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Capital- and Market-access constraints in post-settlement land reform Projects

Reflections from a study in Mpumalanga Province

Chris Williams

31 October, 2008

Background and Introduction

The Rural Action Committee Mpumalanga (TRAC-MP) Mpumalanga Management and Mentorship Pilot

Programme (MMMPP) (2003) Mentorship Lead Programme (since 2006) Agreement with Mpu Dept of Agriculture

TRAC+TIPS research for MLP into two key constraints identified through MMMPP experience Access to markets Access to capital

Research Purpose To gain an overview of capital facilities and marketing

services/facilities available to land reform projects in Mpumalanga

To understand the challenges faced by land reform beneficiaries in accessing both finance and markets

To offer strategic recommendations to land reform projects, key role players, the Mpumalanga Department of Agriculture, etc.

Approach•Review of literature

•Three in-dept case studies

• Interviews with role-players, stakeholders

Income generation cycle

Invest / Repay

Market

CapitalProduction

Farm

Market OpportunitiesMarket Location Market Types

 On farm sales

 Local staff, residence, neighbours, hawkers, local distributors

Sales in Local Municipal Areas Taxi ranks, Grant payout points, local retailers, co-operatives, restaurants and hotels. 

Regional sales centres Regional Markets, processing/ manufacturing, distributors, commodity groups, Tourism sector,  

National Distribution: National Markets and distributors, processing and value added, commodity groups. 

International Distribution: International markets, producers, distributors.

Findings: Market Access(1)

Deregulation of markets and disbanding of marketing boards has had a negative impact on emerging farmers and has reduced the state’s ability to provide support emerging farmers secure a market.

“The Rules of the Game” favour established commercial farmers. Land Reform Projects studied had greatest opportunities in the local

markets (on farm and in their local municipal areas). Limmmitted de facto state support i.t.o. market development and

information (market prices, conditions, opportunities, trends, scoping etc.)

Land Reform projects only secured markets after land transfers. Markets held by previous farmer were lost at the time of transfer.

Projects garner information from neighbouring farmers local co-operatives the media local wholesalers and markets

Findings: Market Access

Challenges faced by beneficiaries Had to establish a market after transfer Very little planning on market access occurred during

planning phase. Information sources on market prices, trends, opportunities

and conditions Lack of secure contracts Transportation costs Quality controls Economies of scale Consistency of production Packaging costs General logistics Lack of local market infrastructure

Sources of CapitalType of Capital Source

Own Equity:  

Beneficiary

Family Capital  

Beneficiary Households

Group Capital CPA, TRUSTS, CC

Project Income Production on land

Grant Funding DLA, NDA, DALA

State Lending Institutions Land Bank

Parastatals MADC

Private Lending Institutions SBSA, FNB. ABSA, NEDCOR

Findings: Access to Capital (1)

There are available facilities to access capital but these are not co-ordinated. Own equity, household equity Income generated from the project Co-operatives and commodity groups Informal Sources: Amashonisa Grant funding sunk into land purchase not equity Loan funding from the State or Parastatal body Loan funding from accredited private lending

institutions

Findings: Access to Capital (2)

Challenges faced by beneficiaries Access to information on facilities Length of time from application to

disbursement Quality of original business plans Group Surety No tailor made products for emerging

farmers (MAFISA ?).

Conclusions: Market Access

Developing market linkages during preplanning is critical for income generation and hence project success.

This may necessitate up front commitments from commodity groups, strategic partner, management and or mentors on the projects.

Markets that are sourced close to the project minimizes cost and risk. More research needed to understand market opportunities available to

land reform projects (conditions, volumes, pricing and terms). State has limmitted capacity to provide market support. Extension

services are not geared for this aspect of agri-business. Need greater involvement of other role players; co-operatives,

commodity groups, national retailers. Specific support is necessary to ensure that marketing agreements are

fair, profitable and conditions set are achievable for emerging farmers. Co-operation between projects, to secure a market, is possible but

ambitious given capacity, particularly in terms of production scheduling (DALA Strategy of marketing hubs).

Conclusions: Capital

Access to Capital is not being prioritized during project planning. This causes a halt in production after transfer.

Sources of capital on projects are not co-ordinated (own, grants and loan finance).

Poor quality of business plans- not good enough to leverage loan finance.

Suretyship, high admin and transaction costs are a disincentive for private lending institutions.

Limmitted products from financial institutions suitable for capacity and needs of land reform project holders.

Further work is needed to ensure legal entities are sound and acceptable to Financial Institutions.

Organizational development on projects should ensure good governance, democracy, sound decision making around finances and accountability.

Recommendations: Market Access

Markets should be sourced as close to the project as possible to minimize cost and risk.

Dedicated capacity to market development for land reform projects is urgently needed.

Information dissemenation on demand and supply side is crucial for informed decision making.

Further investment in local marketing infrastructure is necessary.

Policy Recommendations: Further state intervention in marketing would benefit emerging farmers.

Greater emphasis on market development during pre-planning phase of projects. Shift away from unrealistic targets of land delivery.

Baseline on markets in all local areas is necessary.

Recommendations: Access to Capital Need further dialogue between DLA/ NDA and Financial Lending

Institutions around appropriate legal entitities, sureties and interest rates.

Strategic partners, Co-operatives, Commodity Group Organisations, External Management and Mentorships are possible strategies to secure production capital.

Greater Emphasis on good governance needed ito finances of projects.

Better co-ordination of sources of capital to prevent halts in production and market loss.

Develop creative ways for state and private sector to interact to secure capital access for land reform (e.g defferred payments, underwriting of loans)

Streamline state financial lending institutions (Do away with them?)

Investment in skills of both beneficiaries and DLA/NDA staff

involved in projects (too late?)