The government must establish a dedicated agricultural lender that receives an annual subsidy of about R2bn from the fiscus if SA is to develop a class of black commercial farmers while growing farming’s output and employment.
This is the call from Reserve Bank deputy governor Kuben Naidoo, who said last week that if SA was to break free of its “history of dualism” in agriculture it needed to provide black farmers with access to finance at affordable rates.
He was delivering the first Mohammad Karaan memorial address at Stellenbosch University. Karaan, a former dean of the faculty of agrisciences at the university and commissioner of the National Planning Commission, died in 2021. Naidoo, now deputy governor for financial stability, was the deputy governor in charge of banking regulation at the Bank before a recent reshuffle of roles.
His comments come at a time when the position of the Land Bank, historically the largest lender to farmers, remains unresolved. The Land Bank defaulted on its loan repayments in April 2020.
Naidoo said last week that limited financial assistance to black farmers was in part what contributed to a negligible contribution by black farmers to agriculture output.
A successful emerging farmer development strategy requires a dedicated agricultural lender that gets an annual subsidy from the fiscus, he said.
A permanent, recurrent subsidy of about R2bn a year, assuming a well-capitalised entity to start with, complemented by private donations and official development assistance, would be enough for about R15bn to R20bn a year of concessional lending, he said.
That type of lending will move the dial in promoting successful commercial farming in the former homelands, more so than the present use of that same money in the hands of government departments.
Naidoo said it would take a “significant overhaul” for the Land Bank to be an institution providing this type of financing.
Naidoo said the model for agricultural development after 1913 was to “take land from some people and give it to others, provide subsidised, long-term, concessional credit, invest in water storage, transport and other long-term infrastructure, and provide good-quality extension services and mentorship to farmers”.
However, particularly after 1990, much of this support for farmers was ended. Subsidised loans were phased out and agricultural extension services “collapsed”. State water and transport infrastructure services were weakened or were simply not maintained.
Despite this dramatic reduction in state support, the sector boomed. Some of the established, white and family-owned commercial farms became larger, and output expanded.
“I believe 60 years of affirmative action to support white commercial farmers produced some spectacularly successful farmers,” he said. “Yet even post 1994, as the sector boomed, the dualism remained, with black farmers almost exclusively confined to the former homelands and farm[ing] on a small scale without access to physical and institutional infrastructure, extension advice, farm inputs.”
The ending of subsidised credit via the Land Bank, the collapse of extension services and the poor state of water and transport infrastructure limited any possibility of growth for black commercial farmers.
SA has about 250,000 farms. Of these, 42,000 are commercial, largely family-owned and produce about 80% of agricultural output. About 2,600 of the commercial farms are largely white-owned and produce roughly 65% of output.
To make a difference and to unlock the growth potential of black-owned farms, farmers need access to concessional finance, water rights, storage facilities and quality agricultural extension support, said Naidoo.
Financing commercial farmers in former homelands on similarly generous terms as farmers who received state aid from the 1920s to 1980s, combined with water, storage and transport infrastructure, could generate thousands of new black commercial farmers, raise farming output and grow employment, Naidoo said.
But, transforming the Land Bank to do this will be a huge challenge. It is struggling to repay the R50bn in bonds on which it defaulted two years ago, even after generous bailouts from the Treasury, which allocated it R3bn in 2020, plus R7bn over the medium term.
Finance minister Enoch Godongwana appointed a new board in December.
But the bank, which holds about 28% of SA agricultural debt of R190bn, has been unable to take on new clients and has been able to service existing clients only to a limited extent.
To support long-term development of emerging farmers, loans must be for more than 15 years and possibly as long as 30, Naidoo said, but the Land Bank and commercial banks do not readily lend for more than 10. The Land Bank would need a permanent subsidy or access to long-term deposits at very low interest rates to do this.
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