FULL STATEMENT BY
MINISTER D. HANEKOM

TO SENATE COMMITTEE ON AGRICULTURE, NUTRITION AND FORESTRY,

UNITED STATES SENATE:

31 July 1997.

I. INTRODUCTORY REMARKS

Distinguished Members of the Senate: it is indeed a great honour to address the United States Senate Committee on Agriculture, Nutrition and Forestry. I am here in the United States to join Deputy President Mbeki as part of the delegation to meet with Vice President Gore to discuss the United States - South Africa Binational Commission.

As you know, we, in South Africa, have long regarded the United States as a close friend and supporter -- from the dark days of apartheid, through the initial days of our fledgling democracy, and now to the days of transition as we join the world economy. We have a long road ahead to bring about a more just and equitable system in our country and, at the same time, to ensure that the highly developed and sophisticated parts of our economy continue to thrive. I believe we have made an excellent start since 1994 when the Government of President Mandela came to power. We cannot embark on the huge task ahead of us alone. We will need your continued support in this endevour. I would like to address my remarks today to our Government's overall economic framework and then to illustrate this with more detail on our agricultural policies -- polices that are of particular interest to your Committee and for which I have responsibility in South Africa.

But first, it may be helpful to put these remarks in context. We have recently adopted a Constitution that enshrines the rights of the individual and which establishes the principle of equal access to opportunities for all citizens. South Africa has a per capita income of about $3,000 which places it firmly in the rank of middle income countries. However, it is really two societies in one. At one extreme, about 13% of the population which benefited from the system of apartheid is "first world" in every sense of the word. At the other extreme, there is another society that one simply does not see on a casual visit to Johannesburg or Cape Town.

About half of the population, mainly African, have limited access to primary education; over a third of our children suffer from malnutrition, only about a quarter of households have electricity and running water, and less than a fifth have modern sanitation. Unemployment in South Africa, at over 30%, is among the highest in the world. Apartheid's legacy is one of widespread poverty and inequality. More than 50% of the population account for less than 10% of total consumption. We have one of the most skewed income distributions in the world. Another legacy is the abysmal state of education for the majority of the population -- an issue of inequality that is receiving the most urgent attention.

The task ahead is daunting. Economic growth has been dismal for much of the past 20 years. With high unemployment and great inequalities in income, it is not surprising that there has been a rise in crime. We are however convinced that we have adopted social and economic polices that, combined with an atmosphere of reconciliation, will overcome these issues.

II ECONOMIC POLICIES

In 1996, the South African government released its macroeconomic strategy, entitled the Growth, Employment and Redistribution Strategy, or "GEAR". This strategy builds on the Reconstruction and Development Programme (RDP). It establishes discipline regarding the role of the Government in economic affairs and articulates a new emphasis on harnessing market forces to promote economic growth and, by so doing, provide for increased employment and the means for social upliftment.

It sets a number of targets for the year 2000:

1 6% growth in real GDP; 2 an inflation rate of 7.6% and a real interest rate of 3%; 3 a fiscal deficit of not more than 3% of GDP; 4 10% real growth in non gold exports; and 5 real private sector investment growth of 17%.

Broadly speaking the main ingredients of our strategy are:

1 appropriate monetary and fiscal policies to reduce the fiscal deficit and inflation; 2 maintaining an exchange rate designed to keep the real effective rate of the rand stable and at competitive levels; 3 the promotion of private sector investment combined with the restructuring of state assets; 4 removal of trade barriers to shift away from a highly protected, inward looking economy, which stressed self-sufficiency and strategic investments, toward a more open economy emphasizing the need to compete internationally so that we can reap the benefits of open and free trade; 5 investing in economic and social infrastructure to foster competitiveness as well as redress income imbalances and improve the standard of living of the previously disadvantaged; and 6 increasing the flexibility of the labour market.

