those activities over time or part time, male or female, which farmers young or old and normally have control ie. all on farm access to additional income earning opportunities utilization of resources also (planning, co-ordination, control, needs to be considered. In addition to the above argu- supervision, evaluation and accepting the outcome of ef- ments, a host of other factors forts). will also influence farm size. As a result policy and arrangements regarding farm sizes will have to very flexible. It can consequently iv) Rights to Farm Land: be argued that the target net farm income criterion as a planning tool must be viewed as of relative little rel- The issue of land tenure is interwoven with the question evance to fix farm size on a project. of efficient The initial size of agricultural production. Land, especially a settlement unit should rather be determined agricultural land by a can no longer be viewed as a free good. combination of criteria such as required family It is important that land income, be allocated to the productive alternative income opportunities, manageable size and and sustainable uses. The market remains one of the utilization of family labour force. most effective mechanisms for allocating scarce resources, including land, efficiently for production purposes. The issue should therefore not be to fix It is therefore important a net farm to allow market processes to income and plan a farm size in accordance to such a work on settlement projects in order to promote efficient standard, but rather to provide land use. farmers the necessary security of land use, the right to exchange land use rights and access to effective support services. Farm For the market to function size effectively land tenure ar- would then reach optimal levels as a result of market rangements should ensure security for land use as well as forces and farmers' objectives. It must also be expected the tradeability of land rights. Private ownership could that a wide range of consistently changing farm sizes will be viewed as one method to ensure that both these condi- be observed. Such patterns can already be observed in tions are met. However,settlement project often are im- the Phokwane area. plemented on land with some form of communal land rights or well established traditional rights. In such cases vi) Land Demarcation a market can be introduced through arrangements such as land leasing and share cropping. A title to land should The establishment of a system whereby thus land use security include the rights of sale, rental, use as collateral and tradeable land rights are and testamentary promoted require the transfer, to mention the most important demarcation of land parcels and the rights. Provisions establishment of to retain community ownership by only farm boundaries. The cost of land measurement allowing community members and to bid for land rights can demarcation could however, prove to be to high. be considered if so wished. A first refusal by the state/ Innovative and cost saving approaches to this matter or community can also be introduced. These measures needs to be explored. will decrease the flexibility of land transfer but might ensure community support. To ensure effective land use vii) Farmer Support Services: patterns, security of land rights is also essential as this will provide the necessary incentives to farmers to risk Farmers settled on projects require the investment access to a wide of time and money in their farms and range of support services. One of farming infrastructure the major responsibi- to improve pastures and to apply lities of the implementing agent will be to ensure sound conservation practices. that farmer support services are delivered in an integrated and co-ordinated manner. Such services however, Apart from need the security of tenure aspects, the rights of not be supplied by one organization. Various land owners should linked businesses be to responsibilities w.r.t. the can be contracted, with opportunities for emerging entre- management of ecological and conservational matters. preneurs. The implementing agent however should This particular issue has been pursued en- in most DBSA sure effective access to services. Support services are funded settlement projects. Effective land markets how- provided by both the public ever sector and the private sector. are still constrained by inappropriate institutional Where the private sector is involved and in the provision of legal arrangements to accommodate various methods a service and where the level of provision of land right acquisitions. and quality of service is of the required standard, private sector should be preferred. Various organizational business v) Optimal Farm sizes forms ie. and Net Farm Income: private company, co-operative, etc can be considered. An analysis of the relationship between farm size and The following elements have to be efficiency delivered as part of a seems to leave little room for doubt that the support programme on settlement projects: most important conclusion to be drawn is that there is no single optimal farm size. First, the natural resource base • the adequate provision of appropriate available to farmers differ even inputs within specific districts and the funding thereof (credit) to the farmer; and on farms. Farmers also grow different crops which require different technologies. Optimal farm sizes must • an appropriate mechanisation therefore service, which be related to agro-ecological conditions and caters for all aspects of transportation, technical parameters. Second, land the concept of an optimal preparation, planting and cultivation (harvest- farm size must include managerial ability as an input in ing and transport production. to storage may also be Linked to managerial ability is also the required), as well as the maintenance objective function of ma- and risk aversion attitude of farmers. chinery, implements and infrastructure; These two attributes vary considerably between farmers. As risk is part of production costs, no two farmers will • marketing channels and services to cater have the same cost of production. for all Even if all other aspects of marketing (ie. grading, storage, variables are held constant optimal farm size will vary packaging and transport);

