Potential for economic sustainability of land reform projects benefitting from the Recapitalisation and Development Programme in South Africa

Abstract

Economic sustainability of land reform agricultural projects is considered an essential aspect of food security and economic growth in South Africa. With agriculture identified as an engine of economic growth, especially in the rural areas, it is important that projects benefiting from the Recapitalisation and Development Programme indicate a potential for being economically sustainable when government ceases assistance after the agreed period of support and that they are able to achieve economic sustainability in the long run. The specific purpose of this study is to evaluate the potential for economic sustainability of land reform projects that benefited from the Recapitalisation and Development Programme (RADP, henceforth abbreviated as Recap) from inception in 2010 up to June 2012. This study used survey data from 98 Recap projects. Primary data was collected through face-to-face interviews with the sampled project beneficiaries. Literature on the economic sustainability of farms/projects was reviewed. Recommendations were then drawn on areas of policy intervention to improve economic sustainability of the land reform farms that benefited from Recap. Discriminant function analysis was used to identify factors discriminating potential economically sustainable projects and non-economically sustainable projects. The division was based on income from agricultural production activities generated by the projects. Of the fourteen discriminant variables that were selected, five explained group difference with statistical significance. The five important variables in the discriminant function analysis were: (i) Type of land reform/acquisition (ii) Total amount of Recap grant received (iii) Strategic intervention (mentorship) (iv) Accessibility of the market by the projects; (v) Credit access by the projects. The results of the study indicate that a majority (72%) of the projects that benefited from the Recapitalisation and Development Programme were still not economically sustainable. Low levels of agricultural income were observed in the non-economically sustainable projects and this factor proved to have an effect on the potential to be economically sustainability. Furthermore, this group had more difficulties in accessing markets, especially established ones, and credit, while some of the projects had not received financial assistance yet from Recap. Lack of basic farm management skills was also observed in both groups. It is recommended that the South African Government put more effort into capacitating the beneficiaries through effective skills transfer. The State may also look into providing an enabling environment for the private sector to provide financial services, which are affordable to the beneficiaries. There is a need for the government to establish well-developed markets, which will allow primary producers (beneficiaries) to be linked to value chains where they will have a potential of increasing projects profits. Finally, knowledgeable persons in terms of financing should be involved in the running of the projects, as some of the mentors lack the necessary financial skills, although they do fully understand the production side.