While growth and employment have yet to pick up to the extent we would have liked, we can only expect to reap the benefits of sound economic policies over coming years. The message is a simple one: the economy cannot grow without increased investment, and investors require competitive opportunities and a stable macro-economy. The GEAR aims to establish the basis for higher investment and so lock in the opportunity for strong export-led, labour-absorbing growth to take advantage of South Africa's competitive advantage in the export of more labour intensive products. The GEAR may not immediately increase employment but it has laid the foundations for such growth. Already, the achievements to date are considerable:

1 the fiscal deficit has been reduced to 4% of GDP as we said it would. What is encouraging is that this has been achieved in a context of increased social spending; 2 inflation appears to have stabilized at less than 10%. Falling money supply and credit growth figures suggest that inflation will continue to fall; 3 reserve figures of nearly US$5 billion reflect increasing confidence in our economy -- for the first time in decades, we have been able to raise long-term finance in the private capital markets internationally at competitive interest rates; 4 two privatizations have been concluded in the past 12 months-- the sale of five regional radio stations, and the sale of 30% of our large and successful telecommunications company to Southern Bell. This has proved to be the largest single deal in Sub-Saharan Africa. A list of other enterprises to be restructured is available; 5 import quotas have been eliminated and tariffs have been reduced significantly to foster open competition. Indeed, tariff reduction has been speeded up (partly to compensate for the exchange rate depreciation) to contain input prices and facilitate industrial restructuring. Import surcharges have been abolished; 6 exchange controls have been relaxed to the point where we can justifiably claim that we have shifted from a position which was essentially controlled, with few exceptions, to one which is essentially free, with a few temporary exceptions. The first round of exchange control reform is designed as part of an extensive package to fully liberalize the capital account without destabilizing the long run real exchange rate. There are no exchange controls on foreigners; 7 a programme of tax incentives has been introduced in order to facilitate direct investment by South Africans and foreign nationals alike. Corporate tax rates have been reduced by over 25% in recent years; 8 the first huge private-public sector partnership in the Maputo-Gauteng corridor is now well and truly underway. The roads contract was awarded earlier this year as the first Build-Operate-Transfer (BOT) scheme in South Africa. There are 20 infrastructure-linked projects underway, each costing more than US$ 100 million -- the bulk of them are being undertaken as private-public sector partnerships; and 9 we were able to record, on our thousandth day in office, that more than one million homes have been electrified and water has been reticulated to one million people since the election in 1994.

Much then has been done to set the economic framework for future growth. But it is not enough and we are continually trying to deepen our reforms. In respect of meeting basic needs, you can see that we have made a strong start but it will take years if not decades to fully invest in our people so that all South Africans have equal opportunity. We have also made huge strides in democratizing the state and society through the implementation of the new Constitution, democratizing local government, and reforming public services to bring about a more open society and to rid it of crime and violence. We have had our successes but I have not attempted to hide the enormity of the task ahead in our exceptionally dualistic economy.

III EXTERNAL TRADE ISSUES

As South Africa has emerged from isolation, its role in the region is increasingly important. We have responsibilities not only to our own country but also to the African continent -- we are glad we were able to play a role in securing peace in the Democratic Republic of Congo and we take seriously our responsibility as Chair of Southern Africa Development Community (SADC). We believe that the position offers further opportunities to contribute to economic development in Southern Africa in an increasingly converging manner. SADC signed a Protocol in 1996 for Free Trade Agreement to be achieved within the next eight years. South Africa also has responsibility for the SADC Finance and Investment Sector. The commitment of SADC countries to prudent financial management and economic integration cannot be questioned. What remains to be worked out is the speed at which economies will converge.

Trade negotiation, and trade and investment promotion are increasingly important thrusts of our Government. We simply cannot achieve the kind of export-led growth that we are looking for without adequate access to markets. We seek expansion of market access through preferential trade arrangements with industrial countries, as well as the pursuit of regional economic integration that I have just talked about. Negotiations with the European Union have been protracted; I will say more about these and other negotiations in the context of the agricultural sector.

IV AGRICULTURAL POLICY

I turn now to the second part of my presentation dealing with agricultural policy. The first point I would like to make is that the changes we have made to agricultural policy have been done in the framework of our Government's macro-economic policy as outlined above -- aimed at introducing a more open, market based sector.

Importance of the sector

Agriculture in South Africa has made a major and important contribution to the economy, presently accounting for some 4-5% of GDP. It contributes about 10% of total exports. The most important exports are maize, maize products, wool, deciduous and citrus fruit, table grapes and preserved fruit.

