So you think you can farm?

 

Very few people would find it odd for an inexperienced and untrained person commits to become a commercial farmer. But they will imagine that a person is insane if they want to be a doctor or a lawyer without any training or experience. There is a general appreciation that one needs dedicated years, if not decades of experience, before they can open a surgery or a practice. Besides, you do not get accredited to practice if you do not have the requisite qualifications in medicine and law. It is that accreditation which is the currency they use to gain the trust of their clientele, who in turn, pay a premium as a vote of confidence in their expertise and ability to deliver a service.

But why is farming not viewed in the same light?  Why is it an exception? There is a general lack of appreciation that agriculture is as extremely complex and technical an activity as medical science or law. But the truth, however, is that it is much more technical than what many of us would like to believe. What makes farming unique is that it is both a science and an art – it is inter-disciplinary in nature, and in many instances, a farmer running a typically mixed enterprise has to be an economist, an animal scientist, an agronomist, and an entrepreneur at one and the same time.

Given the multiple skills set that is required by a typical farmer, how many years of training and experience do you imagine a farmer would need?  Yet farming in general, and smallholder farming in particular, is not viewed as a highly sophisticated field of technical expertise, but rather, as a mundane activity that defines our way of life. It is not lifestyle farming in itself that is a problem, but the emerging complacency that has led to a misplaced view that because of a person’s rural upbringing, they do not necessarily need to embrace many of the technical aspects that make farming a sophisticated science and an art form.

And due to this flawed way of thinking, there is a prevailing rationale – especially within smallholder agriculture – that anyone can be a farmer, and one only needs a piece of land and funding – without any advanced education, nor training, nor business acumen. But which investors, if any, will place trust in this type of new and emerging farmer?

The reluctance to invest money in the emerging farmer is not only restricted to the banks and financial institutions, but also extends to the farmers themselves. I have encountered prospective farmers who expect others to invest in ideas and farming projects that they themselves are not prepared to invest in, using whatever meagre resources they may have at their own disposal.

** A version of this article was published in the Farmer’s Weekly of the 10th June 2017

Will Africa “seize the moment” this time around? A critique of Africa’s Green Revolution Forum Annual Meeting

The 2017 African Green Revolution Forum (AGRF) Annual Meeting  will be held in Abidjan, Côte d’Ivoire from 4th to 8th September 2017, under the theme “Accelerating Africa’s Path to Prosperity: Growing Inclusive Economies and Jobs through Agriculture”.

The 2016 AGRF Annual Meeting was held in Nairobi Kenya and was lauded as one of the most successful gatherings – mainly because the Kenyan President, Uhuru Kenyatta dedicated an unusual and considerable  amount of time in attendance.  He seemed eager to engage delegates and contributed a lot more to the programme  than any other  Head of State that had hosted previous AGRF meetings.

Also present was Rwandan President Paul Kagame, and former Presidents of Nigeria and Tanzania – President Olusegun Obasanjo and President Jakaya Kikwete. The presence of current and previous Heads of States was a big deal, and the excitement and euphoria at the meeting was well justified given the presence of such high profile political figures.

Beyond this massive political support was a number of high profile delegates from research and development institutions, as well as private sector companies, and an array of Africa’s finest talent in agriculture gracing the event. The event was an amazing spectacle, and it was aptly themed “Seize the moment…”. The question is: did Africa seize the moment, OR was the AGRF meeting yet another talk show in which Africa engages in lip service, while we remind each other of how the continent is failing to realize its potential?

Events of this nature follow a familiar script. Delegates come, delegates speak, and delegates go back to their respective places of business. The “high profile” speakers rehash the well-known and oft-repeated challenges of low productivity, poverty and hunger, lack of political will…and so forth and so on. When all is said and done, the meetings provide very little in terms of substance and tangible solutions. This has happened all too often, to the extent that such events have become opportunities for some delegates to vent their own frustration over the continent’s lack of progress.

