Sustaining a rental market for arable land in the communal areas of KwaZulu-Natal.

Thesis (M.Agric.Mgt.)-University of Natal, Pietermaritzburg, 2002.

In the communal areas of KwaZulu-Natal (hereafter referred to as KwaZulu 1 ), most households have little incentive to farm and land is cultivated extensively as farms are uniformly small, and food and income can be acquired by wage workers at lower cost. Rental markets in KwaZulu are constrained and land remains idle as there is no opportunity cost to penalise idle or under-utilised land. An efficient rental market would improve allocative efficiency because households would rent out their idle or under-utilised land to more effective farmers rather than forgo rental income. Equity is also improved in a land rental market. Rental transactions are voluntary and land transfers from land 'rich' to land 'poor' households whilst rental income transfers to households who cannot or prefer not to farm. Land rentals are temporary and do not interfere with residential rights. Land rental markets are constrained by high transaction costs and tenure insecurity. Between 1993 and 1996, Thomson made a concerted effort to stimulate a rental market for arable land in the Upper Tugela Catchment region of the former KwaZulu homeland. Small, incremental changes were made to customary institutions in order to improve tenure security and reduce risks and other transaction costs constraining the rental market. The number of rental transactions increased with associated gains in equity and efficiency. This study re-visits the market and examines its performance in the year 2000. Two household surveys were completed in Thomson's original study area during 2000. (Footnote 1. Communal areas refer to the tribal wards of Kwazulu-Natal which are characterised by customary forms of land tenure. The terms communal and tribal are used interchangeably.) First, a sample survey of 160 households, which included 23 percent of Thomson's original respondents, was conducted. This was followed by a census survey of 39 households participating in a total of 73 rental transactions. Data show that the number of rental transactions and market participants declined. A decrease in the number of lessees suggests that fixed transaction costs increased which prevented prospective participants from entering the market. However, the area of land transacted increased dramatically, suggesting that variable transaction costs declined. Lessees remaining in the market are participating in more rental transactions and are consolidating larger areas from several different lessors with gains in both equity and efficiency still evident. A discriminant analysis distinguishing lessors from lessees confirmed the claims of efficiency and equity. Land transfers from lessors who have a higher incidence of widowed household heads and larger, better quality land holdings to lessees who have greater agricultural training and who invest more in fixed improvements and implements. Changes in variable transaction costs are explored by examining changes in the type of rental contracts observed over time. The data revealed growth in the variety and length of rental contracts, supporting other evidence of declining variable transaction costs. In particular, a linear regression model estimated to quantify the partial contribution of factors affecting contract length shows that the introduction of witnessed written lease agreements has facilitated longerterm rentals for a wide range of contract types, even in cases where the lessor and lessee are strangers. Results of this study suggest that government should invest more in public goods such as physical infrastructure to reduce fixed transaction costs. Government extension staff could play a key role in sustaining rental markets for cropland in communal areas by absorbing some transaction costs, training tribal councillors and disseminating information.