The mini budget (or medium-term budget policy statement) given by Finance Minister Trevor Manuel on Tuesday was again, much like February’s big budget, all about weathering the global economic storm.
But for the agricultural industry — whether Manuel’s spending plans for the sector pay off — much is going to depend, first, on the weather; quite literally, the arrival of the summer rains. Second it will depend on the political climate — more specifically, the progress on agrarian and land reform that Manuel, at least in his budget statement, expects will increase in pace in the coming years.
The budget is rather upbeat about the outlook for agriculture, saying that ”rising investment in agricultural services and higher food production are likely to be positive for both employment and rural income”.
It aims to increase support for emerging farmers, investment in rural infrastructure and land reform programmes. In anticipation of quicker land reform ”the comprehensive agricultural support programme (Casp), which provides emerging farmers with infrastructure, information management, training and technical and advisory services, will receive further support,” it states.
An additional R76-million has been earmarked for agricultural starter packs for the rural poor, as well as an additional R969-million spread out over the coming three years for Casp.
But according to Ruth Hall of the Institute for Poverty, Land and Agrarian Studies at the University of the Western Cape, these allocations are ”modest compared with the scale of growing hunger”.
Hall says that the treasury has taken R225-million — which was earmarked for agricultural microfinance under the micro-agricultural finance initiative of South Africa (Mafisa) — away from the Land Bank and redirected much of this to the Ilima Letsema initiative. Whereas Mafisa was directed specifically to poorer farmers, the Ilima Letsema initiative is targeted at black entrepreneurs, says Hall.
Other experts welcome the additional support for such programmes, but a number of concerns have been raised regarding capacity constraints within the government bodies meant to support farmers, particularly emerging farmers.
In addition, much depends on this season’s rainfall before estimations are made about crop size. How big each year’s crop is plays a part in the profitability of farming, which in turn plays a role in how much investment can go back into producing more food.
For now, says Kobus Laubscher, chief executive of GrainSA, many farmers have adopted ”a wait-and-see approach” to planting. Some rain has fallen, allowing farmers to go ahead with pre-planting procedures, but it remains to be seen whether this will be countrywide.
The key to boosting investment in the sector is ”profitability”, says Laubscher. Although South Africa has a surplus of maize, input costs for farmers are spiralling up. ”Input inflation impacts negatively on profitability,” he says. Laubscher says the same combination of input costs for farmers have increased by 80% since last year. These can include anything from diesel to fertilisers and pesticides.
While the cost of oil has dropped as international markets still recover from the September collapse, Laubscher says that the drop in value of the rand has reversed any relief offered by cheaper fuel.
”This year’s inputs per hectare cost more than the market value of the land in many locations in the country,” he says. ”It is a different profile of risk. There is no room to manoeuvre and any mistake could be very expensive and destructive.”
For emerging farmers the trouble is double-fold, he says. Emerging farmers already have difficulty accessing funds given that new farmers are a higher-risk investment for credit providers. With credit control tightening across the board in the wake of the market crisis, it could become even harder for emerging farmers.
”Supporting structures [for farmers] need to be upgraded,” says Laubscher, for any improvements to take place. These include the state of financing institutions such as the Land Bank, support for farmers from the department of agriculture and improved agricultural infrastructure.
Similarly Mike de Klerk, agri-business programme coordinator at economic research institute Tips, says that given rising input costs there might not be a large difference in the amount of land planted this year. But it is unlikely that employment in the sector will rise significantly, he says.
Support to emerging farmers is crucial. Capacity constraints are an issue, says De Klerk, and ”system-level change needs to take place to improve this”.
This includes better extension services for emerging farmers and a Land Bank that functions efficiently enough to support the riskier business of financing emerging enterprises.
The ability of agriculture to support employment will be affected by land reform processes, he says. He says that as land acquisitions speeds up, an increased number of large commercial projects are likely to be bought up.
”The likelihood of large-scale transfers is increasing, but we need to look at more practical ways of transferring land to ensure labour retention. These large-scale projects should be bought as going concerns to avoid shedding labour,” he says.
De Klerk believes that the 30% redistribution target set out by government is achievable if policy is shifted to improve the process and ensure those it seeks to benefit see effective reward.
Getting land reform back on track
Capacity building was Trevor Manuel’s mantra when he counted his beans for the department of land affairs. Although treasury has injected a great deal of taxpayers’ money into getting land reform on track, land reform in general has been let down by a weak department.
This has translated into some serious cuts in land reform capital budget allocations for 2008/2009, including a R691-million cut in transfers and subsidies.
Ruth Hall, an analyst at the Institute for Poverty, Land and Agrarian Studies (Plaas) at the University of the Western Cape, said the medium-term budget indicated that government knows that more resources need to be invested in the struggling department — responsible for land reform — to get it to deliver faster.
So far its attempts to step up delivery by giving more money for the buying up of land have not been successful, she said.
”[There is] Less money to buy land, more money for the department to run its affairs,” she said.
Hall said that in the past the pouring of funds into land acquisition led to large areas of land being bought up by the state under the Proactive Land Acquisition Strategy. But it is now struggling to find ways to allocate this land and to find the right beneficiaries.
The capital budget for land reform has been adjusted downwards by R691-million, leaving just less than R4-billion available for the acquisition of land.
”This is probably motivated by the anticipation that the increased allocation for this year would not be spent,” Hall said, adding that only R2-billion of the R4,7-billion originally allocated was spent by the end of September.
She said the reduced money to buy land and support new landowners will mostly affect the redistribution programme, which has had its capital budget reduced by R522-million.
”Less affected will be the restitution programme,” she said. ”Its budget has been reduced by about R169-million.”
Hall said that on the positive side there is more money to fund the understaffed department of land affairs, though the longstanding problem of filling empty posts will need to be addressed.
The new ANC leaders have been emphasising the need for accelerated land reform since Polokwane, seeing it as critical to revive poor rural areas.
The weekend’s ANC economic policy summit with its communist and trade union allies reaffirmed this. The summit concluded that the much-debated willing buyer / willing seller clause had to be abandoned.
But Hall said the changes in this week’s budget announcement of the allocations for agriculture and for land affairs don’t bear much relation to the discussions at the summit, where the ANC and its partners agreed to prioritise land and agrarian reform.
She said if these plans are to bear fruit, South Africans might expect substantially increased allocations to agriculture and land affairs in next year’s budget.
The government has estimated that targets set for the land reform programme will cost more than R90-billion if it is to continue on a market basis. Hall said this amount is highly unlikely to be forthcoming, especially as agricultural support is not available on the scale required.
Additional reporting by Yolandi Groenewald