Agrilogics

Finance a crucial factor in the drive to create black commercial farmers

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SA does not have a shortage of farming skills. The country is among the world’s leading nations in producing several horticultural commodities and a continent leader growing field crops such as maize and soya beans.

The integration of black farmers into the commercial agricultural sector doesn’t need outside knowledge but co-operation among South Africans.


Why do I mention solely black farmers and not all farmers broadly? For the simple reason that while SA is among the world’s leading producers and exporters of agricultural products, black farmers only make up between 5% and 10% of the overall production, according to data from the National Agricultural Marketing Council. This small share contribution of black farmers prompted my previous article about the need for commercialisation of black farmers.

The commercialisation of black farmers per se is not a novel idea; there have been attempts to support black farmers through various government farmer development programmes. Disappointingly, these have not yielded much success. Hence, we have a tiny share contribution of black farmers in commercial agricultural output. I won’t endeavour to dwell on the programmes and failures.

In this article, I will focus on areas that need urgent attention if we are to truly realise transformation in the sector through commercialisation of black farmers. I highlight examples of the transformation projects that have reached some level of success, with black farmers graduating to produce at commercial level.

These programmes need to be carefully studied so they can be replicated elsewhere. They include the public-private partnership led by The Co-op in the Eastern Cape, and the National Woolgrowers Association in that province. Amadlelo Agri and the Sundays River Citrus Company are also among the agribusinesses that have admirable development programmes that need to be studied. In the Free State, the Sernick Group and the VKB Group, among others, have special farmer development programmes aimed at commercialising black farmers. The results thus far are impressive.

At the most superficial level, the interrelated threads that mark these programmes are:

Effective collaboration among the communities, the government and the agribusinesses to ensure a shared vision on projects and training programmes.
Financing typically comes in the form of blended finance, where the government de-risks the projects by providing a share of its funding. Previous funding has been through the National Treasury’s Jobs Fund and various programmes the government has made available in the recent past.
“Backing the right jockey”. Such an approach is vital in selecting who gets to participate in the farmer development programme. Not all South Africans should be in farming. An important first step is supporting individuals that are already involved in agriculture in one way or another, but at a relatively small scale because of various constraints. These are dedicated farmers, with a willingness to learn from the agribusinesses and mentors provided to the programmes. Where possible, such individuals also invest their capital and have a long-term vision. 
Land availability. The programmes above are typically on land reform farms (farms the government has leased to black farmers as part of land reform programmes). While there has been some success operating in these unsecured land arrangements, the goal, as I have emphasised in previous writings, is for the government to provide long-term tradable leases or land rights to black farmers in these areas. The benefits should be unlocking capital while also incentivising farmers to take care of the land. People who commented on my previous article about the need for commercialisation of black farmers correctly pointed to this as a stumbling block. But, as fellow South Africans will know, resolving the issue of land tenure has been on the table since the dawn of democracy in 1994 and has had limited success. We should also be aware of the complexities of dealing with communal land, as I outlined in an essay co-authored with Mzukisi Qobo and Theo Boshoff in 2018. In brief, merely allocating tradable land rights might still not solve the lack of communal land investment. 
There are also cultural issues that come to play when dealing with traditional African societies as the former homelands. That said, some communal land has excellent demarcation. It may be feasible for the government to extend “land rights” in farming areas (emasimini) where residents do not reside per se.

Broadly, an important aspect is the infrastructure to enable linkage of the farming areas to markets. For former homelands, especially areas where there is still an abundance of underutilised land in the Eastern Cape, KwaZulu-Natal and Limpopo, infrastructure is a constraint. Fortunately, we do have an avenue to tackle this, through the infrastructure programme the government is focusing on as part of the economic recovery plan. Roads and dams are what is needed. The private sector can lead other infrastructures such as silos and pack houses.

I have taken a rather simplistic view and left out some crucial prerequisites for integrating black farmers into the commercial sector, as this article intends to contribute to a discussion not to lay out prescriptions.

Still, I think the crucial aspect, in addition to what I’ve already highlighted, we should be thinking about the most is “finance”. The Land Bank, which many in the previous years used to point people to, is now facing liquidity constraints.

The blended finance instruments of the government might also not be sufficient to make meaningful change, and South Africans should think of other efficient ways of financing this group of farmers. To be clear, I am not referring here to smallholder farmers the government will continue to support. The focus is on commercial black farmers at a relatively large scale, as SA cannot improve the share of black farmers in the agricultural sector by focusing on smallholder farmers. We have been focusing on smallholder farmers since 1994, and commercial output figures have, disappointingly, remained roughly unchanged: the output of between 5% and 10%, as I outlined at the outset of this article.

Policymakers should have this “commercialisation approach” in mind when thinking about distributing land and broader agricultural development programmes traditional leaders should aspire to have commercial farming in their regions to improve economic activity and help create employment (large-scale horticulture creates sustainable jobs).

This article is an invitation to folks in the finance industry not to shy away from the agricultural sector; instead, look at it as a place for new long-term investment. We need patient capital. Importantly, we need those in finance to help us think of better and efficient ways of financing the SA agricultural sector, especially commercialisation of black farmers.

By focusing on bringing underutilised land in the Eastern Cape, KwaZulu-Natal and Limpopo into full production, we can “grow the SA agricultural pie” through bringing black farmers into commercial scale.

In sum, commercialisation of black farmers is not merely an attempt to take from white farmers to black farmers, rather inclusive growth approach, with a bias towards assisting aspiring commercial black farmers at the onset.

• Sihlobo is chief economist at the Agricultural Business Chamber of SA (Agbiz) and the author of ‘Finding Common Ground: Land, Equity, and Agriculture’. He is also a visiting research fellow at the Wits School of Governance.


Agrilogics