Groundwork: Properly approached
COMMENT
Growing the agriculture sector can reduce poverty, create economic opportunities in rural and peri-urban areas and boost employment, particularly for semi- and unskilled workers.
Several successful joint ventures that comprise partnerships between smallholders, commercial farmers, agribusinesses, industry associations and the government have generated significant returns and driven agrarian reform.
Agriculture is important for the pursuit of inclusive economic growth because of its rural links, ability to absorb less-skilled labour, the large multipliers because of extensive links with the rest of the economy, globally competitive labour productivity and its importance for export-led growth.
Given our woeful history of distorted land tenure and land ownership, it is critical to grow the sector while addressing the unequal distribution of income and assets. This includes the important role of asset ownership in securing loans, which can unlock wealth and improve productivity in the long run.
We reviewed 15 case studies of initiatives that have contributed significantly to agrarian transformation.
Buy-in and commitment from private-sector players, including commercial farmers, large-scale agriprocessors, retailers, large- and small-scale co-operatives and industry associations, are clearly an important factor of success in each project.
Because of their established position in the market, private-sector partners were able to help beneficiaries, overcome their unique financing and working-capital constraints as well as address risk-management concerns.
An example is Cedar Citrus, the citrus industry’s first farmworker-equity share scheme. It is jointly owned by the owners of ALG Estates and 23 long-term employees of ALG Estates. The employees own 50% of the farm.
Cedar Citrus was established, led and funded by the owners of ALG Estates as part of a land redistribution programme on their property. The owners donated 36 hectares of water-use rights to Cedar Citrus, took out loan finance to establish 36 000 citrus trees, partially funded by the Industrial Development Corporation (IDC), and covered all operating costs until the orchards reached production.
These measures were crucial to the success and profitability of Cedar Citrus, which has paid dividends to beneficiaries since 2010 and is expanding production.
Most of these initiatives require funds from a combination of private and public sources, including the commercial farmers, agribusinesses, public finance corporations, development finance institutions and government departments.
The type of financing varies across projects. Types of support include soft loans, government grants, provision of infrastructure and moveable assets, infrastructure and asset sharing, and direct funds from commercial partners. Each of these constitutes a form of concessional finance.
The Grassland Development Trust (GDT) is an empowerment project that benefits 49 current and past employees of Grasslands Agriculture, a commercial milk producer. The GDT purchased the Schoonfontein dairy farm in the Tsitsikamma area with grant funding from the Land Redistribution for Agricultural Development programme of the department of land affairs.
The grant covered 35% of the purchase price, and a private loan from Standard Bank under its Khula Land Reform Empowerment Facility provided the rest.
Grasslands Agriculture contributes all working capital, including cows, tractors and other implements, to the farm. In return it receives half the revenues from milk sales. The initiative has transferred 100% land ownership to the beneficiaries of the trust and provides substantial financial benefit, mentoring and training to them. GDT (as the landowner and employer) has final authority, resulting in genuine empowerment.
The Suurbraak Grain Farmers’ Co-operative comprises smallholders farming on communal land in Suurbraak in the Southern Cape. It adopted a dynamic funding model during its first five years of operation. Production costs were fully funded by an allocation from the Commodity Project Allocation Committee of the Western Cape department of agriculture, which was phased out over four years.
Members of the co-operative contribute 10% of their annual gross harvest earnings to the co-operative’s central reserve fund. This fund assists members to farm sustainably by sharing the cost of machinery, for example. Last year, the co-operative’s crop was funded by the smallholder farmers from reserves built up in this fund and with loans obtained from Sentraal-Suid Co-Operative and SABMiller.
The complexity of successful agrarian transformation demands project-specific institutional arrangements that are tailored to the commodity and region in which the project is situated. A one-size-fits-all approach, in particular to address land reform, should not be adopted, given the complexity of issues at hand.
Mondi decided in 2008 not to contest any claims lodged in terms of the Restitution of Land Rights Act 1994 as amended.
Instead, it pursues a programme of large-scale settlements to bring claimant communities into their business. Since 2008, it has settled and implemented 17 land-claim partnership agreements. The company has transferred payments of more than R60-million to claimant communities in the form of rental payments, production incentives and claimant contractor payments.