An example is a 2015 speech given by Ibrahim Mayaki – the Chief Executive Officer (CEO) of the New Partnership for Africa’s Development (NEPAD) – at the 11th CAADP Partnership Platform meeting in Johannesburg. Mayaki lambasted Africa’s body politic for pontificating agriculture development without any meaningful action on the ground.

Mayaki understood the shortcomings of politics all too well – he previously served as Prime Minister of Niger from 1997 – 2000 and knew the lack of sincerity of politicians when it comes to agricultural development. His key message was clear: African politicians have fallen into a misguided paradigm of thinking that they can speak their way towards agricultural transformation. “It is not talking that will resolve the problems, its action – its actual policy reforms and effective implementation thereof” Mayaki retorted .

Coming back to the AGRF Annual Meeting, the question then is: Did Africa seize the moment when current and former presidents who were in attendance tried, yet again, to “talk us out of poverty, food insecurity and low productivity”. Did we take the opportunity at the AGRF to remind Presidents Uhuru Kenyatta and Paul Kagame that they cannot simply come and talk Africa into agricultural transformation, but rather, demonstrate to us how they are formulating and implementing credible agricultural policies that seeks to achieve a Green Revolution for Africa?

After the “feel-good” factor of their presence wore out, I was keen on seeing a robust engagement between the Heads of States and the collective of the continent’s critical thinkers to debate some of the more pressing questions around how they see Africa’s transformation evolving over the next decade. But we never got to that point. Instead, President Uhuru Kenyatta announced that he was a proud part-time poultry farmer – much to the applause of the audience. That made me even more incensed.

Not only was President Uhuru Kenyata and Paul Kagame going to give us a talk show – which was televised live on one of Kenya’s local channels, but the AGRF was collectively endorsing the misguided notion that Africa’s hunger and food insecurity will be resolved by part-time farmers. It is not the first time I have seen politicians profess their passion for agriculture, and attempt to make this point by proudly stating that they are part-time farmers.

Anecdotal evidence and in certain instances, main stream media has reported that politicians and technocrats who work in government on the one hand and act as part-time farmers on the other, often use their influence in government to re-direct state resources for the benefit of their part-time farming activities. This is a classic case of conflict of interest.

Empirical research by Dr. Antony Chapoto from the Indaba Agricultural Policy Research Institute (IAPRI) has shown the emergence of this farming class in Zambia –  with supporting evidence which also shows that state-sponsored (or donor-sponsored) input subsidies programmes are subject to wide-spread “soft” corruption.

The most vulnerable resource-poor smallholder farmers, who are supposed to be the target of these subsidies, do not get them because they do not have any political influence. The only way the marginalised resource poor farmers can benefit from government programmes is for them to offer political support to these governments, and join the gravy train of corruption. This morphs into a state-to-government patronage network of resource pillage and the looting of the state. So next time politicians confess their conflict of interest, the most prudent thing to do is to question their integrity.

But the broader question transcends President Uhuru Kenyatta’s confession, and should be asked within the context of Africa’s agricultural development model. Is the Green Revolution for Africa going to be driven by politicians cum part-time farmers? Are we as a continent seriously thinking that we can feed the world through governance structures and political systems that are open to state-sponsored corruption and resource pillage, and systems that will systematically marginalises the most resource poor farmers?

Since the 2016 meeting never bothered to question the politicians on this issue, the AGRF was another “missed opportunity” rather than a “moment seized”. Perhaps this policy and governance question can be interrogated further at the 2017 edition of the AGRF Annual Meeting. But are we courageous enough to confront politicians about their bad corporate governance and policy delinquency when it comes to agricultural development?

I know some of my colleagues will  be too afraid to upset the politicians, and some will argue that the Meeting is itself not an “ideal” platform to get into some of those very uncomfortable debates. But I think we can only seize the moment if we are brave enough to confront the politicians, and demand accountable and credible policies.

Why South Africa’s Border Management Authority Act will face implementation challenges

The Border Management Authority (BMA) Bill, formerly called the Border Management Agency Bill was finally passed in Parliament on the 8th June 2017. The BMA Act’s main aim is to provide a single authority that will tighten the country’s border by preventing illicit trade of goods and services, as well as illegal immigration.