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extension and demonstration services, infor- gradually be lifted to market levels according to a mation and specific project related research to predetermined plan. ensure that maximum opportunity can be made of existing and new technology; ix) Collective action and Co-operative arrangements: training to facilitate the development of managerial skills needed both on the farm and at an The concept of collective action whereby group effort institutional level; can be mobilised to improve the bargaining position of individual group members is a well tried institution in defacto rights to production which would in- agriculture. Co-operative arrangements do provide for clude land security, contracts and quotas. A such collective actions in farming. Various models can major requirement of this element is access to be considered ranging from the collective ownership and finance for the acquisition of land; control of certain resources to collective buying and marketing. Substantial successes were recorded with this off-farm agricultural infrastructure necessary to latter form of co-operation. support established farmers; and In general it must be concluded that "collectivistic far- a sound policy framework to provide a milieu ming" models were not very efficient when they were conducive for productive, equitable and sus- tested in Ciskei and Bophuthatswana. The "ownership" tainable agricultural development. issue agitated against individual responsibility. This model also promoted a paternalistic approach often found viii) Ownership, Subsidization, Cost Recovery in central managed projects. A further "lesson from ex- and User Charges: perience" indicates that successfulcollective/co-operative action supported individual action and not vice-versa. The concept of ownership of on-farm physical structures The Phokwane and Mid-Letaba projects can again be and movable and short term assets is an essential part of quoted in this context. privatization. Settlers should as far as possible pay market related fees or prices for private goods and services. Co-operation arrangements between livestock holders Farmers, if they are not satisfied with the service pro- (especially on communal tenure situations) have proved vided should be in the position to choose to take their to be supportive for the efficient utilization of grazing business elsewhere. This greater commercial orientation resources and the application of sound management acts as an incentive to support institutions and suppliers principles on such schemes (Vin1c, 1986). Individual to provide the best possible service and price. The livestock holders however,retained their right to decision selling of cotton in the projects on the Makathini flats are making and private ownership of livestock. This an example of such freedom. approach is presently applied successfully on various projects in Bophuthatswana. Under certain circumstances related to the development context (e.g. distance from the market, fledgeling far- The co-operative ownership of processing and marketing mers etc.) the private sector is not in the position to facilities, mechanization equipment have been observed supply goods and services at a sufficient profit margin. to successfully provide economics of scale advantages. The public sector can be expected to provide services that benefit the public as a whole but which are too ex- x) Mechanisms to gain access to and to exit the pensive for individual entrepreneurs to provide or where project. the fees collected for such services do not capture the full cost of their provision. Cost recovery is through Traditional farmer settlement schemes were plagued by user charges. The application of user charges capitalizes the inability of farmers to exit the scheme. Motivations on the advantage of the market mechanism as a regulator to leave the scheme may both be because of unsuccessful of economic activity and as basis for the allocation of farmers and to profit by selling of membership to such resources. For example, if irrigation water is made a scheme. An effective mechanism will be closely linked available at a lower than economic cost, farmers will use to the land tenure arrangements on a scheme or project. more than what is economically justifiable. In the long run this will distort input/output ratios, optimal produc- 3.2 Farmer support programmes (FSP) tion mechanisms, farm-sizes, income, debt ratios, etc. It remains therefore important to fix user charges as near A Farmer Support Programme is essentially different as possible to their true economic value. from a settlement programme as it is primarily directed at those already involved in farming. The programme is The subsidisation of interest rates to settlers and emerg- an integrated strategy attempting to alleviate constraints ing farmers are often argued as an important mechanism under which farmers are operating. In developing areas to assist such farmers during their establishment period. and especially on lands under communal tenure arrange- The main reasons conventionally given for a subsidized ments, farmers6 operate under severe constraints ranging interest rate are that(a) emerging farmers are inefficient; from a lack of appropriate infrastructure and support (b) such farmers needs to be induced to invest; and (c) services, to security of production rights. In South such farmers cannot afford market rates. However, it is Africa the dualistic agricultural structure furthermore now recognised that access to credit