Land reform in South Africa: effects on land prices and productivity

Literature › Works

Van Rooyen, Jonathan (2009). Land reform in South Africa: effects on land prices and productivity. MCom (Financial Markets) thesis, Rhodes University (submitted December 2008). Rhodes University.

Type	thesis
Scope	Post-1994 South African economy
Method	descriptive quantitative
Period studied	1994–2007
Regions	KwaZulu-Natal, Uthungulu district, iLembe district
Themes	agriculture land, transition post apartheid, business and state, methods data sources
Citation key	vanrooyen2009

Argument

The thesis asks whether the post-1994 'willing buyer/willing seller' redistribution programme has paid above-market prices for sugarcane farmland, and what happened to output after transfer. Using 27 redistribution sales (2002-2006) in two northern KwaZulu-Natal districts, it compares redistribution prices per hectare of yield with non-redistributive market prices. It finds that private individuals and small companies sold at large and rising premiums, which it attributes to the state's weak bargaining position and time pressure from the 2014 30% target. It also finds that output per hectare fell 'during' and 'post' transfer on about half the farms, and blames the lack of mentorship and the new owners' inexperience. Sales by one large sugar corporation, at roughly market prices with better output, are treated as a special case. The thesis recommends competing buyers, fewer valuers, a valuation verification unit and an operational LRAD mentorship programme.

Evidence and method

Cane Growers Association property transfer values (1999-2006) and productivity data (1997-2007); KwaZulu-Natal Department of Land Affairs sales data; independent valuation reports; Abstract of Agricultural Statistics farmland price indices; interviews with DLA officials, Inkezo Land Company and Cane Growers; recoverable value (RV) per ton of sugarcane. The sample is 27 farms with anonymised sellers.

Findings

• In Uthungulu, six of ten sales by individuals and small companies were above market, and premiums rose sharply over time. (p. 46)

  six of the ten land redistribution deals involving private individuals and small companies took place at an average of 42% above the ordinary market price

• In iLembe, seven of ten private and small-company sales were above market; by 2005 the premium averaged 50%. (p. 61)

  when considering the 2005 year alone the premium per farm is at a remarkable 50.00%

• Sales by the single large corporation were at roughly market prices, an exception to the pattern. (p. 63)

  an average discount on the market price of 3.86% per farm was registered

• The above-market payments on private and small-company farms are quantified at R10.7 million. (p. 70)

  ‘above’ market prices were recorded on thirteen of the twenty cases involving private individuals and small companies amounting to R10.7 million

• The state's expenditure on sugarcane land in Uthungulu rose steeply between 2003 and 2006, read as an effort to accelerate redistribution. (p. 76)

  rising very quickly from less than R1 million to over R15 million over four years

• The study explains high prices through sellers' bargaining power in a redistribution market with a single buyer. (p. 59)

  Because there is only one buyer of land for redistribution (the government), individual farmers have a large degree of bargaining power

• The state was far behind its 30% target, creating pressure to pay more. (p. 62)

  At December 2004, a mere 3% had been redistributed since 1994

• In Uthungulu, post-takeover output fell on six of seven farms, by about 39.5% on average. (p. 66)

  Excluding this outlier, production for the remaining six cases decreased on average by 39.51% ‘post takeover’

• Across both districts, productivity declines were widespread, with large forgone income. (p. 87)

  in eleven of the twenty-three cases studied, production per hectare decreased by an average of 35.48% per farm ‘post takeover’

• Valuation inconsistency and DLA's lack of capacity to verify valuations are identified as a source of overpayment. (p. 91)

  That department, however, does not have a division dedicated to agricultural farmland pricing, the purpose of which would be to verify the accuracy of submitted valuations.

• The mentorship programme was established late and not operational. (p. 65)

  By October 2008, none of the official agricultural advisors appointed by the Department of Land Affairs had received a single assignment

• Causality and correlation between redistribution and market prices could not be tested for lack of data. (p. 80)

  Given the lack of available data, however, causality in neither of the two directions can be ascertained.