LAND REFORM IN THE SUGAR INDUSTRY

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1 LAND REFORM IN THE SUGAR INDUSTRY DN THOMSON PO Box 1730, Country Club, Mount Edgecombe, 4301;South Africa Abstract Redistribution of agricultural land is fundamental to the future stability of the agricultural sector. Land policies pre the first democratic elections in 1994 disenfranchised black commercial farmers. Current government policy aims to redistribute 30% of commercial agricultural land by Government s challenge to the agricultural sector is to empower farmers that fall within the second economy, namely small-scale growers. Many of the current land reform beneficiaries can therefore be considered first generation black commercial farmers with limited resources. This group of farmers generally face two major constraints, farm management skills both agronomic and economic and financial gearing. Experience reveals that in many cases levels of re-investment in the crop, ratoon maintenance and re-establishment, are low due to cash-flow constraints. The challenge for the sugar industry, and agronomists in particular, is to re-evaluate how future support services are provided to first generation farmers, given the constraints they face. Introduction South African economy and agriculture are of a dual nature, and have been dubbed by government the first and second economies. Agriculture comprises a well developed commercial sector occupying approximately 86% of agricultural land, and the less developed small-scale sector on the balance of the land. Due to the highly skewed distribution of commercial farmland, land redistribution is central to creating long-term sustainability in the South African agricultural sector. The government, through the Department of Land Affairs, aims to redistribute 30% of commercially owned agricultural land by The land reform programme is based on three key drivers redistribution, restitution and tenure reform. The sugar industry has committed itself to land reform since 1996, mainly through the redistribution of miller-cum-planter land and more recently through the establishment of Inkezo Land Company. Despite these efforts, a further hectares of commercially owned sugarcane land need to be redistributed by Government has laid the challenge to the sugar industry to begin prioritising land redistribution to top small-scale growers. Productive commercial farms that are purchased by small-scale growers, who may lack commercial farming experience and expertise, could lose their competitiveness, at least in the short or medium term (Ortmann, 2005). Research conducted nationally reveals that, in general, little attention has been paid to post-transfer support and sustainability issues (Hall et al, 2003). Within the sugar industry, changing demographics are going to challenge the capacity and means through which support services are provided in the future. Description of the land reform programme Government s land reform programme comprises three components, viz. redistribution, restitution and tenure reform. The programmes are summarised as follows: Redistribution is based on a system of government grants for the purchase of commercial farm land based on the open market willing buyer/willing seller principle, through the Land Redistribution for Agricultural Development (LRAD) programme.

2 Restitution is in terms of the Restitution of Land Rights Act 22 of Restitution is rights-based, allowing for people dispossessed of land after 1913 to submit claims against the state in order to have their land rights restored. Tenure reform consists of various rights-based legislation which is intended to protect and upgrade peoples rights where they are currently residing. Typical legislation is the Extension of Security of Tenure Act (ESTA) and the Labour Tenants Act. Government aims to achieve the target of transferring 30% of commercially owned agricultural land to black commercial farmers by 2014, through the redistribution and restitution programmes. LRAD is designed to provide grants to black South African citizens (Africans, Coloureds and Indians) over the age of 18, to access or improve land specifically for agricultural purposes. Grants are accessed on a sliding scale, with a minimum grant of R and a maximum of R The level of grant received depends on the amount of own contribution in kind, labour and/or cash. A minimum contribution of R5000 (usually in labour or kind) is required to receive the entry grant of R To access higher grants, additional capital contributions are required usually own equity or borrowed capital (DLA, 2001). Land redistribution needs to contribute to the four key drivers identified by government namely, economic growth, broad-based black economic empowerment, job creation and poverty alleviation (personal communication 1 ). In attempting to achieve these objectives, government has indicated that land redistribution efforts should become increasingly focused on small-scale growers and empowering farm workers uplifting second economy participants. Many black commercial farmers settled through the land redistribution programme can be considered first generation farmers. Experience shows that these farmers are most vulnerable in their first few years due to limited commercial farming experience and cash flow constraints as a result of high financial gearing (personal communication 2 ). The way in which support services are currently provided to experienced third generation commercial farmers may therefore not be relevant, and herein lies the challenge. Inkezo Land Company The slow pace of land reform delivery has been well documented and has recently been highlighted at the National Land Summit held by the Department of Land Affairs. As part of its commitment to redistribute 30% of commercial farmland, the South African Sugar Association (SASA) established Inkezo Land Company, an independent Section 21 Company. Inkezo was established in November 2003 and became operational in April 2004, with three years of grant funding from SASA to redistribute hectares of cane land. It is anticipated that after three years of funding, Inkezo would have sufficient momentum to raise funds to sustain itself. Inkezo s main objective is to fast-track land redistribution and will meet this objective by: Developing a database of willing buyers and sellers. Facilitating sale transactions by developing innovative settlement and financial models. Ensuring appropriate post-transfer support. Lobbying government to secure funding to support processes. Lobbying donor funding to support processes. Establishing partnerships with key stakeholders. 1 M Shabane, Provincial Director, KwaZulu-Natal Department of Land Affairs. 2 P Simms, General Manager, Sales and Marketing, African Bank, Pietermaritzburg.