facilities and the created a multiple set of constraints, inhibiting black necessary support service are more critical than the level (small) farmers to participate in the agricultural econ- of interest rates charged. The transaction cost of obtain- omy. ing loans are also of more importance than the interest rate. Approaches should therefore rather concentrate on This approach aimed towards to structure a "new" stra- opening up access to credit facilities to farmers inter alia tegy for the funding of agricultural development by through increased competition by suppliers, support to DBSA. It is interesting to observe two opinions in this community banking initiatives, etc. and reducing the regard'. transaction costs of obtaining such financial support. Where soft rates are currently charged, levels should An important component of this reform for the agriculture sector has been the acceptance of Farmer Support

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Programmes(FSP's) as the current vogue in development acquisition. Various alternative options there- thinking. The DBSA presently asserts to have committed fore need to be considered. The direct transfer over R60 million in loans to 23 FSP's throughout South of state land to individual against a "hire pur- Africa which presently amounts to a total cost of some chase" type of arrangement provides a sound R140 million (Table 1, Van Rooyen, 1993). The crux of mechanism without immediate cash flow impli- the FSP is seen by the Bank to be "... promoting struc- cations, and tural change away from subsistence agricultural production to commercial production, by providing comprehen- the issue of historical land claims of State/- sive agricultural support services and incentives to small Trust land should be attended to as a first farmers, thus facilitating increased efficiency of agricul- priority. tural resource utilisation, food security, and entrepreneurial ability over a broad front" (Brand et al, 1991; May, 3.4 Broadening the asset-base (BAB): An 1992); and "Farmer Support Programmes are a critical approach to accommodate farm workers area of recent operational activity and have been incor- porated into agricultural policy in many of the bantu- Privatization can be extended to accommodate various stans. On the ground, however, it seems as if previous asset sharing and transfer opportunities.(McKenzie projects et al, may have simply been refashioned into FSP's. 1993). Farm workers can, for example, be included in As such, many FSP's are managed by parastatal staff on profit sharing arrangements, equity acquisition schemes, a project basis. Leading to a inconsistencies in the etc. Such arrangements will broaden the ownership base implementation of the approach" (May, 1992). and will provide for opportunities to extend access to farming opportunities to farm workers. This will address The FSP approach should thus not only be viewed as the a major problem experienced by these workers ie. that of privatisation of certain elements, but as a comprehensive wealth accumulation and security. BAB arrangements package of institutional arrangements in support of far- can equally be considered in communal tribal systems to ming as essentially a private sector activity and not cen- enhance security and exchange of land use rights. trally managed by a parastatal or government department as observed above. The elements required for a FSP Various formulae needs to be developed for the practical corresponds to those listed under Point 3 (vii). The basic application of this strategy. It might be interesting difference to be is that these services are directed at those who informed of such efforts presently in progress. The Bank are already involved in farming and therefore demand is presently considering "pilot studies" with the driven participa- and not prescriptive to the degree required in tion of commercial farmers and farm workers in various settlement projects. The realities of farming, especially parts of the country. in communal areas, furthermore requires that the level nature and sequencing of FSP elements be adopted to the 4. Advantages (benefits) and disadvantages needs, problems and available resources and the capabi- (costs) of privatisation in farming lities of participating farmers. Currently FSPs serve near to 50 000 farmers at an average fixed investment The economic benefit of farmer settlement and support cost of R5 000 per irrigation and R350 per dryland programmes should exceed the economic cost. This is a farmers. Annual variable costs are R2 000 and R780 broad statement encompassing the total net respectively economic per farmer (Van Rooyen, 1993). impact of the programme. This statement also implies that the design of a privatization programme and the Settlement 3.3. through private land acquisition targeting and implementation should be of such a nature (PLA) that all multiplier effects of investment be maximised. This also implies that investment must be prioritised DBSA was recently (since the scrapping of the Land between models, those investments with the highest net Acts) approached. by various interested parties for economic impact should have the highest priority. support of the next two models. Farmer settlement and support programmes also The direct compete transfer of land (and other assets) through the with other investment opportunities and development market between farmers is one of the most cost effective needs in, rural support programmes, industrial processes transfer. develop- of On the other hand land purchased ment and urban programmes for scarce capital, institu- by the state for land reform purposes has proved to be tional and human resources. The reconstruction highly of a fair ineffective and inefficient. The recent South and productive farming sector would require policy African Consolidation mea- Land Programme provides many sures and fmancial support