The voice of agriculture . Die stem van landbou . Izwe lezokulima

Expropriation Without Compensation Haunts Agriculture

Agricultural output could have outpaced even the 70% it is estimated to have grown since 2010.


By Jan-Jan Joubert 9 Dec 2020

The threat of expropriation without compensation and the opportunity costs of land policy uncertainty have cast a dark shadow over the future and feasibility of the commercial agricultural sector – the one section of the local economy that has been a shining star amid the doom and despair of the 2020 economic disaster.

Aided by excellent rainfall, improved seed technology and a resilient spirit – despite safety concerns and continuous political assault by the governing ANC and the EFF – South African commercial agriculture is booming.

However, the Banking Association of South Africa (Basa), the Bureau for Economic Research (BER) at Stellenbosch University, and Agri SA as a representative of South African commercial agriculture all provide cold, hard factual evidence that so much more could have been done to the macro-economic benefit of the country and the welfare of all its people had the political and policy risks not been so immense.

But first, the good news.

Agricultural output is booming, despite the spectre of land expropriation, policy uncertainty, political vilification of commercial farmers and a disastrous state-driven land reform programme.

According to BER director Professor Johann Kirsten, “on the back of a fantastic agricultural year in 2020 (despite Covid-19) agricultural output is estimated to have grown by 70% since 2010”.

The bureau’s research shows horticultural production expanded by 110% over the same period, livestock production increased by 59% and field crop production by only 43% over the last decade.

As the table below indicates, the exact high-value, labour-intensive agricultural industries which the economy needs to expand, have grown substantially:

Commodity Unit Expansion target (NDP 2030) Actual expansion (2012-2018) Achievement (%)
Citrus Ha 15 000 23 448 156%
Macadamias Ha 12 000 14 600 122%
Apples Ha 2 500 2 256 90%
Table grapes Ha 4 700 3 773 80%
Avocados Ha 9 000 3 700 41%
Soybeans Ha 370 000 312 000 84%
Poultry Tons 660 000 270 000 41%
Dairy Tons 520 000 655 000 126%
Pork Tons 25 000 53 000 212%

Source: BFAP, 2020

Cognisant of these facts, Agri SA CEO Christo van der Rheede nevertheless points out that while such growth does not negate the opportunity costs of land policy uncertainty, it might mask it.

“The growth in agricultural production was unfortunately often not achieved thanks to state policy, but despite it,” Van der Rheede told Moneyweb.

He points out the excellent rainfall over most of the country (except for the Northern Cape and adjacent parts of the Western Cape and Eastern Cape). Van der Rheede furthermore points to the resilience of farmers and improved seed technology to explain the much higher yield.

“This does not mean that we should forget the opportunity cost of land policy uncertainty. Can you imagine where we would have been in such fortuitous circumstances if we had a stronger government department and did not labour under the constant threat of expropriation without compensation?” he asks.

“One might well ask why commercial farmers do not just pack up and go. The reason is their debt to commercial banks and the Land Bank. The truth is that many commercial farmers farm on the back of debt.”

Two saving graces

The facts bear out Van der Rheede’s view, save for perhaps two saving graces, both driven by the excellence of the incumbent Minister of Agriculture Rural Development and Land Reform Thoko Didiza.

The first is that the South African government (at times Didiza personally) has been working pro-actively to ensure access to foreign markets so that the lopsided domestic supply of a bumper crop is ameliorated by export, thereby limiting the lowering of the domestic price.

The second is that Didiza lobbied tirelessly and successfully so that agriculture – although impacted – did not suffer the destruction many other industries did during South Africa’s Covid-19 hard lockdown.

Save for these, the utter failure – due to an aversion to commercial farming, the inability of communal farmers to produce surpluses for sale on the commercial markets, the choice by many of the newly-empowered to opt for a monetary pay-out rather than land restitution, corruption, maladministration and the ineptitude of departmental officials – of the state-led land reform programme is well documented and need not be revisited here.

Land reform progress

Kirsten provides figures to show that the steps taken by commercial agriculture and farming organisations to enhance land reform have, on the other hand, been very successful.

South Africa’s total land area is 122 million hectares, of which 93 million hectares is agricultural land. Of this, 77.5 million hectares is commercial farming land and 15.5 million hectares is under tradition tenure.

According to the Deeds Office, by November 2020 13.2 million hectares had changed hands from white owners to the state (3.08 million hectares) and black farmers (10.135 million hectares) through private and state-supported transfers.

By November 2020, no less than 2 339 million hectares had been successfully identified for restitution but the affected communities chose money over land.

In total, therefore, 15.56 million hectares have been transferred in land or in cash. This is 20% of previously white-owned land and is getting close to the 30% of previously white-owned land (23.25 million hectares) envisaged in the National Development Plan, Kirsten pointed out.

Risk  to the banking sector

As Van der Rheede pointed out, commercial farmers owe the banks billions, meaning the banks face the greatest opportunity costs due to policy uncertainty and the greatest financial risk due to expropriation without compensation.

In a presentation to parliament, Basa managing director Cas Coovadia stated that commercial banks are currently owed R1.6 trillion in relation to property. Of this, R1.068 trillion is owed on residential property, R393 billion on commercial and industrial property and R133 billion by commercial farmers.

Coovadia states that expropriation without compensation has limited investments in and improvements on land, and that growth in employment can only follow on growth in investment.

He points out that a modern economy is mainly based on the credit structures of various role players and their risk profiles. This structure delivers the yield which is required to compensate for the risk.

“Widespread expropriation without compensation has the potential to create systemic risk for the South African banking sector, as loan agreements do not typically foresee the scenario of forcible change through seizure below market value,” Coovadia continues.

The banking sector will therefore be exposed to a higher-than-anticipated debt write-off if expropriation without compensation takes root widely.

Basa’s input furthermore focuses on the negative effect expropriation without compensation has on the appeal of property as a safe and profitable asset/investment requiring long-term confidence, as it does.

Coovadia therefore warns of the impact of widespread expropriation without compensation on the credit ratings of South African banks, on the tightening of lending rates and on mortgages, which will reflect higher risk.

Basa warns of further sovereign downgrade risks, an increased cost of capital and compromised access to funding, as effects of the looming spectre of expropriation without compensation and the policy uncertainty flowing from it.

Jan-Jan Joubert is a political journalist, commentator and writer.