The Land Bank can be fixed: here's how

Johann Kirsten, director of the Bureau for Economic Research at Stellenbosch University, and Wandile Sihlobo, a senior fellow at the Department of Agricultural Economics at Stellenbosch University, look at the gains and losses of the Land Bank over the decades, and what can be done to turn the institution around.

- Johann Kirsten and Wandile Sihlobo

It is disheartening to see how many South Africans have forgotten the simple and influential role that the Land and Agricultural Development Bank (the Land Bank) once played in South African agriculture.

Former minister of agriculture Derek Hanekom summarised this role neatly in his foreword to the bank’s 1997 annual report:

The Land Bank was a conduit for cheap money for mortgage finance for farmers, for production finance to co-operatives, and for the liquidity of the marketing boards.

Established in 1912, the Land Bank had a narrow mandate for many decades. Its focus was on mortgages for white farmers to acquire farmland. It also provided wholesale finance to agricultural co-ops and marketing boards who on-lend production (short-term) finance to individual farmers.

These loans were offered at below-market rates. This was because the bank was well supported by the state through an initial capital endowment, annual parliamentary allocations and state-guaranteed long-term debentures, and bonds sold in the capital market. Its funding model and its narrow mandate meant that, for decades, it was a stable institution. But critical mistakes have been made over the past 25 years that have compromised its critical role as a development finance institution in the agriculture sector.

FAST FACTS

Many South Africans have forgotten the influential role that the Land Bank played in South Africa, say Johann Kirsten and Wandile Sihlobo.

Critical mistakes have been made in the management of the Land Bank over the past 25 years. These need to be corrected.

As a result of these mistakes, the bank has been largely unable to achieve its development mandate.