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Agricultural sector in ‘poor state’

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Drought, land reform processes, high farm prices take a toll

KwaZulu-Natal’s agricultural property market is under strain as the sector struggles with decreasing productivity levels owing to the recent drought and land reform processes.

The over-inflated price of agricultural land is also to blame for its “very poor” state.

“The agricultural sector in KZN is currently in a state of flux for a number of reasons,” says Dr Thulasizwe Mkhabela, president of the Agricultural Economics Association of South Africa.

“The province has just come out of one the worst droughts. Ironically, we have recorded one of the highest maize crops which has dampened the price of maize, and silos are reportedly full of stock.”

Overall he says the sector has seen a decline in productivity in a number of commodities and products, and has had to import them from other parts of the country.

Adding to woes is the land reform process, which sees farms transferred to new land owners either as restitution or via the Proactive Land Acquisition Scheme in which land is purchased, owned by the state, and then leased to black farmers for 30 years.

“Land reform is one of the major factors affecting the performance of the sector in KZN and the country as a whole. It is not necessarily that the programme is problematic and undesirable, but the implementation process and the uncertainties it creates can be.

KZN has an over-supply of maize and prices have been negatively affected. Picture: Supplied

“The selection of land reform beneficiaries, the lengthy process of acquiring land, and limited support are often cited as the Achilles’ tendons,” Mkhabela says.

Another problem is that agricultural land on the market is overpriced as farmers seek prices that are higher than the market average and the production potential. Financial institutions are therefore reluctant to finance such purchases as these higher-than-market prices make the transactions too risky, he says.

As an example, Dave Rigby, owner of KZN Farm Sales, says a farm in Dargle was recently on the market for R6.4million, but was eventually sold at auction for R3.8m.

“Farmers are asking for 50% to 100% more than the actual value or production value of the land. For this reason the only people able to buy are big companies that already own farms.”

Rigby says this means an entry-level dairy farmer will need a minimum of R30m to buy such a farm, although the average amount needed is closer to R50m or R60m. Banks will only finance these purchases if there is “double security”.

“If the amount needed is R20m, they want R40m in security from the buyer.”

These factors, in addition to the drought, are why Rigby says the agricultural property market is “very poor at the moment”.

Also, productive and useable land with irrigation rights is at a premium at the moment as “you just cannot find any”, he says.

“The land left in Agricultural Land is between 20% and 25%, and even that is very difficult to obtain. Commercial agriculture is squeezed into a very tight corner.

KZN has an over-supply of maize and prices have been negatively affected. Picture: Supplied

“About 50% of KZN land is under control of the Ingonyama Trust, and of the balance, big companies own about 15%. Then there are also game reserves. I wouldn’t be surprised if only 20% of land in KZN is still farmed.”

Furthermore, the land reform process has seen “highly productive land” reduced to “wasteland”, he says.

The conversion of “sometimes prime agricultural land” for residential and industrial use has, according to Mkhabela, also led to a “distorted agricultural property market”.

“The private sector has been leading in the conversion of agricultural land into high-end lifestyle residential areas in an attempt to increase value of their investment and their land.

“Large agricultural/agribusinesses have been converting their farmland to other uses at an alarming rate. This is more evident along the coastal areas of KZN where sugarcane farms are converted into industrial and residential land.”

Mkhabela believes the KZN agricultural sector should “be more vocal” against this conversion by relying on legislation which gives the Department of Agriculture the right of first refusal when issues of converting agricultural land are considered.

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