Private sector involvement in Agricultural Development
Submission to Land Affairs and Agriculture Portfolio Committee Surplus People Project
3 June 2003
The development of agriculture in South Africa does not refer only to the development of commercial agriculture – it also has to do with improving the ability of poor men and women to develop various new livelihood opportunities in agriculture. The involvement of the private sector in the development of agriculture must therefore not just look at commercial agricultural results, but look at the crucial development of small and very small-scale agriculture.
The adoption of the Growth Employment and Redistribution strategy has meant that government resources and support mechanisms for agricultural development have been severely cut back such that South African agriculture is currently one of the least supported sectors internationally.
This lack of support from government means that small-scale farmers and land reform beneficiaries have many difficulties in their attempts at improving their livelihoods with agriculture. Support is therefore sought from other sources of which the private and parastatal agencies are critical. It will be seen below, however, that such support is limited and means that men and women small-scale farmers and other land reform beneficiaries often have to rely solely on their own, and their family, resources and failure often results.
SPP works directly with men and women small-scale farmers and other land reform beneficiaries in the Western and Northern Cape. SPP’s assistance is primarily to acquire land and to establish the management structures on the land. However the organization plays an important role in brokering other resources and expertise to support the agricultural development of such farmers.
There are five specific issues which we would like to address regarding the role and participation of parastatals and private companies in land reform and agriculture:
Access to land
The basis of agriculture is land and most agricultural land in South Africa is owned by private individuals and companies – 86,2m hectares, 70% of South Africa’s land surface. Any agricultural development has to therefore address this inequality in land (asset) ownership. To what extent, however, are private and parastatal companies facilitating access to land? There are two experiences in this regard.
On the one hand there are interesting developments in the sugar industry and in the chicken industry. In sugar, a number of the sugar mills are selling their sugar farms to black people through a creative provision of loans at subsidised interest rates. Since 1996, 120 medium-scale farmers have acquired a land area of 12 000 hectares. In a similar way, some of the chicken companies are selling parts of their production processes, principally the farm components, to employees with creative, subsidised loan arrangements. One company has sold over 20 farms to employees in this way since the year 2000. It is important to note, however, that in both the sugar and chicken industries, the farmers are locked into a long-term contract farming arrangement of upto twenty years where the farmers agree to supply the company with specific goods during that period.
On the other hand, however, there are many situations through which private and parastatal companies completely exclude the possibilities of extending access to agricultural land to poor and landless men and women. In Namaqualand, a number of mining houses and parastatals own extensive portions of land – De Beers Diamond Company, the Okiep Copper Company (OCC) and Alexcor. These companies want to retain their ownership of the land because of their subterranean activities. However, they are making the surface land available for use by farmers. Some of these companies make the land available to small-scale black farmers. Others, such as OCC, however, use their ownership of this land to generate further income and auction the lease contracts to the highest bidder. Small and medium scale farmers are hereby excluded, cannot access land which is close to their places of residence and, in the process, the companies do not make a contribution to agricultural development in the area.
A similar situation occurs on parastatal land. It appears that land owned by forestry companies, such as Safcol, is being sold to the highest bidder. There is a condition to this sale in that the bidders have to be part of a black empowerment initiative. The important issue in this circumstance is that the interests and the livelihoods of forestry worker communities are not being taken into account by the companies in these sales. In the Southern Cape, for example, the communities living on SAFCOL land face very insecure conditions where local authorities want them to move into the townships of local towns; their livelihoods are threatened in terms of employment and other sources of livelihood which living in the forestry villages provides them, and where their attempts to obtain the land on which they live through the land reform programme have proved unsuccessful.
Redistributing agricultural land to black people is one thing – ensuring that private and parastatal agricultural land is made available for the agricultural development of poor men and women is another.
It is therefore important for private and parastatal companies to consider the following:
A moratorium on the sale of state agricultural, forestry and other land for purposes other than land reform;
To prioritise the livelihood needs of poor men and women when considering the sale or alternative use of their land;
To seek creative means to provide secure and long-term access to land for agricultural development.
Access to credit
For small-scale farmers, access to credit is vital to any production, especially larger-scale production for commercial purposes. This is both credit to obtain assets over a longer period and production credit on a cyclical basis.
