The Development Bank has come up with an innovative plan for land reform, reports Teigue Payne
AN INNOVATIVE way of addressing South Africa’s imbalance in ownership of farming land and assets, or at least blurring the “black” or “white” labels on farm land ownership — shareholdings for farmworkers — has received an enthusiastic response among white farmers and others.
The scheme involves sale of shares in the profit, loss and equity of existing “white” farms. Advocates say such schemes would have the advantage of producing quick results for a population with high expectations. They would preserve skills, support the existing businesses of larger farm units which could be more competitive but which might have been in major debt, and save the government the vast costs of new resettlement programmes.
Even if Land Affairs Minister Derek Hanekom does achieve the RDP target of a 30 percent transfer of commercial agricultural land by the end of the century, the imbalance of land in the hands of whites will be unresolved. And the land transfer programme will cost a fortune for purchase and installation of infrastructure.
Advocates of the farm equity scheme envisage that government could play a role by providing loan assistance, or withdrawing support for unwilling farmers. They envisage a state-linked or private financier would buy shares which would be placed in a trust for the farm workers, who could gradually buy them. Or, in line with modern trends, the farming company could vest in one set of people; the land in another. Or other forms — like share cropping or part title — could be structured.
They say it makes more economic sense to divide up the ownership of the land, instead of the actual land, especially on land which is not of high potential or irrigated — which applies to the majority of South Africa.
Policy analyst for the Development Bank of Southern Africa, Craig McKenzie, says following his initial address in Durban about the scheme, he received about 200 calls of enquiry in three weeks. There is no telling whether that response was out of fear or altruism, but McKenzie comments: “Real land reform will happen quickly if the solutions are good.”
In this case, however, the reality is that progress has been slow. Only one farm has structured an equity share deal so far through the DBSA, though about five more deals are in the pipeline.
Other deals not structured through DBSA have reportedly been done. McKenzie says the DBSA is regarding this as a pilot project. He expects the process to get faster as experience is gathered.
McKenzie says the deals would normally involve concessionary financing because of the poverty of the farm workers. A standardised contract seems unlikely — every case will have to be adjusted for local circumstances.
The most important function of the trust created in the equity schemes is to make a market in the shares; in deals so far, the trust offers a guaranteed buy-back price for the shares, based on a formula relating to the value of the farm in its circumstances at a particular time. The deals are structured so that farm workers have to sell within two or three years if they leave the farm.
While the scheme could be viewed as a “white trick” to maintain real control, McKenzie says workers could hold the majority of shares. For many farmers, the attraction of the scheme is its potential to get farm workers involved and enthusiastic about production and production decisions. Because worker involvement is especially important in high-value crops like deciduous fruit, the scheme has had a particularly positive reception in the Cape.
He does not believe it is the panacea to land reform — he will be happy if it eventually applies on five percent of farms. It’s not suitable for everyone largely because of high transaction costs. Currently, the DBSA will only consider highly viable farms for the deal. Still, McKenzie thinks any farm could be the subject of a deal provided the farmer is willing to sell at an appropriate price.
And, McKenzie says, enquiries have not only come from farmers. One possible deal is for a hotel. The idea might have the salutary effect of breaking the conventional wisdom that equity schemes can only apply in listed companies. In fact, perhaps the smaller the company, the better — though finding formulae for ongoing valuation will be a challenge.