The changing face of commercial agriculture

Frans Cronje writes that the only farms able to survive are large efficient operations

Ten days ago Stats SA released a comprehensive report on the state of commercial agriculture in South Africa titled, Census of Commercial Agriculture 2007. The report shows that the business of farming in South Africa is transforming itself at a remarkable rate. The chief trends, however, run strongly against the vision that the government has for farming transformation in South Africa.

Farming in South Africa is changing but recent data suggests that it does not offer an antidote to rural poverty

The government regards land reform, which is actually the reform of the business of agriculture in South Africa, as a central pillar of its rural development strategies. Simply put the policy hopes to be able to use agricultural businesses to absorb the rural poor and the unemployed in order to meet development targets. It further hopes to do this by circumventing market forces in what it sees as a failure of the ‘willing buyer willing seller' approach to reform.

The recently released Census of Commercial Agriculture in South Africa suggests that this approach will never work. The Census shows quite clearly that the number of agricultural businesses and the number of people employed in these businesses is falling very rapidly. Key trends are as follows:

· The number of agricultural enterprises in South Africa fell by 13% between 2002 and 2007

· The number of people employed by these enterprises fell by 16%

· Total (nominal) income, however, increased by 49%

· Total (nominal) wages paid increased by 39%

· Current and capital (nominal) expenditure each increased by 20% 

These trends suggest that market forces in South Africa are causing farms to operate on bigger economies of scale in order to remain viable. In producing more income with fewer employees, but in paying those employees more, farms are also becoming more efficient. Current and capital expenditure increases have been modest. The pattern is indisputably one of a sector of our economy transforming and becoming more efficient in order to remain viable.

The trouble for government is that its model of rural development requires the opposite. In expecting farms to absorb the rural poor these farms would have to become smaller and employ more people. The result of enforcing government policy must necessarily be to undermine the viability of farming as a business in South Africa. Both government and various rural NGOs may argue that small scale peasant agriculture is a viable farming model for South Africa but the figures cited above suggest that this is simply wishful thinking.

The risks of pressing ahead with policy that flows against the natural economic tide are very great. Already under the Thabo Mbeki administration South Africa has become a net food importer. The reason for this includes a growing population but also suggests that the improvements in agricultural efficiency cited above have not kept pace with demand. Farm land under claim and land already handed over to claimants must contribute to this, as statistics on failed land reform projects attest.

At the same time food inflation is a key driving factor behind overall inflation levels, which more than any other factor is responsible for undermining the real household incomes of poor South Africans. Further risking the viability of commercial agriculture in South Africa under such circumstances would be socially and politically irresponsible.

Where land reform initiatives take place the commercial viability of the farming enterprise and wider food security for the country should override ideological or historical arguments for reform.  The government may argue that accelerated reform is a political necessity and failure in this area risks instability. However, they should be aware though that the political consequences of higher food prices and food inflation in driving up general inflation will be worse. 

Frans Cronje is deputy CEO of the South African Institute of Race Relations. This article first appeared in the Institute's weekly online newsletter SAIRR Today, March 6 2009

Click here to sign up to receive our free daily headline email service