For the men and women small-scale farmers that SPP works with, the Land Bank has played a limited role in their agricultural development. The key issue revolves around the bankability of the applicant. The basis of this includes the following:
Blacklisted creditors find it very difficult to obtain reassessment of their status as a result of the inefficiency of the credit bureau system. Any attempts to obtain loans therefore are unsuccessful because of this inefficiency.
Many poor people do not have credit references nor have had bank accounts, preferring to deal only in cash which they have direct control over, or being part of farming arrangements where much of their money has been held by white commercial farmers.
Many small-scale farmers do not have fixed employment – they are seasonal workers and rely on a variety of income sources which may not be regular but which give them a steady supply of income;
A number of their income sources, for example the child support grant, are not recognised by the Bank and thus reduces their total income in the determination of the loan and the bankability of the applicant.
Small-scale farmers, therefore, complain that the Bank does not seriously seek ways of supporting poor small-scale farmers and are frustrated in their attempts to engage in farming. In the town of Fraserburg, for example, the Department of Land Affairs provided funds to acquire land through their commonage programme for the local authority. But, while the land was made available to all the farmers, only those who had sheep or were able to get a loan from the Land Bank were considered by the municipality. In the end this meant that only those who were considered sufficiently bankable by the Land Bank were able to obtain access to land. In this case, the lack of access to credit also meant that the very poor farmers lost access to commonage land.
In contract farming arrangements, such as the sugar, timber and chicken industry, the contract always includes access to production credit which is paid off on a regular basis. In this way, farmers at various scales of production are able to engage in production with the required resources to farm. While there may be many other pitfalls in the contract farming system, the access to credit remains an important benefit for small-scale farmers in such arrangements.
State support for agricultural production, particularly small-scale agricultural production is extremely limited and leaves small-scale farmers entirely dependent on their own devices. In this context,
It is extremely important for the Land Bank, other banks, marketing and supply co-operatives and other companies to seek creative ways in which production credit, and long-term credit for capital equipment, can be obtained by the poor amongst small-scale black farmers. This is particularly important where men and women live on communal land and therefore do not have land as collateral.
The credit bureau and other registers need to improve their operations so as not to exclude poor people unnecessarily.
Access to markets
Producing agricultural goods is one thing, selling them and obtaining a return is another. Those small-scale farmers that produce surplus on a regular basis, often do not have access to markets at whatever scale they are producing. In most of the large marketing and supplies cooperatives there have been restrictions on the size of undertaking of any member – only producers of a certain size or more could be members. This meant that small-scale farmers are excluded from the benefits of an organised marketing system, from a cheaper source of supplies and other benefits linked to the cooperative.
In some cooperatives, for example the Wes Karoo Cooperative in Calvinia northern Cape, a sheep cooperative, this approach to membership has been changing. In the last annual general meeting, the members agreed to open their membership to small-scale farmers and support their attempts in agricultural development. The Cooperative now requires a once-off membership fee of R100. This then entitles the member to obtain supplies at cooperative rates, various benefits such as a credit guarantee and, importantly, market access for their stock, whatever the numbers.
There are opportunities for small-scale farmers to take advantage of preferential treatment in certain markets – such as the Fair Trade opportunities in the European markets where products produced in "empowerment projects" receive a premium price in those markets. Some South African companies such as Capespan are sponsoring these initiatives and small-scale farmers are benefiting from these. There is a concern, however, that some of the "empowerment projects" benefit the commercial white partner more than the farm workers or the small-scale farmers involved in the project. While this needs to be monitored, such access to preferential markets needs to be encouraged.
Once again, it is the general experience that small-scale farmers do not have access to markets for their produce, and have many problems associated with marketing of their produce including, among many others, transport to the markets. Some private companies have developed creative ways in which small-scale farmers can be supported – others need to be encouraged through incentives and persuasion to be equally creative in overcoming these constraints.