The BMA Act will create an Agency that deals specifically with cross-border functions. Because cross-border functions are dealt with by different departments and organs of state, the Agency would necessarily constitute personnel from various Departments, who would be re-deployed. According to the Act, the BMA will have jurisdiction over a 10-km radius of the ports and points of entry, with enforcement functions designated to Border and Coastal Guard security forces specifically commissioned for and by the BMA.

The BMA Act is important to agriculture and agro-processing for a number of reasons. Firstly, it means that all border functions carried out by the line Departments such as the Department of Agriculture, Forestry and Fisheries (DAFF), the Department of Health, the Department of Trade and Industry (dti), the South Africa Revenue Services (SARS), among others, will now come under the BMA.

Secondly, the transfer of these border functions means that at least 56 pieces of legislation will need to be amended and re-constituted so that the functions of relevant Departments are legally transferred to and placed under the authority of the Agency. A number of these acts affect agriculture, and these include the Agricultural Pests Act, 1983 (Act No. 36 of 1983), the Agricultural Product Standards Act, 1990 (Act No.119 of 1990), the Animal Diseases Act, 1984 (Act No. 35 of 1984), the Animal Health Act, 2002 (Act No.7 of 2002), Fertilizers, Farm Feeds, Agricultural Remedies and Stock Remedies Act, 1974 (Act No. 36 of 1947), Perishable Products Export Control Act, 1984 (Act No. 9 of 1983), among several others.

Thirdly, the amendments made to relevant legislation will imply that expertise and human resources will also be transferred from line Departments to the BMA. It is reported that at least 6,000 civil servants will be affected by the transfer of functions from various Departments to the BMA. The process of establishing the BMA is estimated to take up to three years.

While the BMA Act’s intended function is plausible, there are several problems that it might create for South Africa’s agricultural sector. For instance, the funding required to establish the BMA will be exceptionally costly. According to an economic impact assessment report commissioned by the Department of Home Affairs, the costs of establishing a Border Guard (i.e. Coastal or marine guard, including a border police force) for the BMA was estimated to be between R15 billion to R24 billion.

Another problem the Act creates is that it will most likely create a disconnect between the policy makers in line Departments in Pretoria and the enforcement that occurs at the border. This complication will arise from the fact that, the functions to be transferred from various departments to the BMA at the ports of entry will not remove the responsibility of the Department itself from formulating policies, which are expected to be enforced by BMA staff.

Related to the latter, the BMA will therefore create a new layer of bureaucracy that adds to the costs of cross-border trade, and consequently, acting against progressive trade facilitation.  

One of the suggestions that had been made by private sector during the consultation phase of the Bill was that the problem of coordination between government departments – which the BMA seeks to resolve – could have easily been resolved through inter-departmental MoUs, service level agreements and an inter-ministerial committee, rather than a substantive piece of costly and disruptive legislation.

* An earlier version of this article was published in the Farmer’s Weekly

South Africa’s agricultural sector: The story so far…

Often said is the statement that the macroeconomic standing of the agricultural sector has diminished – and this argument is supported by the sector’s declining share of GDP, which fell from 4.2% in the 1996 to 2.3% in 2015. What is not captured in this narrative, however, is the fact that the value of the agricultural sector has grown by 40%, from R50.5 billion to R71.4 billion over the same period. This translates to a fairly modest annual growth rate of 2.1% per annum over the past two decades.

The modest growth of the sector explains why agriculture’s relative share to the economy has been declining. It is because other sectors, particularly the services sector, have grown at a faster pace from a much higher base.

At this juncture, the sector has just come out of one of the worst droughts in history, following two consecutive years of progressively drier seasons. As a result, the period 2015 through 2016 saw the agricultural sector enter into a protracted recession, enduring eight consecutive quarter-on-quarter GDP declines over the period.

