|Gross inaccuracies in the valuation of commercial agricultural land||Date : 09 October 2015|
Gross inaccuracies in the valuation of commercial agricultural land
Official value of R192 billion is closer to R2.6 trillion.
Ryk van Niekerk
Two prominent agricultural experts have rubbished government valuations of agricultural land, calculating a figure that is at least ten times higher.
This has significant consequences for the land reform process.
The Department of Agriculture, Forestry and Fisheries recently published its widely-used Economic Review of the South African Agriculture 2014 document which values all commercial agricultural land in South Africa at R192 billion. This is roughly the market cap of Old Mutual.
The document also values livestock at R110 billion and vehicles and implements at R57 billion, which puts the total capital value of all commercial farms in the country at R359 billion, or the market cap of MTN.
These values are actually well known and widely used throughout the industry and within government, for policy, budgets and land reform strategy. Several agricultural experts within the department and independent economists referred to these values in the research for this article. The department also quickly responded to a request on the source of this data stating that the valuations are derived from the 2007 Census but augmented by the latest statistics from various institutions such as Statistics SA and agricultural bodies.
But lets think about these values. Is the value of all commercial agricultural land worth just R192 billion? Not likely. That’s less than the combined construction cost of the Medupi and Kusile power stations.
FirstRand Chairman Laurie Dippenaar first alerted me to the R192 billion valuation; set in relative terms it is a pittance relative to government’s existing redistributive spending. For example, government will spend R155 billion on social grants and administration this year. Dippenaar also referred to research by Intellidex’s Stuart Theobald published in the FM recently, which found that the empowerment deals of the top 100 companies on the JSE created R317 billion of value for beneficiaries. This value dwarfs the R192 billion figure and only slightly less than the R359 billion valuation. Or put differently, in government’s book it has created BEE value that nearly equals the value of all commercial farms in the country.
The true value of agricultural land
Unfortunately, the situation is slightly more complicated because the publicised/official agricultural valuations are absolute rubbish. They are not worth the paper they are written on and any policy on land reform, which is based on these valuations, will also be inherently defective. This may be one of the reasons why the land reform process is in such a mess, especially due to the magnitude of the inaccuracy.
The actual value of commercial agricultural land in South Africa is somewhere between R2 trillion and R2.5 trillion - a factor in excess of 10 times the official R192 billion value. This valuation came from two particular sources and was calculated on Moneyweb’s request.
Petrus Viljoen of the Agri Land Group, one of the largest valuators of agricultural land in South Africa and a consultant to both the private and public sector. He has done more than 20 000 valuations of individual farms in the country; the valuation of agricultural farmland is his bread and butter.
Viljoen went to great lengths to calculate the valuation segmented in the table below. It is based on actual measurements of different South African agricultural land segmented with satellite technology and actual average selling prices of different types of land.
|Land parcel description||
Extent in Ha
|Estimated value R / hectare||Total estimated value|
|SA total land surface area|
|Agricultural land in SA|
|Irrigable land||10 987 320||R 150 000||R 1 648 billion|
|Permanent crop land||915 610||R 250 000||R 229 billion|
|Forest area||6 168 320||R 20 000||R 123 billion|
|Dry land crop production||11 083 700||R 25 000||R 277 bilion|
|Stock farming||67 225 050||R 4 500||R 302 billion|
|Arable land||96 380 000||R 2 580 billion|
As is clear from the table, Viljoen values the total agricultural land in the country at about R2 580 billon or R2.58 trillion. (That is twice the market cap of Sasol.)
He is not the only expert who has reached a vastly different valuation from the official one.
Professor Johann Kirsten, Head of the Department of Agricultural Economics, Extension and Rural Development at the University of Pretoria, calculates that total agricultural land is worth around R2 trillion. His methodology was similar to Viljoen’s, although he based the valuation on 86.2 million hectares of arable land.
Land reform is critical, but do it without emotion
There are not many people in South Africa who do not support the principle of land reform, as long as it is done properly. The current approach is clearly not guided by accurate research, and this fuels emotional responses. Any policy based on incorrect data will have dire unintended consequences. The latest notion of an ownership ceiling is one of these, as it is clearly not based on the best possible data.
It is not only the value of the land that is in question. Kirsten says the official valuations of livestock (R110 billion) and vehicles and implements (R57 billion) are nothing short of a thumb suck.
Progress of land reform
The most recent land reform statistics I could find suggest that about 7.95 million hectares of land have been transferred to black beneficiaries. This suggests that 25% of the target of 30 million targeted hectares has been transferred. But this 7.95 million hectares do not paint a true picture as it excludes the farms and land transferred via the open market, and land claims that were settled with cash.
Kirsten and Viljoen believe much more has been achieved and that the actual land reform is not too far from the 30% target.
Kirsten estimates that the private sector has seen the transfer of at least one hectare of land from white to black hands for each hectare government has transferred. Viljoen also claims R6 billion has been paid as financial compensation to land reform beneficiaries which is linked to around 10 million hectares of land.
I have no idea whether these statistics are correct, but I am willing to bet against the official statistics of government. Land reform is emotional enough as it is, but with better information, policies and procedures, much of the emotion can be removed.