Agricultural Economics

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Agricultural Economics applies economic principles to solve agricultural and agribusiness problems. Our degrees equip graduates for professional and senior management positions, and are highly valued by employers. They give our graduates the flexibility to pursue a wide range of career opportunities. The Agricultural Economics major can be taken as part of a BScAgric (4 year) degree. Students taking the BScAgric option must major in Economics and Agricultural Economics, and take subjects such as Biometry and Statistics, Animal Science, Crop Science, and Horticultural Science.

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An evaluation of the South African sugar industry's small cane growers' financial aid fund.
(1996) Bates, Richard Frank.; Nieuwoudt, Wilhelmus Liberté.
The research is an evaluative case study of the South African Sugar Industry's Small Cane Growers' Financial Aid Fund (FAF). FAF has been operating since 1973 and has advanced 59 597 loans amounting to R175 million to small scale sugar cane growers located in KwaZulu-Natal, Eastern Cape and Mpumalanga provinces of South Africa. FAF, which has been the principal supplier of credit to small scale growers over the period, also operates a savings facility. Small scale grower development in South Africa has been driven by prevailing economic conditions in the sugar industry and its need to meet expanding markets. Small scale grower sugar cane production expanded rapidly from 1973 to 1985 whereafter it has shown a decline. FAF was found to be an important element in facilitating the expansion. An analysis of FAF's financial records indicated that it is subject to policy and procedures not aligned to sustainability. Loans to small scale growers from FAF were advanced at subsidised rates of interest. Calculation of a subsidy dependence index showed that, for FAF to be sustainable, interest rates in the order of 34% need to be charged. The viability of small scale growers themselves is an important aspect of the provision of credit. An analysis of small scale grower production costs for the period 1988 to 1996 indicated low margins per unit of production. Inefficiencies in weed control, fertilization and contracting were identified as important factors contributing to poor performance. Cashflow models using different methods of production and productivity indicated that small scale grower margins can be increased. Farm systems research is proposed to address improved economic performance. There have been two divergent approaches to small scale grower development in the South African sugar industry. The first was a highly directed or managed approach while the second relied on provision of agricultural extension and training to enable small scale growers to develop. The underlying philosophies of these approaches were contrasted with findings indicating that a great amount of dissatisfaction, misunderstanding and mistrust are evidenced in the highly directed/managed approach. Linear discriminant analysis indicated that growers using loans were more likely to have used mill contractual services, have produced sugar cane for a greater number of seasons and have larger areas planted to sugar cane than growers who did not use loans. It was also shown that small scale growers using mill contractual services appeared to use a greater number loans, produced sugar cane for a greater number of seasons, had larger areas planted to sugar cane but exhibited lower yields per hectare and had higher loan default rates, than small scale growers not using mill contractual services. The provision of credit enabled expansion of the small scale grower sector to take place. However, in terms of individual circumstances of small scale growers, those utilising FAF loans and those utilising services of mill contracting companies did not appear to have been as successful as those growers who developed independently of credit and managed development procedures. Overall it is found that FAF' s original and revised objectives have not been met. It is noted that objectives of sugar mills to increase sugar cane supplies have been achieved. In concluding it is recommended that FAF be restructured to broaden access to finance by small scale growers, to mobilise savings and attain sustainability of institutions providing required financial services.
Land redistribution in KwaZulu-Natal : an analysis of farmland transactions recorded in 1997 and 1998.
(2000) Graham, Andrew Wallace.; Lyne, Michael Charles.; Darroch, Mark Andrew Gower.
