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November 02, 2009

New South African farmers lobby for more state financial support

by Stephan Hofstatter

Black farming groups are calling for a major overhaul of the way their sector is funded, after Finance Minister Pravin Gordhan announced that the first one billion Rand tranche of the Land Bank’s R3, 5bn recapitalisation would be released in this financial year.

Their proposal, to be presented to African National Congress (ANC) secretary-general Gwede Mantashe on November 19, includes recommendations on how to reduce the high land prices they say leave them over-indebted to the bank.

In June Gordhan approved R3,5bn to be disbursed to the bank over three years after the Treasury approved its turnaround strategy, which included ramping up collections on non-performing loans, lifting a moratorium on foreclosing on defaulting black farmers, and freezing disbursements from a R100m AgriBEE fund under investigation.

A total of R3,2bn of the funds were set aside for development loans, which include support for black farmers and agricultural enterprises throughout the value chain that create jobs and contribute to empowerment and land reform targets. This is in addition to a bail- out package funded by the land reform and agriculture departments for 283 defaulting black farmers who owe the Land Bank R232m.

But the black farming groups believe current state-sponsored funding efforts are setting new entrants up for failure, and are lobbying the ANC to push for a new farmer support model.

The National Emergent Red Meat Producers Organisation (Nerpo), one of the most influential black farmer lobbies, believes the grant system with its limit of R430,000 a person should be scrapped.

“They’re basically saying if you want a grant you must bring 1000 people,” says Nerpo president Aggrey Mahanjana. “It doesn’t work for commercial agriculture.”

Nerpo has 48,000 members, although only 1800 are paid up. The R15bn red meat industry has ample scope for empowerment as black farmers own about half of SA’s livestock but earn less than 20% of the revenue, says Mahanjana.

He suggests it would be a far more efficient use of public money if the state paid market value for land and sold it to black farmers at productive value, which is generally about 50% less. He rejects populist suggestions that the state should expropriate at productive value. This would create too much “social, economic and political instability.”

“But if we want to avoid Zimbabwe, the state must subsidise the difference. If we are serious about land reform, all South Africans must pay for it,” he says.

A recent study shows about half of all state-funded land reform farms have either failed or are in decline.

The second proposal Nerpo will present to Mantashe is that the ANC should compel the Land Bank to offer black farmers subsidised interest rates over five years.

“Namibia is doing it — why can’t we?” he says. “The bank’s argument for charging us more than commercial banks has always been because they raise their own funds. But this R1bn is public money.”

His views are shared by Otto Mbangula, president of the National African Farmers Union. “The exploitation of the emerging farmer must stop,” he says. “This R1bn allocation to the Land Bank must be used for loans to buy inputs, land and a stake in its existing co-operatives at subsidised interest rates.”

The bank says it is crafting a new support mechanism with the agriculture and land reform department to integrate black farmers into the mainstream economy, but it remains tight-lipped about the finer details.

“The strategy includes private sector support for the emerging farmers such as off-take agreements, mentoring and coaching,” says bank spokesman Musa Mchunu.

Improved state support would include better extension services, greater research spending, and funding a start-up pack.

Mchunu rejects criticism that the bank’s past lending mistakes, that led to substantial write-offs, had resulted in a paralysis that prevented it from approving any substantial loans to black farmers, even when applications were well motivated. Credit policies and financing models are being reviewed to reduce risk to both the bank and farmers.

“This might create the perception of paralysis, whereas the benefits in the long term might be greater.”

The government appears to be taking the emerging farmers’ plight seriously. Agriculture Minister Tina Joemat-Pettersson has undertaken to review development financing models and devise a more effective funding mechanism. This could include reviving the old Agricultural Credit Board, which used to offer farmers in distress subsidised loans to get them back on their feet, but was disbanded in 2001.

“The ministers of agriculture, forestry and fisheries, rural development and land reform and of finance will be presenting a new model to Parliament in the next few weeks,” she said.

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