Farm productivity and land value in SA - Land Bank

File photo of a farm for sale.

File photo of a farm for sale.

Published Mar 11, 2024


By Karabo Mabuza and Nteboheleng Mosiuoa

In the agricultural heartlands of South Africa, the symbiosis between land and livelihood is profound. Farmers, the custodians of the soil, are tasked not only with cultivation but also with the economic and financial responsibility of ensuring that their investments reflect the land's productive value.

An appropriate evaluation of a farm's productive value against its price is not just important; it is imperative for the sustainability of agricultural enterprises. Farmers must perform due diligence to ensure that the land's value is congruent with its ability to yield returns.

A disconnect between land prices and productivity can contribute to financial strain, underutilisation of resources, and in extreme cases, forfeiture of the land itself. A tool like Geographical Information Systems (GIS) that enables the user to visualise, question, analyse, and interpret data to understand relationships, patterns, and trends, is an important toolkit.

GIS has the ability to analyse data from soil capability, climate capability and terrain capability to determine, which crops should be planted where and how to keep up soil nutrition for optimum plant nutrition. GIS in agriculture is used to enhance crop production and reduce costs by enabling better management of land resources. It is encouraging to learn that Land Bank has GIS entrenched in its risk management process.

Karabo Mabuza

It is critical for farmers to ensure that they have access to historical production data, soil fertility analyses and comparative sales within the region when deciding to purchase a property so that they can make a better judgement having considered the potential value of the land against their business plan.

Therefore, ensuring that one purchases a property that is fit for purpose is critical. The use of independent sworn property valuers to determine the reasonability of the property that a farmer intends to purchase can also enhance better decision-making.

For agricultural purposes, it is important that there is an alignment between land value and its productive capacity because it is not a mere transactional consideration, but a strategic imperative. That is because it’s through the land capability that a farmer can be able to utilise the farm and generate income that can enable the farmer to repay the loan that has been raised to acquire the asset.

It is, therefore, advisable that a farmer conduct a proper assessment when deciding to buy a property for agricultural purposes. The use of technologies such as GIS and independent property valuations in determining the reasonability of property from a pricing and suitability point of view cannot be overemphasised. You can imagine the detriment that will befall a farmer who will have purchased a property only to realise that it cannot keep the number of livestock they had intended to keep due to grazing capacity from the Conservation of Agricultural Resources Act perspective.

The criticality of getting the appropriate alignment between the economic potential of land and the price paid is significantly pronounced for first time purchasers who do not have other properties to fall back on when this alignment is missed. It is encouraging to note that the Blended Finance Scheme, being offered by Land Bank, through the support of the Department of Agriculture, Land Reform and Rural Development, stands out as a strong source of support, providing financial solutions customised for the specific needs of development farmers.

The scheme combines grants and loans and offers a lifeline to those farmers whose aspirations are often hindered by the financial barriers to land acquisition. For development farmers, the benefits of such a scheme are multiple. It reduces the initial capital required, thus lowering the entry barrier to land ownership. It also mitigates the risk of default by reducing gearing, especially in an industry susceptible to the vagaries of nature and market fluctuations.

Karabo Mabuza and Nteboheleng Mosiuoa, agricultural economists in the Agriculture Economics and Advisory Division within Land Bank. Please follow Land Bank on: Facebook: @Land and Development Bank of South Africa; LinkedIn : @Land and Development Bank of South Africa.