This research has two objectives: Firstly, to examine the rate of land redistribution in the province of KwaZulu-Natal during the years 1997 and 1998 as well as the performance of different modes of land redistribution. Secondly, to study the relationship between mode of redistribution, security of tenure and access to agricultural credit on land redistributed to disadvantaged households in the province during 1997. To measure the rate of land redistribution, results from a census survey of farmland transactions recorded in the province in 1998 were compared with the results from a previous survey conducted in 1997. It was found that 18885 hectares of commercial farmland transferred to disadvantaged owners in KwaZuluNatal during 1998, which implies an overall rate of redistribution of 0,35 per cent, down from 0,43 per cent in 1997. There were marked differences in the quality, quantity and agricultural performance of farmland transferred by different modes of redistribution. Private transactions accounted for the majority of the total land wealth and total land area transferred in both years, with mortgage loan transactions making the most significant impact. Also, the mode of land redistribution was an important determinant of the level of tenure security and agricultural performance. Individual households purchasing land through private transactions tend to exhibit much higher tenure security than those households which purchased land collectively under the government land grant programme. A logit model was employed to determine the probability of household agricultural borrowing. Results of the logit model on data gathered in a sample survey of 129 disadvantaged households that purchased farmland in KwaZulu-Natal during 1997 show that those farmers purchasing land through subsidised mortgage loans were more likely to borrow credit for agricultural purposes. The probability of agricultural credit use increases with more secure tenure, higher levels of wealth and liquidity, and higher education levels. These factors provide greater incentives for lenders to supply credit and for borrowers to use credit for investments and complementary inputs. The issues of tenure security and access to credit must be considered if land redistribution to the landless poor is to be successful in the long-term. It was recommended that government should reallocate scarce public funds towards programmes which assist emerging farmers to gain access to credit for the purchase and development of agricultural farmland. However, attention must also be directed towards scrapping the Subdivision of Agricultural Land Act, 70 of 1970, which currently impedes land redistribution through regulations preventing large farms from being subdivided and sold as smaller properties to viable emerging farmers. In addition, attention should be focused on converting existing government land grant projects into non land-user group schemes whereby land is set aside and managed in an effort to create a viable joint enterprise for the community to realise a benefit (income) stream.
Loan products to manage liquidity stress when broad-based black economic empowerment (BEE) enterprises invest in productive assets.
(2005) Finnemore, Gareth Robert Lionel.; Darroch, Mark Andrew Gower.; Lyne, Michael Charles.
Investments in productive assets by broad-based black economic empowerment (BEE) enterprises in South Africa (SA) during the 1990s have been constrained, in part, by a lack of access to capital. Even if capital can be sourced, BEE businesses often face a liquidity problem, as conventional, equally amortized loan repayment plans do not take into account the size and timing of investment returns, or there are lags in the adjustment of management to such new investments. The aim of this dissertation, therefore, is to compare five alternative loan products to the conventional fixed repayment (equally amortized) loan (FRL) that lenders could offer to finance BEE investments in productive assets that are faced with liquidity stress, namely: the single payment non-amortized loan (SPL); the decreasing payment loan (DP); the partial payment loan (PPL); the graduated payment loan (GPL); and the deferred payment loan (DEFPLO-2). This is done firstly by comparing loan repayment schedules for the six loans using a loan principal of R200 000, repaid over 20 years at a nominal contractual annual interest rate of 10%. Secondly, data from five actual BEE loan applications to ABSA Bank and Ithala in KwaZulu-Natal (KZN) during 2003 are used to compare how the FRL, SPL, DP, GPL, and DEFPLO-l, affect investment profitability, and both the borrower's and the lender's cash-flows, assuming that the lender sources funds from a development finance wholesaler. Results for the first part of the study show that the SPL has smaller initial annual repayments than the FRL (R20 000 versus R23 492) that ease liquidity stress in the early years after asset purchase, but requires a nominal balloon repayment of both interest and principal in year 20 of R220 000. The SPL is also the most costly loan, with total nominal and real repayments that are R130 162 and R43 821, respectively, more than the FRL. The PPL has the lowest total nominal and real repayments assuming that the borrower can make the nominal balloon repayment in year 5 of R202 173. If not, the ending balance of the loan in year 4 would have to be refinanced at current market interest rates. In this situation, the PPL uses very similar financing terms to that of the variable rate long-term loans already used in SA, and thus may not be a useful option to consider for BEE investments facing a liquidity problem. Interest rates may have risen over the last four years of the loan, encouraging lenders to add a premium into the interest rate for the refinanced loan, which could worsen the liquidity position of the BEE enterprise. The DP requires higher initial nominal annual loan repayments (R6 508 more than the FRL) that do not ease the liquidity problem in the early years of operation. The DP loan, however, has total nominal and real repayments