The contraction of the sector has been observed through a number of commodities – for instance, maize production declined by 30% year-on-year (YoY) in 2015, and by a further 22% YoY in 2016, to reach 7.8 million tons, the lowest output in a decade. Sorghum touched its lowest level on record, while high value commodities such as peanuts reached their lowest level in seven decades.

Overall agricultural exports declined by 10% YoY in 2015, and then further by 1% YoY in 2016, in real terms. However, the trade balance for the sector remained positive, as agricultural exports continued to trend above imports.

On the back of the impact of the weather, the sector has been in a perpetual state of uncertainty, emanating from a lack of clear and consistent policy direction. The country’s politics has, by and large, contributed to this policy vagueness and inconsistency, which has been exemplified by land reform policy discussions – with mentions of expropriation without compensation, land ceilings etc. – all of which add weight to uncertainty, and in turn affect production and investment decisions.

In 2017, we are seeing signs of a strong production recovery across all agricultural commodities in the country, with the exception of the Western Cape province, where dry conditions have persisted for some time.

For instance, South Africa is expected to harvest the second largest maize crop on record, estimated at 14.5 million tons – which is an YoY increase of 86%. The soybean crop is expected to increase by 66% YoY to reach 1.2 million tons, the highest output in history.

Even though a strong recovery is expected, there are concerns that it may be short-lived as the risks to El Nino are set to increase the possibility of dryness towards the end of the year.

Amid the uncertainty posed by domestic factors – such as politics, policy, and weather events –  the country’s trade policy has presented both opportunities and threats to the industry.

One the one hand, the SACU-EU Economic Partnership Agreement (EPA) has seen South Africa’s market access being expanded for fresh fruit, sugar, wine, and ethanol – among other agricultural products. However, as the United Kingdom (UK) negotiates to leave the EU, there is some degree of uncertainty over the impact of the Brexit negotiated deal on South Africa’s market access to the UK, post 2018.The UK represents a quarter of the value of South Africa’s fruit and wine exports to the EU, respectively. However, a SACU-UK transitional arrangement could potentially see an expansion of South Africa’s fresh fruit and wines in the UK.

On the other hand, the Africa Growth Opportunity Act (AGOA) has seen a continued growth of South Africa’s exports of macadamia, citrus fruit and wine, among other products to the United States (US). Additional market access for other commodities for South Africa – such as avocadoes, litchis, and lamb – are expected to become eligible for export in the near term.

The AGOA poultry rebate which came into effect in December 2015 has seen South Africa importing 56 700 tons of bone-in chicken from the US between January 2016 and March 2017. Nonetheless, South Africa has imported 47 000 tons in the first annual quota – between 1 April 2016 – 31 March 2017. Even though the 65 000 tons AGOA rebate for US bone-in chicken, is subject to an annual adjustment, the quota will not growth over the period 1 April 2017 – 31 March 2018.

Over the foreseeable future, South Africa’s agricultural sector will continue to operate within the context of increasing uncertainty due to policy, politics, climate change, as well as global trade developments. The performance of the sector in 2017-18 production season will depend on the interplay of the aforementioned factors.

**This article was based on a presentation made to the IDC by Wandile Sihlobo and I on the 18th May 2017 in Sandton, Johannesburg

Import Tariffs Aren’t Just Set Up To Protect Commercial Farmers At The Expense Of The Poor – A Response To Neva Makgetla

The issue of rising food prices has been at the core of the policy discourse for some time, particularly over the past year when the country experienced a perfect storm of a severe drought, and a volatile plus depreciating Rand. South Africa became a net importer of staple grains – such as maize and wheat – and we imported almost a third of our annual maize consumption and half of our wheat. The high level of staple grain imports exposed the market to the exchange rate shocks, which re-enforced the impact of rising food prices.

As food security is an issue of national interest, all citizens are naturally inclined to understand the fundamental drivers of the significant price increases we have witnessed thus far. But in our desire to understand the subject matter, it remains important to appreciate the complexity of food markets, particularly as it relates to price discovery and tariff formulation.