arrangements which would case studies substantiating this viewpoint and the Zim- have to address equity, efficiency and sustainability babwean land reform confirms this view. It is thus considerations. Appropriate "rules" and strongly arrangements argued that opportunities be created for the would have to be formulated and the effect constantly settlement of "new" farmers through a system which will evaluated. All the above strategies require the promote and adherence facilitate normal land transfers through the to various "rules", regulations and arrangements. Ap- market. SA Land Bank or Agricultural Credit Board propriate institutional arrangements therefore type of funding need to be arrangements should be considered. Even considered. The role and function of government depart- where the state is in possession of land, direct transfer to ments, parastatals and private sector organizations as individuals to farm, should be considered as an important well as the necessary budgetary arrangements and potentially for public a very successful strategy. As to specific sector support are pertinent in this regard. See features of this strategy Van those referred to in section 4 Rooyen and Van Zyl (1990) for a discussion on these points (ii), (iv), (vi) and (vii) apply equally. matters. This issue will also be expanded upon in a future Viewpoint. Some of the advantages and In addition disadvan- the following seems of particular relevance: tages of privatisation will now briefly be discussed. (i) Adherence to sound ecological and resource i) Individual Decision Making: conservation guidelines; The benefit of individual decision making is an land purchase essential does not always represent the part of entrepreneurship,ie. decision making, risk taking only or most effective manner of farm land and the acceptance of responsibility. Farmers are

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problem of "getting rewarded for good decisions and planning but are pena- nomic efficiency of land use. The ones. This contributes to the in" and "getting out" of farming is also largely solved lized for wrong or bad is of viable and efficient farmers and the through such measures. A disadvantage of the system establishment capital strong withdrawal of inefficient ones. where land resources are purchased by individual (land barons) or big companies for other than of a system which promotes individual agricultural settlement purposes. During the early stages The disadvantages advantages decision making is that wrong decisions can be made of the establishment of a land market, certain harm the community at large and for which can be attached to the placement of land size ceiling on which could towards public sector would have to accept eventual responsi- purchases. This may prevent land to gravitate the further. An bility. However, it appears as if the right to make large land owners but needs to be assessed must be viewed as an essential element in the alternative measure could be that the state reserve a "first mistakes Where development process. refusal right" in all land exchange transactions. land privatization does have the advantage to mobilise game " with respect of individual land resources for use by productive farmers those who If the "rules of the in making is spelt out clearly as well as the penal- do not have equitable access to land might be forced decision to the it can be argued that failures in this regard should to a "landless" status. Programmes attending ties, just compensation not easily be transferred to the public sector to accept provision of equitable access to land, but to the person that failed. The and alternative economic opportunities for potential fmal responsibility, as part of a same argument applies where individual decisions can "losers" therefore need to be promoted harm the community and environment. Adherence to privatization programme. and enforcement of rules will minimize such behaviour. Value: Individual decision making can be viewed as an impor- vi) Market Value and Production tant strategy to ensure that "winners" will be awarded than the produc- while "losers" will be penalized. The market value of land is often higher tion value. The reason for this phenomena are complex to land which Cost Recovery: but is a manifestation of the value attached often supersedes the value of agricultural production. provides a system whereby costs for ser- The disadvantage of this system is that entrance into Privatisation this happens a vices can be recovered from individual users as they are farming cannot occur easily and where for decisions to utilize such services. The substantial amount of capital is required in the land responsible negative impact disadvantage ofan approach where individuals are expec- acquisition transaction. This will have a adhere to cost recovery arrangements is that indi- on cash flow and therefore the mobilization of production ted to A system of viduals can also choose to ignore such rules (boycotts). factors in the farm production process. not to adhere to such rules can however, price ceilings and target audiences attached to agricul- Opportunities initial phases be minimized if proper consultation and penalty systems tural land, might be considered during the land resources to are in place. of land privatisation to ensure access to those who are interested in farming. Individual Ownership: Taxation can also be considered where the taxable is an essential part of privatisation. The ad- amount can be deducted as production expense for the Ownership not used for vantage of such a system is that individuals will view the net farming income. In cases where land is of assets as a long term matter and also as an income earning purposes land tax will become a net loss utilisation of agricul- opportunity to optimize welfare and benefits. and therefore a penalty against the non-use tural land, while the