that are R59 838 and R23 118, respectively, less than the FRL. A GPL with diminishing, finite interest-rate subsidy seems to have the most potential to ease the BEE investment's liquidity stress. The 17YRGPL used to buy land had total nominal and real repayments that were R84 634 and R67 726 (after subsidy), respectively, less than the FRL. If the GPL was used to purchase machinery-type assets, then the 6YRGPL would have required total nominal and real repayments of R13 957 and R12 596, respectively, less than the FRL. Finally, the DEFPLO-2 loan required a total nominal repayment of R531 128 (R61 290 more than the FRL) and a total real repayment of R345 358 (R26 095 more than the FRL). Clearly, the GPL and DEFPLO-2 loan repayment schedules can partly resolve the liquidity problem in the early years (assuming no major income shocks), although the DEFPLO-2 plan requires higher total repayments than the FRL. The question remains whether lenders would be prepared to implement these two financing plans for BEE investments in productive assets, where the funds to finance the diminishing, finite interest-rate subsidy or the deferment would be sourced, and how the interest-rate subsidy would affect asset values. In the second part of the study, the profitability of the five proposed BEE investments in KZN during 2003 was compared for the five loan products using the Net Present Value (NPV) and the Internal Rateof- return (lRR) capital budgeting procedures. The loan terms, interest rates, principal and characteristics of each BEE firm are different with current rates of return on equity varying by business type. Companies A (five-year loan) and C (10-year loan) are agribusinesses with a higher expected current rate of return of 8% on machinery investments, while companies B (eight-year loan), D (15-year loan), and E (20-year loan) invest in farmland with a lower expected current annual rate of return of 5%. The five business plans may not be representative in a statistical sense of all BEE firms in KZN, but were used because they were readily available. Initially it was assumed that donor/grant funds from a development finance wholesaler were lent to an intermediary (like a commercial bank), which in turn, could finance the five investments using any of the five alternative loans, with the lender's repayment to the wholesaler being via a FRL. It was then assumed that the lender could repay its borrowed funds using the same loans, or combinations of them, that it had granted to these companies. Results show that GPLs and DEFPLs can resolve the liquidity problem associated with investments like land in the early years after purchase provided that projected business performance is adequate, while the SPL and GPL are preferred for BEE projects with stronger initial cash-flows like machinery investments. The study also shows that the loan product that best improves the borrower's liquidity is not always best suited to the lender. In most cases, the GPL suited the borrower, but in four of the five cases, the lender would prefer the SPL and to repay the wholesaler using the SPL. The SPL, however, is unlikely to be used, given the large negative real net cash-flows that it generates when the final payments are due. Recent SA experience with the GPLs (interest rate subsidies funded by private sector sugar millers via Ithala) and the DEFPLs (via the Land Reform Empowerment Facility (LREF) which is a wholesaler of funds in SA) suggests that there is scope to alleviate the liquidity problem if a wholesaler of funds can offer such terms to private banks and venture capital investors who then on-lend to finance BEE asset investments that are otherwise considered relatively high credit risks. This would shift the liquidity problem away from the client to the wholesaler of the funds, but requires access to capital at favourable interest rates. Such capital could be sourced from dedicated empowerment funds earmarked by the private sector, donors and the SA government. The lesson for policymakers is that broad-based BEE could be promoted in other farm and non-farm sectors in SA using similar innovative loan products to complement cash grant funds via financial intermediaries, bearing in mind the limitations of the GPL and DEFPL - such as how to finance the subsidy or deferment, and the impact of income shocks. Donor and National Empowerment Fund capital could be used to allocate grants to provide previously disadvantaged individuals with own equity and also to fund finite, diminishing interest-rate subsidies via GPLs, or to fund DEFPLs (many LREF loans have been leveraged by a cash grant component). This could create an incentive for public/private partnerships, as public/donor funds could be then used to attract private sector funds to finance broadbased BEE investments in SA that satisfy empowerment criteria. The five case studies did not show how the GPLs and DEFPLs could make all profitable (positive net present value) but financially infeasible (returns do not match the size and timing of the lender's financing plan) BEE investments in productive assets under the FRL feasible, except for Company E that showed a positive NPV and IRR when the 19YRGPL was used. They did, however, show how the alternative loans could improve liquidity for investments with either strong or poor cash-flows. The financiers consulted to source case studies in KZN in 2003 at the time of the study could not provide the researcher with any profitable, but financially infeasible, BEE business plans. This raises some concern about how effective these empowerment loan products could be in the future as there is uncertainty over how many potential BEE investments in productive assets in SA are likely to be profitable but financially infeasible. Further research is thus needed to assess the impact of these alternative loans on a wider range of broad-based BEE investments, particularly non-farm projects, than considered in this dissertation.

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Browsing Agricultural Economics by Subject "Agricultural credit--South Africa."