In that spirit, we want to address the fundamental flaws of Neva Makgetla’s argument contained in an article published in the Business Day of the 9th May 2017. In her view, Neva accuses government, farmers, farmer and trader organisations, and private companies’ of being complicit in authoring and sustaining food price increases – through price collusion and the setting of exorbitant import tariffs.

This, of course, is a serious allegation. If that were the case, or if Neva had evidence that large grain traders are having considerable influence on prices, surely the Competition Commission would have observed these tendencies and launched an investigation. Since that has not happened, Neva’s assertions are unsubstantiated claims.

With regards to tariffs, it is important to note that this is a matter of global significance, and South Africa is not the only country that has used tariffs to ensure sustainability of domestic production.

Neva’s arguments demonstrates a clear lack of appreciation of the tariff formulation process itself. Government does not wake up and decide to implement a particular tariff level. There is an intensive, evidence-based, and transparent public consultation process that is conducted by the International Trade and Administration Commission (ITAC) – which ensures that all views of the role players in the food value chain are captured in the tariff decision.

Such processes and decisions can take months, or even years, to complete, and all decisions are carefully crafted to ensure a balanced outcome of consumer and producer welfare. Moreover, decisions related to trade instruments such as tariffs are subject to compliance with World Trade Organisation (WTO) rules, and anyone who is familiar with the process will know that ITAC does not just give favourable decisions to commercial farmers. There are many reviews in the past in which tariff investigations have either led to lower-than-requested tariffs, or worse, tariff applications being rejected outright.

For Neva to now suggest that these tariffs are put in place to favour farmers at the expense of the poor is not only a blatant disregard of the enormous and complex work that is done by ITAC, but also an attack on the integrity of state institutions that are playing a vital social function.

Neva furthers her conspiracy theory by questioning the integrity of agricultural markets in price discovery, and indirectly alleging that the South African Grain Information Service is deliberately and selectively concealing domestic price information with the sole intent of covering up the grain price increases.

If Neva had cared to check the SAGIS website, Grain South Africa, and the primary source – the Johannesburg Stock Exchange, she would have known before she penned her allegations in a national newspaper that this statement is incorrect. With all price information publicly available, it is irresponsible of Neva to make innuendos that play into the fears of the public, using incorrect statements.

Neva also makes an inaccurate statement when she says tariffs are sustaining trading companies. Tariffs add no value to the business of traders, as these tariffs (taxes) are collected by government, and not by traders.

Generally, Neva’s reductionist views on tariffs and food markets show that she has no comprehension of commercial agriculture in general, and the global trading system in particular. For her to suggest that South Africa should give up its right to protect its own productive capacity and food self-sufficiency is absurd. Without tariffs, the wheat, chicken and sugar industries will collapse, not because we cannot competitively produce, but because there is so much distortion in the global market – everyone else is protecting their own and there is no reason why South Africa shouldn’t. Neva, of course, conveniently omits this part of the argument.

Given the nature of global agriculture and food markets, the conversation about tariffs should not consider food prices in isolation, but rather, it should take into account the number of jobs and productive capacity lost if we do not have a balanced tariff decision.

*This article was published in the Huffington Post on the 10th May 2017 by Wandile Sihlobo and I.

Industry remains on edge amid National Treasury’s tariff dilemma

On the 8th April 2016, the National Treasury released a statement which notified industry and other interested stakeholders of a review on the variable tariff formula for wheat, maize and sugar. The expectation was that, after soliciting for public comments, National Treasury would consider them and finalise the review process by the end of 2016, the conclusion of which would lead to necessary recommendations to the variable tariff formula in general, and the wheat duty in particular.

However, on the 23rd December 2016, National Treasury released another statement to inform interested parties that the review process would be extended up to the end of March 2017. It is now May 2017, and there is still no word from National Treasury regarding the conclusion and outcome of the review process.

This has obviously gotten the industry anxious, adding a degree of needless uncertainty to markets. What makes the tariff review process particularly tricky is the divergent views from different stakeholders in the sugar and wheat markets.

