Restoring the Agricultural potential of the Free State

Restoring the Agricultural potential of the Free State Province of South Africa. 

                                                                                     Stes de Necker

 “DOING WHAT IS RIGHT”

Background

South Africa is strewn with examples of failed land reform projects for agricultural development. Once productive and vibrant farming enterprises are now little more than unproductive wasteland.

The contribution of Agriculture to the Free State’s economy {measured in terms of GGP} has declined steadily between 1981 and 1994 and again between 2000 to 2004; the sector actually showed negative growth rates between 1991 and 1994. This decline reflected a net loss of some 55 000 jobs in Agriculture between 1980 and 2001 and a further 25 000 jobs between 2001 and 2004.

Historically the economy of the Free State was based primarily on Mining and Agriculture and it is both these pillars of the provincial economy which have declined since at least the early 1990’s. The decline of subsidiary contributions to the provincial economy i.e. electricity, water and construction are associated with the decrease in mining and agricultural activities. Meanwhile manufacturing, finance and services {community and government} have been growing steadily reflecting a national trend in recent economic development.

Fig 1 reflects the total contribution of all sectors to the Free State GGP


                                                                   Fig 1

Fig 2 graphically represents the contribution of Mining and Quarrying and Agriculture, Forestry and Fishing specifically

                                                                                Fig 2

The contributions of all sectors contributing to the Free State GGP in Rand value, for the period 1995 – 2004 is represented in annexure A

Based on multipliers developed for the Free State economy by Conningarth Economists, Agriculture’s contribution to Free State GGP will {theoretically} be zero by the year 2020. It must emphasized however that this is a theoretical point, because in practice there will always be a certain production input, although it can still reflect a negative growth rate.

Approximately R 600 million direct investment in agriculture was needed in 2002 to simply stabilize the declining agricultural contribution, while a further R110 million would have been needed to effect a 2% growth in the sector annually.

Fig 3 graphically represents the declining trend of agriculture’s contribution to the Free State’s GGP reaching a negative contribution by the year 2020.

                                                                         Fig 3

Away from the resources and energy of the Metropolitan Economies, polite expressions of loyalty, poor service delivery and sheer incompetence tend to be the order of the day in the Free State. Participating creatively and effectively in the global economy will require an entirely different mindset, daring to be less governmental, challenging conventional development policies and fostering competitive regional and global linkages. Equipping all agricultural stake holders in the Free State to develop these qualities will be a major challenge.

Nowhere in modern history has Governments been able to conduct farming operations economically and sustainably within the confines of governmental policies and statutory regulations. Communist Russia, Cuba and most recently Zimbabwe are examples of this inability.

In Africa, numerous regimes have failed to effectively produce food for their citizens. With all the best intentions in the world, present South African Government policies,  mentorships by agricultural organizations, NGO’s and commodity organizations have, at best, only succeeded to postpone the evil day and all these efforts are doomed to failure unless a long term remedy can be found to stop the continuous decline in agricultural production in the province.

The rules of the game

The renowned scenario planner, Clem Sunter, in a publication “The World and South Africa in the 2010’s” said that: “We live in a world that is constantly evolving, and yet within this evolution, history seems intent on repeating itself. This paradox has been driven by our continued use of history as a source of experience to improve ourselves, but also by our remarkable refusal at times to learn from it.”

In an attempt to highlight the real reasons for the steady decline in Agricultural productivity, this proposal follows the classic methodology used in scenario planning which comprises three steps namely {a.} the rules of the game {b.} the key uncertainties and {c.} the possible solutions that emanate from them. The rules of the game are those propositions that are virtually certain to apply in the industry, whereas the key uncertainties are the hidden risks lurking in the woods. The end solution itself is a possible outcome under the mentioned circumstances. The solution proposed in this report is nothing new to SA as contract farming has been practiced for decades. The scale and practices which are proposed however, differs substantially from the practices of the past.

Constant rising input costs i.e. fuel, fertilizer, pesticides and labour, with the accompanying inability of most farmers to maximize revenue in the market place, have forced many farmers off their land. Furthermore, the majority of South African farmers, especially our emerging and existing small to medium range operations, seems to be unable to stay abreast of modern scientific methodology and technology due mainly to financial constraints and inadequate support structures.

New generation fuel efficient tractors and farming equipment combined with modern production methods for example scientific minimum tillage and water harvesting practices, have not only made it possible for many established commercial farmers to survive the recent economic decline in agriculture but in fact to grow even bigger.

In the RSA, as elsewhere on the globe, successful farmers are applying modern scientific methodologies and technology to ensure their eventual success.

These modern practices have resulted in what is described in this proposal as the seven rules for successful farming i.e.

1. Good productive land
2. Modern technology and equipment
3. Knowledge of scientific farming practices and methodology
4. Modern financing methods
5. Modern insurance methods to counter the impact of unforeseen disasters
6. Optimal reduction in input cost
7. Optimal marketing strategies to maximize revenue

Farmers in traditional rural communities, as well as newly established emergent farmers, are generally in command of the first of these vital seven rules i.e. being in possession of, or have access to, good productive land. Small to medium range operations {i.e. existing smaller farming enterprises} may at best be in command of three, at best four of the above mentioned rules, while only the few really successful commercial farmers will be in command of all seven.

