Thinking Beyond Share Equity Schemes in Land Reform: How about Going Small?

By Stephen Greenberg · 23 Sep 2009

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Picture: JP Flanagan
Picture: JP Flanagan

In early September Minister of Rural Development and Land Reform announced a moratorium on share equity schemes as a model for land reform. The immediate response from the mainstream media was to rush to the defence of share equity as the “most commercially successful land reform model to date”. But we need to ask what commercial success is, and who has benefited from it through share equity schemes in practice?

Share equity schemes were introduced early on in the land reform programme as a way of allowing for continuity of commercial production on high value agricultural land, as well as retaining technical skills of white commercial farmers. The standard model was that the state paid for the purchase of the land which was then held in a Trust owned by the beneficiaries. Production was then separated from land ownership. In most cases, an operating company was established in which the former land owner/white commercial farmer had a 49% share and the beneficiary trust had 51% (with variations in different schemes). An agreement was signed between the partners in which the former owner would provide technical support to maintain production, and would gradually transfer the necessary technical, management and financial skills to the beneficiaries over a period of, say, 5 years. The white farmer’s significant shareholding would ensure that they had a material interest in making the partnership a success. The operating company would pay rental to the land owners (the beneficiary trust) and dividends would be paid to shareholders in proportion to their share ownership.

Beneficiaries were often employed as farm workers on the scheme, thereby theoretically benefiting materially in three ways: directly from wages from farm labour; and indirectly from dividends from production and rental income. The latter two streams of income usually went to the Trust. They could be used in any way, but the idea was for them to be used for community development (infrastructure and support for separate production activities).

Theoretically, the model sounds good. But in practice it seldom worked to the satisfaction of beneficiaries. This was particularly the case in restitution projects that adopted the share equity model. One high profile case of this nature is the Levubu cluster of farms in the Soutpansberg area of Limpopo province. The African population that had lived on the land were forcibly removed in the 1930s to make way for an irrigation scheme for the settlement of poor whites. What became an intensive subtropical fruit and nut production area was both the consequence of the violent dispossession of the African population, and ongoing state support for production. It is interesting to note that the people who call for the retention of commercial agriculture and share equity schemes are the same who oppose significant state support to agriculture, even though the former only became “commercially successful” because of the latter.

In settling the Levubu restitution claim in the early 2000s, the government was so afraid of the potential negative impact on commercial agricultural production that it imposed a share equity scheme on the beneficiaries. What’s more, it prohibited beneficiaries from moving back onto the land for fear of disrupting the flow of commercial production. This is legally questionable, since there is a Constitutional right of those dispossessed of land after 1913 to “restitution of that property or equitable redress.”

This opens up a can of worms, because how is equitable redress to be defined? And a number of difficult often conflicting demands must be balanced in some way. The primary tension is between understanding land as a birthright of those who were born and lived there, and understanding land as a scarce productive resource that must be used in the interests of citizens beyond those who happened to have originated there. Not only is land a productive resource, but thousands of people (mostly not beneficiaries) were employed on those farms and the production generated foreign exchange for the country (though not as much as some would like us to believe).

In the case of Levubu, the issue of share equity schemes is tightly bound up into the politics of restitution which complicates matters immensely. But whichever way we look at it, the supposed beneficiaries of the schemes have failed to benefit in any significant way. In Levubu the management company (SA Farm Management), which by all indications was unaccountable to the beneficiaries, finally went bankrupt earlier in 2009 after squandering large amounts of state resources which it was supposedly managing on behalf of the beneficiary communities. It is an indictment on the share equity model that the greatest source of income for beneficiaries from this large-scale commercial venture was farm wages, at rates similar to those paid to farm workers on other commercial farms. The latest Agricultural Census shows that full-time farm workers earned an average wage of R1,384.83 per month in 2007. Benefits from rent and dividends were negligible, while white managers were paid disproportionately large salaries. The scheme’s future is now in doubt.

In what way is this model a success? Not only are beneficiaries prohibited from returning to their land to live, but the commercial production which the model was meant to protect is also under threat. Levubu is by no means an isolated case. According to Eddie Mohoebi in the Department of Rural Development and Land Reform (DRDLR) communications unit, only nine out of 88 farm equity scheme projects implemented nationally between 1996 and 2008 have declared dividends. Former owners and their management companies continue to make profits while controlling information on income and expenditure from beneficiaries (i.e. no meaningful skills transfer is taking place), while the so-called beneficiaries’ lives remain as they were: evicted from their land, with meagre wages from farm labour as their main source of income.

Placing a moratorium on share equity schemes in land reform is a positive step forward to give government and citizens time to reflect on how to approach the issue of land redistribution and restitution on high value agricultural land. What alternatives to a share equity model might there be?

Most people will acknowledge the need to generate surplus agricultural products that can provide food and fibres for those not engaged in agriculture. Evidence from many other countries, including in Southern Africa, shows that smallholder agriculture with appropriate government support can generate surpluses while immensely broadening the base of producers and distributing land and resources more equitably. Even where there are high value crops like fruit trees, why go the route of further consolidation of farm units (in Levubu, farm units were made larger to facilitate centralised management) rather than in the opposite direction?

A case can be made for breaking centralised units into smaller plots that can still feed production into a centralised processing/packaging unit. Contract farming model on this basis are successful the world over, including in South Africa in the sugar and cotton sectors. The big problem with contract farming is the imbalance of power between lots of individualised smallholders and powerful processors. A land reform model could generate a key difference, with smallholder farmers being co-operative owners of the centralised infrastructure. This doesn’t remove the issue of transfer of technical and management skills or financial transparency and accountability. Selection of producers would be critical, and farmers would also need to be able to make independent decisions about what to produce on the land. Intercropping a cash crop (e.g. sugar or fruit) with a food crop (e.g. maize) spreads risk and mixes short and medium term livelihood strategies. This model would also allow people to return to the land, thereby realising other important benefits.

It would not be necessary to do it all at once. Government could facilitate a process of identifying those who are interested in trying the model out. Starting on a portion of the land, some beneficiaries would return to the land (as they are requesting) to produce fruit on smaller units as well as intercropping, and learn from the process and adapt and/or expand on the basis of experience. This provides a potential ‘win-win’ situation: it responds to the imperatives of redress, immediate livelihood concerns, surplus production of high value crops, and a transformation of the agrarian structure.

Dr. Greenberg is a freelance researcher with an interest in food systems, land, agriculture and rural development.

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