A Wheat Industry Perspective

The level of protection for wheat is determined by the difference between the world reference price and the 3-week moving average of the Chicago Board of Trade (CBOT) price, calculated on a weekly basis. When this deviation amounts to more than US$10 per ton for 3 consecutive weeks, a new duty is calculated and a new reference price is set.

The wheat industry has been concerned by the uncertainty that tariff adjustments bring to markets. While the wheat tariff remained unchanged for four years at null between August 2010 and October 2014, it has changed eight times between October 2014 and March 2017.

While farmers are content with the variable formula, traders are concerned that the tariff formula is exposed to currency risk, which has been particularly severe due to the volatility of the ZAR to US$ exchange rate.

Moreover, it takes about six to eight weeks for the tariff adjustment to occur – the lag period between the time the tariff adjustment conditions are met, and the time when a tariff change is effected by law. The average six to eight-week delay in the trigger causes a decline in volumes traded on the South African Futures Exchange (SAFEX). Industry experts point out that this decline in traded volumes on the market leads to a significant depletion in liquidity by a factor of 30%.

Meanwhile, data over the period October 2014 and January 2017 shows that, South Africa’s wheat imports during the “delay months” (320 910 tons) are three times the overall average imports of the other months (120 760 tons). This could be an indication of “stock-piling” by traders seeking to avoid tariff hikes.

Wheat 2

An additional effect of the delay is that, in the past, the timing of the trigger was sometimes overtaken by events in the market, such that tariffs decline (increase) when current market conditions suggest that it should increase (decline). In this sense, the variable tariff model can be, at times, counter-intuitive because the slow trigger mechanism works against fast-paced and quick changing market conditions.

A Sugar Industry Perspective

The level of protection for sugar is determined by the difference between the world reference price (the London No.5 Settlement Price) and the 20-trading-day moving average of the London No.5 settlement price, calculated on a daily basis. When this difference amounts to more than US$20 per ton for 20 consecutive trading days, a new duty is calculated and a new reference price is set.

The sugar tariff has changed 12 times over a 36-month period – between April 2014 and May 2017 (see Chart 2). After the sugar tariff peaked to R3 040 per ton between October 2015 to November 2015, the tariff declined to zero in February 2017. This was the first time the tariff had reached null since April 2014. But since March 2017, the sugar tariff has been R63.63 per ton.

Wheat 1

Like the wheat industry, sugar producers (cane producers and processors) do not have a problem with the existing tariff model. Although they are content with the overall framework of variable tariff formula itself, they hold a few reservations relating to specific variables used to calculate the tariff.

The dollar-based reference price calculation in the formula was based on a distortion factor of 7%, and this was drawn from a 2013 report by Patrick H. Chartenay. Some industry players believe that this 7% distortion factor was not appropriately quoted, as the true level of distortion – which captured both direct and indirect support in the Brazilian market for both ethanol and sugar markets – was in the order of 22%. As such, the dollar based reference price under-stated the true level of global market price distortion.

Sugar market stakeholders further argue that, the variable tariff formula does not contain an inflation adjustment factor, which would ideally capture the rising cost of production inputs. While one might argue that the exchange rate could be a proxy for an inflation adjustment, it is largely exogenous and its volatility present considerable risk.

With sugar producers and processors generally in favour of the variable tariff model, traders remain skeptical for the same reasons that wheat traders have. After peaking to 720 000 tons in the 2013/14 season, sugar imports declined by 24% in the 2014/15 season to 544 000 tons as the tariff increased from null to an annual average of R1 390 per ton. Imports fell further by 15% in the 2015/16 season to 462 000 tons as the tariff increased by a futher 80% to an annual average of R2 508 per ton.

Like in the wheat sector, a series of tariff hikes between April 2014 and October 2015 saw a peculiar trend of peaking sugar imports just before tariff hikes. There is evidence of traders stock-piling non-SACU originating sugar imports which are affected by higher tariffs.

