Farm sales down despite the risk of land expropriation

Farms that are being put on the market in South Africa have more to do with financial challenges and the impact of droughts, rather than fear around land expropriation without compensation.

That’s the view of agricultural economist Johann Bornman, who says statistics show a decline in the number of farm properties sold in the country last year. New mortgages granted for farms have also declined.

Other agricultural economists shared similar views when questioned by Moneyweb this week on farm sales trends.

Bornman, founder of Agri Development Solutions, says the number of farms sold declined from 4 331 in 2017 to 3 757 sales in the first 11 months of last year. He says even with December stats still to be vetted, 2018 farm sales will show a significant decline.

His statistics correlate with data from research group Lightstone, which also shows a decline in farm registrations. Lightstone’s research, which is based on property erf numbers through title deeds registered at the Deeds Office, showed farms registrations declining by more than 1 300 last year compared to 2017.

The decline in sales has been accompanied by a sharp decline in new mortgage loans granted for farm properties, with the SA Reserve Bank’s Quarterly Bulletin reporting a 44.2% decrease for the third quarter of 2018.

However, FNB property sector strategist at John Loos told Moneyweb that with quarterly data being volatile, he prefers to look at a “four quarter moving average”. Using this measure, there was a 15.7% year-on-year decline up to the third quarter of 2018. Figures for the fourth quarter are yet to be released.

Bornman says he is not surprised by the corresponding decline in new mortgage loans for farm properties.

“While uncertainty around land expropriation is a concern for farmers, most farm sales and farms going on the market have to do with the poor economy and financial challenges due to the droughts we’ve been having. The land expropriation debate is not the key driver behind farm sales,” he says.

‘Silly’ to just sell farm land

“Unless you are under financial pressure, it would be silly to just sell farm land, especially with prices being lower at the moment in several areas affected by drought,” adds Bornman. He says it is largely a “buyer’s market” and not a good time to sell farm land.

“In the current market, you will find that the bigger commercial farmers are buying up smaller farms. They may pick up bargains at huge discounts at the moment. However, land prices vary for different provinces and even in areas within a province,” he notes.

Despite the slow pace of land reform from government’s side, Bornman says statistics show that more black farmers are entering commercial agriculture and are buying land privately at commercial rates.  

“My research, based on farm sales registered with the Deeds Office, reveals an upward trend,” he says. “The number of black purchasers of farms increased from 464 farms in 2016 to 603 bought in 2017. Looking at stats for the first 11 months of last year, 590 farms were sold to black buyers. The total for 2018 will show a continued upward trend.”

Read: SA banks weigh new fund to boost black farm ownership

FNB senior agricultural economist Paul Makube, says data on farm values is not readily available and he has not observed any significant increase in offerings or a drop in farm prices. However, he agrees with Bornman that most farms sales currently are due to economic challenges and drought, rather than the land expropriation debate.

“At the higher end of the commercial farming sector we are seeing expansion happening,” he says. “However, smaller farmers are coming under pressure. We are seeing more consolidation in the space, with smaller farms being swallowed up by bigger commercial players.”

Despite concerns around land expropriation and policy implementation, Makube says farmers continue to invest in agriculture. This can be seen in the growth in production of produce like blueberries and avocados. He notes that total exposure of commercial banks and other institutions such as the Land Bank to the agriculture sector has been moving upward for several years now.

Latest figures on agriculture sector debt is due out in March, but unofficial estimates put it at more than R160 billion. Makube says the continued increase in farm debt can be attributed to a combination of increased investment in agriculture and finance costs related to the droughts of recent years.

Farmers are investing

“A further indication that SA farmers are investing in agriculture is our increased food exports. For instance, there has been a considerable increase in meat exports, which tells you that farmers have been investing in the infrastructure needed to export and comply with international benchmarks,” he adds.

Absa senior agricultural economist Wessel Lemmer tells Moneyweb that consolidation in the farming sector is common during dry years.

“The price of farm land does fall during periods of drought and it becomes the best time to buy,” he says. “But farm values vary across the country. In areas experiencing dry cycles, farms may go up for sale and you will see consolidation.

“However, in areas where there is new higher-value agricultural development like blueberry and macadamia cultivation, land values increase due to higher returns. Farmers will invest and are risk takers, but policy uncertainty does not help. There may be some caution, but you won’t see farmers not investing. If you stop investing, you are going to fall behind your competitors [locally] and in the export market.”

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Lemmer says government has been clear that it is not going to expropriate productive agricultural land – in the interest of food security and due to the agriculture sector being a growth driver in the country.

“SA is a net exporter of food, barring years of severe droughts,” he says. “We need to keep this capacity because it is one of our strengths. We need a free market and the protection of property rights for the agriculture sector to thrive.”

Read: Redistributing South Africa’s agricultural land