A Land Rental Market In Kwazulu: Implications For Farming Efficiency

This paper emphasises efficiency and equity aspects of a rental market in rural KwaZulu. Most households have little incentive to farm land intensively. Almost 22 per cent of arable land is unused. Evidence from a sample survey suggests that land rental is precluded by high transaction costs. Transaction costs are high because lessors consider renting to be risky as they could lose their right to land unless they farm it themselves. Nearly 70 per cent of households perceived that they would be dispossessed if they did not show some use of their arable land. Rental transactions were observed only where the risk was low, i.e. where the government or chief was lessor. Results of a discriminant analysis show that surplus farmers rent in more land, invest more in agriculture and make greater use of credit and extension services than do deficit producers. Area rented was the most important of these discriminating variables. Of those respondents renting, 84 per cent claimed they would increase production if they could access more land. Expansion of farm sizes through renting improves the incentive to farm by lowering unit production costs and by increasing potential gains, as returns to information, innovation and management are scale dependent. Equity improves because rental transactions are voluntary. Inefficient land use is the result of an inefficient land market. Solutions may be found in efforts to reduce transaction costs in the rental market.