Measured against the above mentioned vital rules for Agricultural success, it is not difficult to understand why most land reform projects in SA have not been successful.

All attempts to rectify the current ills in the industry, without attempting to re-invent the wheel, will not succeed unless recipients of land reform projects and small to medium range farming operations have, or have access to, the means to apply all seven of the above mentioned prerequisites.

Key Uncertainties

The main uncertainties that could reshape agricultural production in SA are the following:

1. Whether or not the issue of land ownership can be resolved peacefully and productively. Productive land reform as compared to “political land reform” implies in the very first instance that land reform in SA should be primarily focused on the retention of economic viability and sustainability of  the land in question. Establishing numerous isolated patches of unproductive and economically non viable farming entities is a sure recipe for failure. Agricultural competitiveness in the international market will increasingly be driven by economies of scale, which can hardly be obtained by individual operations.

2. Closely following the above mentioned, is whether or not SA will be in a position to timeously secure a competitive edge in the global economy which itself is becoming increasingly competitive.

3. Whether or not the current inadequacies in the country’s infrastructure, particularly related to the supply of electricity, road and rail transport and health facilities can be solved in a way that does not limit economic growth.

4. Whether or not the current crime rate {particularly violent crime} is reduced to an acceptable level.

5. Whether or not SA can remain the generally peaceful society it has been since 1994 given the current internal conflict situation which has resulted from recent political tension in SA.

6. Whether the HIV/Aids pandemic, which is currently draining SA of its much required recourses, can be stopped and ultimately eradicated.

7. Whether or not the critical skills deficit, which is developing in parts of the economy, can be overcome and whether we can improve the quality of our education system to suit the current skills requirements.

8. Whether or not Zimbabwe, as one of our closest neighbours, can rise from the current political abyss it finds itself in.

9. Whether or not we can succeed in bringing the current unacceptable rate of inflation back to acceptable levels. When considering measures to curb rising inflation, one needs to distinguish between two types of inflation namely, “demand inflation” and “cost inflation”. SA is currently experiencing predominantly cost inflation caused by ever rising energy and fuel costs over which the South African consumer have little or no control. These increases in turn result in increases of other commodity prices such as food.
10. It is estimated for instance that should the oil price reach $190 US per barrel, the domestic price of maize would increase to R 5000 per ton, compared to its current level of around R 2200 per ton. Such increases hold disastrous consequences for SA and what’s more, this is no urban legend. These are hard facts.

Government can continue to attempt curbing inflationary escalation by means of customary fiscal measures {i.e. increasing interest rates and reducing the monetary supply in circulation} till consumers are blue in the face, but until such time as the real inflation drivers namely energy and fuel costs are brought under control, fiscal measures will have very little effect in reducing the current inflation level.

The traditional definition of inflation namely that inflation is caused by too much money, chasing too few goods and services, simply doesn’t hold true for South Africa’s current situation.

When analyzed properly one discovers that SA’s inflation rate, excluding food and energy increases, amount to only 3%

SA has remained part of the international mainstream economy for the last fourteen years as a result of stable government and disciplined macro-economic policies. Staying part of the international mainstream is proving increasingly challenging. Greater efficiency in terms of Government delivery as well as a dramatic reduction in the crime rate and transformation of the Health and Education System will be critically necessary.

Loosing further ground in its competitiveness in the international economic arena will most certainly see SA joining the likes of Zimbabwe, Myanmar, North Korea and Somalia as the failed states of the recent world order.

Proof of SA’s decline from its primary position in the international economy is clearly reflected in three major reports released recently namely:

1. The World Economic Forums {WEF} Global competitive Index shows a fall for SA from 36^th position in 2006 to 44^th position in 2007.
2. The World Bank’s Doing business in 2008  survey of global ease-of –doing-business rankings has shown SA slipping from 29^th position to 35^th. This is the first time the country has fallen out of the top 30, since the survey began 5 years ago.

3.      The International Institute for Management Development’s World Competitiveness Yearbook for 2007 highlights SA descending from 38^th to 50^th position in a ranking of 55 countries.

Proposed Solution

This proposal is aimed at presenting a practical achievable solution, which can bring about a U-turn of the SA Agricultural economic position and which can advance our rankings in the international arena by the time we get to 2013 i.e. 5 years from now. This proposal will also require the development of new Agricultural economic space in SA’s position as principle gateway into Africa as well as launching our bid to gain a bigger market share in the Far East.

 It further aims at reversing a certain amount of complacency, lack of service delivery and some misdirected government policies, which have taken SA’s eye off the ball in a game where the demands on the players are unyielding. SA faces a possible ejection form the first world economy to a position of a typical third world economy, and this can happen quicker than we think. Kenya’s current political upheavals demonstrated just how rapidly a country can tumble towards this position.