value will approximate agricultural A disadvantage to the system of private ownership could values. be, that instead of exchanging assets to ensure the most productive utilisation of such assets, owners can retain viii) Fiscal Impact: and not utilize it productively. Land is a good assets the private case in point (the land baron and absentee owner, for The transfer of land from the public sector to through the example). If a proper penalty and reward system is in sector can provide an income to the state will not see any benefit in the non- selling of land resources. A system whereby land right place, individuals farm utilisation of assets. Land taxation can, for example, be holders pay on an instalment basis (from their as a mechanism against the non-use of farm income) is preferable to a situation where new funds are considered land while restrictions on certain land uses should be provided by an institution so that farmers can buy land, type of introduced to promote sound ecological use patterns. directly from the public sector. A Land Bank agency can be considered to administer this function. iv) Security Value of Assets: ix) Labour Employment Relations: The transfer of assets to individuals will provide security for the mobilization of further Privatisation of decisions with respect to the mobilisation to such individuals the such as fmances. A disadvantage could result of labour has the advantage that it occurs outside resources will when individuals over-commit their resources and as a public sector. Normal supply and demand forces matters. The result create unrealistic high debt levels which could therefore dictate labour wages and related or severe cash flow problems. Pro- disadvantage to such a system is based on observations result in bankruptcy advan- vided that a sound and realistic system of norms and of exploitation of farm labour. To capture the are in place to guide the utilisation of assets as tages of a private system in this regard, policy guidelines standards labour security for mobilizing funds, no serious debt problems and well as legal stipulations to control unfair question of need to result. practices would have to be considered. The a minimum wage determination also needs to be con- of farm v) Land mobility and exchange and landless people: sidered. Seasonality, spatial arrangements labour ie. dwelling, schooling commodity requirements ie. the transfer of rights to access of land etc. would have to be taken into account in such stipula- Privatisation to wage provides for a system whereby land resources can be tions. Only with such aspects properly attended transferred from one individual to another ensuring eco-

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stipulations could be considered within a farm labour existing and future land holders inter alia through programme. measures enabling access to funds and support services. x) Flexibility and innovation: iv) Other Options on Private Land: Where farmers are allowed to adhere to price signals The accommodation offarm workers on schemes ranging from the market, the optimal allocation of resources will from share cropping bonus schemes and equity share be promoted. A major problem in farming is the relative schemes provide opportunities to broaden ownership and inflexibility and inelasticity of factor use in the agricul- decision making in commercial farming. tural production process. Agricultural policy and programmes need to consider this aspect through incen- v) Land disputes, legal claims and safety nets tive structures. Land disputes, legal claims and safety nets will have to 5. Present land tenure and land reform be given priority in a land reform programme where land is in dispute a moratorium should be placed on privatiza- The optimal strategy for agricultural restructuring and tion. A proper structured and operational judicial pro- land reform to be followed will depend on many circum- cess should attend to such disputes and claims. Landless stances. The selected farming model was discussed people should be supported through labour intensive above. Present land tenure arrangements must be viewed programmes etc. as one of the additional major factors in this respect. 6. Conclusion The following are proposed for consideration: Privatisation of farming and land use should be viewed i) Communal Tenure and Tribal Lands: as potentially an important strategy in the process of agricultural restructuring and land reform in view of its Various considerations dictate that support programmes "empower" attributes as well as providing incentives to to small holders be considered as optimally a practical productively invest in farming. Farming is essentially a and a potentially highly productive strategy on land private sector action. Ownership of assets and the right under communal tenure arrangements, especially as no to decision-making are vital elements for successful reallocation of land is required where many people are farming. The choice of farming model will therefore be involved in some form of farming. The provision of the important. Present land tenure arrangements must be appropriate farmer support services will activate market expected to be an additional major factor in the selection forces to generate an economic value for land and farm of appropriate farming models. assets. Such forces will encourage market related land transactions. A bundle of rights promoting land use Notes security and tradeability and ranging from share cropping to long term leases and private ownership should be 1. The project approach requires the setting of offered to facilitate optimal land use practices. The objectives and the application of the project problem and potential of landless persons also needs to cycle. The project cycle entails identification, be addressed within an integrated rural development preparation, appraisal, implementation and approach. evaluation.