The following needs to be considered:
All supply and marketing cooperatives need to be strongly encouraged to follow the example of the Wes Karoo Cooperative and open their membership to those small-scale farmers that want to join them, regardless of the scale of production;
It is likely that small-scale farmers will be dominated in these co-operatives and therefore government needs to consider further support to the development of agricultural cooperatives amongst poor men and women which can then develop allegiances with the larger, commercial farmer-dominated cooperatives.
Industry specific marketing agencies need to more aggressively seek mechanisms of enhancing preferential access to markets for small-scale farmers in a way that specifically benefits these farmers.
Access to extension services
Extension support to small-scale farmers impacts directly on their ability to improve their production. Training and advice on technical agricultural skills, business and management skills and the institutional building of their companies and other entities are key areas affecting the success of small-scale farmer operations.
State support on this level is limited in most provinces because of the orientation of the extension support – it is only focused on technical support for agricultural production. In some provinces, the extension support is limited absolutely in terms of numbers of staff due to the limited funds available from Treasury. For this reason, the role of the private sector and parastatals in extension support is very important.
The sugar industry is again an interesting example in this regard. Recognising the lack of capacity in the Kwa Zulu Natal Department of Agriculture and Environment Affairs, the Department and the South African Sugar Association (SASA) entered into a joint venture to provide enhanced extension support to small-scale sugar growers. In this venture, four technical experts in SASA provided technical expertise, support and training to 36 government agricultural technicians. Through this venture the partners are trying to support the 46000 small-scale farmers that are operating in the industry.
In the wool industry, similar arrangements have been developed to support wool farmers farming on communally-held land in the Eastern Cape primarily. In that province, specialists connected to the National Wool Growers Association support the Department of Agriculture and the Agricultural Research Council attempts to upgrade the farmers’ technical abilities. Unlike the sugar industry, the wool industry is far less structurally unified and thus this extension service programme relies on the activities and initiative of the Wool Growers Association.
There are limited examples where private sector companies involve themselves in the building of the individual and organisational capacities of small-scale farmers. It is recommended that:
companies, in particular the co-operatives, are encouraged to develop such programmes of support;
The Departments of Agriculture recognise that the private companies have much of the knowledge and expertise exists, especially with regard to issues of business and management in farming. It is recommended therefore that the Departments develop relations with these companies, in a similar vein to the SASA-Kwa Zulu Natal Department scheme, in order to lock private companies into supporting the extension officers in the Departments.
The Departments can play a catalyst role in developing links directly between the women and men small-scale farmers and the different private companies where on-going mentoring relationships can be developed
A concerted, multi-stakeholder effort is initiated to find and develop alternative models of addressing the individual and organisational capacity constraints of poor women and men farmers.
Conclusion and recommendations
It has been noted that South African agriculture is one of the least supported sectors in the world. In the absence of a major role played by government in agricultural development, the role of the private sector in building the possibilities for small-scale farmers is crucial. Nevertheless, it has been seen that this is limited, determined by the companies themselves and only the very well-organised sections of private and parastatal companies support agricultural development in these ways.
Measures are needed to persuade, coerce and provide incentives to the private sector more broadly to support agricultural development at all levels of scale. One example of this is a variant of the social discount system which the Land Bank operates. In this scheme, commercial farmers who receive a loan from the Bank can obtain a reduction in the interest rate they pay if they engage in forms of social development, especially with the farm workers working on their farms.
The Departments of Agriculture are in important positions to stimulate and research such mechanisms of support. They generally have close linkages with commercial farmers and companies involved in agriculture and could play a key mobilising role. Recognising that they do not have all the required capacity in terms of skill and numbers of people, and seeking alliances with private companies, means that they will be able to play an increasingly important role in supporting agricultural development.
Finally, discussions on agricultural development often focus only on large-scale and commercial agriculture. A process of clarifying what agricultural development is, and clarifying the key role that small and micro agricultural development plays in the economy more broadly is necessary. This cannot be undertaken by the Department of Agriculture and the commercial and parastatal companies by themselves. Other government departments, especially the Departments of Land Affairs and the Water Affairs and Forestry are key for an integrated approach. But, most importantly, small-scale farmers (all the different organised groups), as well as other organs of civil society, must play a central role in this process to ensure that a spread of views, and the views of small-scale men and women farmers in particular are central.