The Berekisanang Empowerment Farm in the Northern Cape was initiated by Afrifresh, a large fruit exporter and owner of Galactic Deals, a table-grape farm. Afrifresh consulted workers on the farm to gauge their interest in a joint project involving water-use rights.
In 2012, a farmworkers’ trust comprising 24 farmworkers on Galactic Deals was granted 500 hectares of water-use rights by the government.
Afrifresh then partnered with the Galactic Deals farmworkers’ trust and the IDC to purchase the adjacent Berekisanang farm. The trust used its allocated water-use rights to contribute to the equity and purchase of Berekisanang. This unique institutional arrangement shows how the approval of and ease of access to water-use rights can be used to foster innovative transformation partnerships led by the private sector that empower emerging farmers.
The National Wool Growers’ Association runs training and development programmes for communal and emerging wool farmers. It has directly supported more than 24 480 small-scale wool growers in communal areas in the Eastern Cape since 1997. This programme has been highly successful in increasing these farmers’ production of wool, income and position in the wool export industry, who run their flocks on communal land.
This breaks the stereotype that only private property and freehold titles can provide a secure basis for market-oriented agricultural development.
Contract farming typically involves agribusinesses providing small-scale farmers with key inputs (such as financing, seeds, fertiliser and training) and then purchasing a certain percentage of the farmers’ output. Such partnerships support smallholders to achieve higher productivity, scale, access to inputs and markets and can ultimately help them to advance towards commercial status.
Tongaat Hulett uses various programmes to partner with local communities in KwaZulu-Natal, including contract farming agreements with small-scale sugar farmers. They supply sugarcane to three of Tongaat’s sugar mills according to a fixed delivery schedule, which guarantees them market access.
Tongaat has a team of technical experts and engagement specialists who support the network of contract farmers, a crucial aspect of the initiative. Through partnerships such as this, the aim is to expand sugarcane production, support socioeconomic and infrastructure development and transfer skills to participants.
Massmart established a R242-million Supplier Development Fund in 2012. This was part of the approval conditions set by the Competition Commission for Wal-Mart’s purchase of a majority stake in Massmart.
This fund assists developing small-scale farmers and emerging agribusinesses with purchase agreements, extension services, merchandise safety and quality compliance, in-store promotional and merchandising assistance, and financial and business training. It is a notable example of how competition policy can be used to elicit support for small-scale farmers and emerging food producers through the procurement requirements of large agribusinesses or retailers.
Co-operation with commercial farmers and large agribusinesses (and, in certain cases, with retailers) is crucial to provide smallholder and emerging farmers with an effective channel to access domestic or international markets.
Being incorporated into the existing market linkages and value chains of their commercial-farmer or agribusiness partner is decisive in enabling these farmers to expand and diversify production.
The Bosveld Citrus Group — through its fully owned subsidiary Richmond Kopano Farming — leases and operates the Richmond farm from the Moletele community, who are the land claimants and property owners in the Hoedspruit area. This farm formed part of a land restitution claim in 2004.
The community benefits in several ways: they receive rental income (which increases each year) as well as an amount based on the turn-over of the farm; there are employment opportunities on the farm; employees are given training and skills development; and they have the option to purchase up to 50% of Richmond Kopano Farming at any stage of the partnership.
Crucially, the community benefits from access to the scale and market linkages of the larger Bosveld Citrus Group through Richmond Kopano Farming, their commercial partner. This allows for the negotiation of discounted prices with the suppliers of packing material, chemicals, fertilisers and also shipping lines.
Joint ventures are not intended to replace government initiatives to drive agrarian transformation. But, by using the financial resources and expertise in the private sector, they can successfully complement government interventions such as training and extension services to targeted subsistence and smallholder producers.
Some have raised questions about the ability of joint ventures to contribute to effective agrarian transformation. However, having reviewed several successful projects, it is clear that many of these factors can be overcome through the careful design of the partnerships and the models implemented.
These examples of successful joint ventures can be replicated in some form around the country, as long as specific local conditions are taken into account. Moreover, joint ventures can be scaled up if the government creates a more enabling environment for investment in agriculture with well-designed policies.
But it is important to emphasise that joint ventures are just one type of model for agrarian transformation and typically require investment from large commercial farmers and agribusinesses.
André Steenkamp is an economist at the treasury, Duncan Pieterse is director of microeconomic policy at the treasury and James Rycroft is an independent consultant. This is an edited version of an article that was first published on the Econ3x3 website