The discussion above reveals two diametrically opposite views related to the variable tariff formula. One the one hand, traders generally favor the a departure from the variable tariff formula. Traders in the wheat market suggest that the it would be ideal to ditch the less predictable “complex variable” tariff formula for a more predictable much “simpler constant” ad valorem tariff. Further arguments to support this view suggest that such an ad valorem tariff could be adjusted every three to five years to reflect the most recent structural market conditions, and should also incorporate an appropriate distortion factor.

The dilemma

On the other hand, traders from both the sugar and wheat industry seem to favour the current structure of the variable tariff formula. Sugar producers have reservations on the variables contained in the formula, namely the selection of an appropriate distortion factor, as well as the need to incorporate an additional inflation adjustment factor, as previously discussed.

Traders, however, prefer to see a more predictable and certain tariff mechanism. Tariff hikes have significant implications on trader’s sourcing decisions. What makes it even more difficult is that the dates on which regulators decide to effect tariff hikes is never known until the day they are published through the Government Gazette. As a result, there are instances in which tariff changes occur when shipments are already in transit, which is problematic.

The divergent views between producers and traders in the sugar and wheat markets present an interesting dilemma for the National Treasury, especially given that both divergent arguments have merit.

Debunking the paradox of land expropriation without compensation

I had a colleague of mine lambast my views in the Farmer’s Weekly of the week of 27 March 2017 where I argued why expropriation without compensation is not a viable alternative. Before I debate my views, it’s important for me to point out that I am a firm believer of social justice, and I believe in land reform as a means to addressing inequality. The only difference between myself and my colleague lies in the manner through which this goal is attained.

Some strong believers of social justice argue that, since land was expropriated from the black population without compensation, the white population that now owns it should be afforded the same courtesy. Though logical, the reality however is not that straight forward. There are two reasons why land should not be repossessed without compensation.

The first reason why it is now imperative to pay for land that was taken for free is that South Africa needs to maintain a delicate system of confidence – otherwise known as the economy. Today, South Africa is the most dynamic and complex economy in Africa – much more sophisticated than what it was back in 1913 when the Land Act was passed.

So complex is this system of confidence that the expropriation of land will in itself not be the problem, but rather, the perceptions around it – namely its weakening of property rights and the perceived risk of capital to be securely invested within the agricultural sector and the rest of the economy.

The second reason, why it is important to pay for land that was taken for free is that, expropriating land without compensation, in effect, strips the land of its intrinsic value. When you make land a free commodity, the system of confidence can no longer accept it as collateral because it will be perceived to no longer hold its value. Some analysts will argue that one could consider collateralizing agricultural output instead of the land itself.

That proposition, however, does not resolve the enormous risk created by weak property rights at farm level. The system of confidence will not afford farm-level agriculture any capital without a significant premium. This premium – otherwise known as the cost of capital, or simply as interest – will adjust upwards because the cost of money has to match the level of risk associated in investing within a system that has weak property rights.

The inherent problem is that, returns in agriculture are generally low, and do not match this risk premium. As a result, the potential risks will outweigh the returns to agriculture. The result is that capital will seek higher returns with lower risks in other sectors of the economy. Without any investment in agriculture, you end up with is land that has no value, and a system of confidence that cannot accept land as a safe haven of investment.

Given the foregoing, my argument is that you cannot restore human dignity through land if such land becomes a dead asset. You cannot empower a landless population sustainably by giving out a valueless asset. Real economic empowerment lies, rather, in giving people a productive asset in which the system of confidence offers its true intrinsic value – you cannot have one without the other.

For many land reform radicalists, the principle of compensating land that was taken away at no cost under the apartheid system is one that sounds counter-intuitive at best, and even anti-poor, at worst. And I know many will reject the rationale articulated in this opinion piece, not on the basis of merit, but ideology.  With due respect to the pain and suffering of the poor, many of whose stories are yet to be told – I believe that as the nation reflects on the failures of past land reform efforts, a new collective wisdom can emerge to craft a new progressive model.

*This article was published in the Farmer’s Weekly edition of the 24th April 2017