Prime arable land is currently available in the trust land areas of the Free State. Approximately  85 000 hectares, of which at least 80% is suited for food production, is currently lying dormant because of farming operations which have become obsolete and uneconomical after 1994. Pre 1994 substantial returns were produced on these lands, all be it through highly subsidized practices of the then Bophuthatswana Government. This vast resource can, with the necessary management and best practice methodologies, again be put into food production that can effectively reduce the continued decline in agricultural production in the Free State.

The increasing application of modern crop rotation systems, the development of new technology and the application of exciting new tillage methodologies are rapidly creating vast new possibilities to solve the problems experienced with previous orthodox farming practices. The current unaffordable cost of fuel and the possible reduction in the cost of herbicides have greatly improved the viability of for instance no-till or minimum tillage methods. The main objectives of this type of practice is to disturb the soil surface as little as possible in order to preserve moisture captured in the lower layers of the soil and to inhibit the growth of weeds captured in these lower soil layers.

New generation tractors and implements designed primarily with a view to maximizing fuel efficiency and optimal kilowatt to implement ratios, makes it possible to reduce input costs significantly.

The proposed solution lies in the establishment of a purpose specific utility company, co-operatively owned by all the stake holders in the venture which can secure the necessary funding, expertise and best practice methodologies that will satisfy all seven key prerequisites necessary for sustained economic development.

With the support and participation of all stake holders in the trust land areas {i.e. Chieftains, community leaders and the community} at least 50% of the currently unproductive arable land can once again be put into food production by means of the well known system of custom farming. Implementing this system, the proposed utility company, which will be co-operatively owned by all stake holders through share equity, can effectively move in, prepare the soil, plant, grow, harvest and market the crops and all profits {i.e. net surplus after deduction of operating costs} will revert back to the share holders in the form of dividends.

One of the key elements during this process would be the concerted and continuous transfer of skills to all relevant stake holders involved in the process. Building a strong properly skilled and educated critical mass will be paramount for the continued success and viability of the project.

It is envisaged that at least 15 000 hectares arable land can be put back under agricultural production.                           

It is further necessary that a specific designated area for continued best practice research be established. An ideally suitable site for this purpose has already been identified.

As is the case with the development of any commercial venture the single biggest challenge will be securing the necessary funding and financial backing for such a  project.

Considering the scale and magnitude of the venture, acquiring the necessary amount of seed capital at most favorable conditions may prove to be a challenge.

Closing remarks

As can be deduced from the afore mentioned, the purpose of this report is in the first place not to present to the reader a blue print for a successful agricultural development which will solve all agricultural problems with the proverbial wave of the magic wand, but rather an honest attempt by the author to serve as a basis for further debate and to elicit further inputs and ideas from all stake holders, other professionals and expert advisers which will enhance the viability of this proposal.

The farmers of the Free State, working with and not against Government, have plenty control over their own destinies and the choices which we need to be make are clear: we do little and fall further into a failed economy classification or we stop the current slide by implementing the logical remedial interventions as tough as they may be.

There is little space left in SA for mediocre economic activities and peace-meal handouts to satisfy the needs of the masses. We are the most modern economy on the African continent and we have already established ourselves as the gateway to the rest of Africa for most overseas businesses wishing to invest in Africa. Retaining this position will however require the speedy development of major reliable and economically viable business ventures. The most obvious, as far as the Free State economy is concerned, being the re-establishment of the Free State as the bread basket of SA.

Having faced the same dilemma as the one we are currently facing in SA, New Zealand in the mid 1980s reverted to a system of co-operative best practice farming and not only did they succeed in reversing their economic slump, but managed to capture the total dairy market in the Far East! If they could do it, why not us?

As Clem Sunter so rightly put it: “The question today is not to be or not to be, but rather to do or not to do”.

 SA has the potential to surprise the world a second time. The question is however: Has the South African Government the political will to do so?

Anyone interested in obtaining more information on the ARPM Development Model can contact Stes de Necker at:  stesdenecker@telkomsa.net or fax to email at 0866125254

Acknowledgements

Information obtained in the following sources are gratefully acknowledged

1. Never Mind the Millennium. What about the next 24 hours – Clem Sunter 1999
2. The World and South Africa in the 2010s – Shantelle Illbury and Clem Sunter Feb 2008
3. Growth and Development in South Africa’s Heartland – Centre for Development and Enterprise July 2005
4. Conningarth Economists – Multipliers Developed for the Free State Province 2000
5. The World and South Africa in the 90s – Clem Sunter 1987
6. Inflation. How do we tame public enemy number one – Dr. Anton Rupert -  Lecture presented on 16 August 1977 at the University of Pretorius Post Graduate Business School 25^th Anniversary
7. Handbook for the Production of Small-grains in the Summer Rainfall Areas – ARC Small Grain Institute 2008  
8. Find some more interesting articles on my blog.
   Just click   http://stesdeneckers.blogspot.com