On the other hand the reallocation of land necessary for 2. Farming on large scale through a process of land consolidation and farmer settlement must be viewed centralized project management. as a strategy with great conffict potential in communal areas. Farmer settlement project strategies are thus not 3. Profit maximization is very seldom a major recommended unless fully supported by a community and objective of even fully fledged commercial with proper compensation. farmers. A stable disposable income, the right to be your "own boss",etc. are generally State Owned Land: scored high if objectives of farming is family rated. Settlement projects and the selling of land to individuals and groups can be considered. Privatisation strategies 4. The "rules" should fundamentally be directed should be directed to the provision of opportunities to to the "empowerment" of farmers and should fully fledged commercial farmers as well as emerging have the consent of the community. Where farmers. Urban "squatters" occupying open state land this process has been ignored or short cir- settlement should be viewed with circumspect. Under cuited, the implementation of the project was such conditions FSPs might provide an opportunity to usually seriously jeopardized. upgrade the land use productively. Landless persons could also be accommodated on such land through S. The income value of the most likely alternative farmer and non-agricultural support programmes ie. to farming for and individual. small business programming and training etc. 6. All those who exploit resources for agricultural iii) Private Land: production purposes.

With private land acquisition, farmer settlement and 7. DBSA is presently funding a major evaluation farmer support strategies can be considered. Where exercise of FSPs by independent consultants. government decided to acquire private land for the purpose of farmer settlement the principle of just com- References pensation should apply. The state should however pre- ferably not act as go-between in actual land purchases. BINSWANGER, HANS. (1992). Personal communica- Transactions should, as far as possible, be facilitated (by tion. government if necessary) to occur directly between

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Some SS; CHRISTODOULOU, NT; VAN ROOY- VAN ROOYEN, CJ and VAN ZYL, J. (1990). BRAND, In CJ and VINK, N. (1992). Agriculture and Redis- Considerations for "Nationalization and Privatization" EN, Policy, for tribtuion: A growth with Equity Approach. In Schirer, An Agricultural and Rural Development J. Critical choices, Oxford Publishers, London. AIMS Conference in Ciskei M. SS. (1988). Privatization: An economist's VAN ROOYEN, CJ; VINK, N and MALATSI, BRAND, and the view. The South African Journal of Economics, Vol 56, (1992). Agricultural change in the farm structure paper prepared for No 4:235-250. Land Issue in South Africa. Working the Annual American Agricultural Economics Associ- MAY, JULIAN.(1992). Working Document. ation Conference in Baltimore, 1992. CC; VAN ROOYEN, CJ and MATSETE- VAN ROOYEN, CJ. (1993). DBSA's (Small) Farmer McKENZIE, at the FSP T. (1993). Equity sharing schemes. Mimeo, Support Programme 1987 - 1993. Presented LA, of Southern Development Bank of Southern Africa, Midrand. Workshop held at the Development Bank Africa, April. SWART, DF. (1991). Privatization of agricultural Mimeo, Development Bank of Southern VINK, N.(1986). An institutional approach to livestock projects. PhD Africa, Midrand. development in Southern Africa. Unpublished dissertation, University of Stellenbosch, Stellenbosch. VAN ZYL, J and VAN ROOYEN, CJ.(1991). Agricul- tural Land Reform - Practical Approaches. South Africa International, July 1991.

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