3 Sugar industry targets In relation to other agricultural commodities, the sugar industry has made considerable progress towards redistributing freehold land, mainly through the sale of miller-cum-planter estates (Vaughan, 2001). Approximately hectares of freehold land have been redistributed to date (Table 1). In order to meet government s target by 2014, an additional hectares need to be transferred. Table 1. Estimated area under cane, 2003/04. Area under cane Hectares % of total Freehold area under cane % 30% target % Black owned freehold area under cane % Balance to be redistributed % (Source: Unpublished data 3 ) The average farm size redistributed to date is 104 hectares (personal communication 4 ). Assuming similar farm size sales in future, nearly 665 first generation black commercial growers will be joining the sugar industry over the next nine years, or 74 new growers per annum. An analysis of the Inkezo willing buyer database reveals that only 13% of the 71 willing buyers registered have any farming experience. The balance of the willing buyers have no agricultural experience at all and come from a wide variety of backgrounds, ranging from teachers and nurses through to lawyers. It appears as if the agricultural and financial skills base from which future growers will be drawn is limited. The Department of Land Affairs has indicated they would strongly support initiatives from Inkezo that ensure the top small-scale growers have a means to become commercial growers. Although these growers may have farming skills, financial literacy will pose a challenge in most cases. In most cases, new entrants have limited financial resources and rely largely on the LRAD grant for deposit. Darroch and Mashatola (2003) reveal that financial gearing may be as high as 95% in some cases. Consequently, high loan repayment commitments result in cash-flow constraints and therefore lower levels of re-investment in the crop (personal communication 5 ). A survey by SACGA reveals that only 14 out of 71 medium-scale farmers had a positive margin after loan commitments (unpublished data 6 ). High financial gearing poses a challenge to first generation farmers in terms of adequate budgeting for ratoon maintenance and replant programmes. In summary therefore, each season the industry will potentially have a large number of new entrants with limited skills, whether they be agricultural, financial or both. In addition, financial constraints may not always allow for best agronomic practice to be implemented. Support services and training programmes will have to take this into account when doing future planning. 3 SASA Area Under Cane Survey (2003/04). 4 C Gillitt, Research Economist, South African Cane Growers Association, Mount Edgecombe. 5 B Pearce, Regional Manager, Midlands. 6 L Fenwick, Research Economist, SACGA. Unpublished report G/335/2003.

4 Inkezo project cycle To partly address the constraints identified, Inkezo has developed a project cycle (Figure 1) aimed at identifying and empowering farmers before they purchase land. Potential land reform beneficiaries are screened through a process of self-selection, interaction with existing farmers and an introductory training course. The process ensures that potential applicants show increasing levels of commitment as they progress. The aim of Phase 1 is to identify willing farmers and not willing landowners. Experience has shown that meaningful interaction with applicants, where they are exposed to the realities of agriculture and the lifestyle it offers, results in them making more informed decisions in some cases individuals choose to withdraw their applications and in others they request more information and training. In order to provide potential beneficiaries with more information regarding agriculture as a business, applicants will be required to attend farmer information days, as well as a two-day training course. Information days will be organised and run by local farmers identified in the different regions. The aim of the day is to give prospective farmers information about sugarcane farming, the LRAD process and the short training course. Information days will be run at local level to ensure maximum participation. Participants will receive a basic information leaflet. The information day will be free to all participants. Training courses will also be run by local farmers in the regions. This will allow for more practical sharing of experience than formal training by an institution. The training course has been developed in conjunction with the South African Sugarcane Research Institute (SASRI) and SACGA. Course presenters will be trained by SASRI to ensure they are competent in the various topics. SASRI will also attend courses to monitor relevance and appropriateness. This should ensure that the courses are continually refreshed and improved. Phase 2 of the project cycle focuses on the land transfer process. This is not an area of focus of this paper. Phase 3 relates to post-transfer support, a key area for the sugar industry. Post-transfer support is not Inkezo s key area of responsibility, rather Inkezo will provide a monitoring and evaluation role to ensure adequate and relevant support is being provided.

5 Create informed WB s Self-selection Local knowledge Outsourced PHASE 1: PRE-PURCHASE MENTORING Initial Contact Information day Pre-purchase training Receive basic info Dates of meetings Potential Funders: DLA DTI NDA Donors Financial Institutions district level Co-ordinated locally Positive Reality check 1/4ly meeting Participant pays? Technical Financial Industry Support PHASE 2: LAND TRANSFER 2/3/5 day course Highlight risks of farming Informed willing buyer Complete Inkezo Reg form mini BP Participant pays Train-the-trainer Database Done deals LRAD Approval & Transfer Business Plan Negotiations PGAC approval Land transfer Financial feasibility Agronomic & mgt plan P-T Support plan Loan finance Appoint Consultants ID land Valuation Price negotiations PHASE 3: POST-TRANSFER SUPPORT Parallel Processes Training Mentoring Extension Support ID appropriate training ID appropriate trainers ID appropriate mentoring ID appropriate mentors M & E Review and update processes Figure 1. Inkezo project cycle.

6 Conclusion Transformation of agriculture is key to the future stability of the sector. Government intends for land reform to contribute towards moving people out of the second economy and into the first. However, new entrants with limited resources and skills, experience liquidity constraints due to high gearing that often impacts on their ability to apply best farming practices. Future support services and technology transfer methodologies will have to take these factors into account when planning. References DLA (2001). Land Redistribution for Agricultural Development. A sub-programme of the Land Redistribution Programme. Ministry of Agricultural and Land Affairs. Government Printer. Pretoria. Darroch MAG and Mashatola MC (2003). Sugarcane growers perceptions of a graduated mortgage loan repayment scheme to buy farmland in KwaZulu-Natal, South Africa. Int Food and Agribusiness Management Review, Vol 5(4), accessed at Hall R, Jacobs P and Lahiff E (2003). Evaluating land and agrarian reform in South Africa: Final Report. Programme for Land and Agrarian Studies. University of the Western Cape. Cape Town. Ortmann G (2005). Promoting the competitiveness of South African Agriculture in a dynamic economic and political environment. Tomlinson Memorial Lecture. Department of Agricultural Economics, University of KwaZulu-Natal. Vaughan A (2001). Corporate initiatives with respect to land and agriculture. Internal report, Centre for Development Enterprise, Durban. 6