Formal agriculture provides employment for about 1.1 million farm workers. In addition, the smallholder sector (mainly ex-homelands) provides full or part-time employment for about 1.3 million households. Thus some 2.4 million households derive some or all of their income directly from agriculture. This represents about 12 million people or 25-30% of South Africa's population. While it is indisputable that agriculture is an important sector of the economy, the above figures underestimate the importance of the sector. It also says little about its potential for future growth and employment creation.

The sector has strong backward linkages to the rest of the economy (e.g. goods manufactured for use by the sector such as fertilizer, pesticides, farm machinery etc.) and forward linkages (to the food processing and manufacturing sectors). Many sectors that are classified in national income statistics as "manufacturing" could legitimately be classified under agriculture, the sector on which they are dependent. This would include such agricultural-related sectors as food products, beverages and liquor textiles, garments and leather, wood products and furniture, pulp and paper, and fertilizer and pesticide production. If taken into account, it is estimated that agriculture accounts for about 11-12% of GDP -- a figure that much more closely reflects fluctuations in GDP during drought or good years. Agriculture is therefore a crucial sector and engine of growth for rest of the economy.

Before moving on to discuss some of the very substantial changes to policy that we have introduced, I think it would be useful to say a few words about how we got to where we are today.

Evolution of Agriculture

By agriculture, many people understand production on some 60,000 white-owned and operated, large farms -- commercial agriculture with its strong linkages to the industrial and export sectors. This sector accounts for 90% of value added and occupies about 88% of the agricultural land. But how did we get here?

In the latter part of the nineteenth century, African family farming was viable and successful in responding to the increased demand for agricultural products from the mining towns. They supplied the major towns of the English colony of Natal with grain and exported the surplus to Cape Town. In 1860, over 83% of the nearly half million hectares of white-owned land was farmed by African tenants. African owner-operated or tenant farming proved to be as efficient as large scale settler farming based on hired labour. African farmers adopted new agricultural technologies, entered new industries

and out-competed large-scale settler farming in some of the emerging agricultural markets. Settlers argued that because of labour shortages, they could not compete with their African counterparts who had lower costs. Competition from black transporters of agricultural produce was also deemed unfair by white transporters.

During this period, the accumulation of capital and wealth by African farmers caused the Native Affairs Commission to comment that Africans were becoming wealthy, independent and difficult to govern. In 1913, the Natives Land Act segregated Africans and Europeans on a territorial basis by designating about 8% of the country's farm land as reserves which became the only areas that could legally be farmed by Africans. The Government of the day thus created surplus labour for the mines and the white agricultural sector; it also eliminated competition from black farmers.

At about this time, white farmers started to receive substantial support in the form of subsidies, grants and other aid for fencing, dams, houses, veterinary and horticultural advice, as well as subsidized rail rates, special credit facilities and tax relief. Between 1910 and 1935, some 87 Acts of Parliament were passed rendering assistance to the commercial farming sector financed directly and indirectly by revenues from the mining sector. Output increased substantially on these farms.

In the early eighties, Government continued to pursue its policy of food self sufficiency, particularly in face of sanctions. Measured by this yardstick, agricultural policy was highly successful. Farmers were protected from foreign competition, subsidies continued, and producer prices (which were largely controlled) were frequently above world market levels benefiting producers but hurting consumers especially the poorer black consumers.

Although these favorable policies encouraged production, they also had a number of costs. For example, favorable tax treatment of capital equipment combined with negative real interest rates encouraged over-mechanization, expansion into environmentally fragile areas, and the shedding of labour -- one factor of production in which South Africa has excess. Drought policies encouraged the production of drought susceptible crops in place of drought resistant crops -- farmers were largely compensated by Government if the crop failed. And less efficient producers were kept in existence by support from the Agricultural Credit Board. As a result of the incentive structure created by policy distortions, agriculture's structure, characteristics, and most notably, its performance were in not in line with what would have been expected given its resource endowment and the fact that it was operating in a labour-surplus, capital-expensive environment.

Objectives and Vision for the New Agricultural Sector

When establishing the policy framework for agriculture, we have followed the principles outlined in GEAR. I will now examine these broad principles and our vision of the sector. I discuss details of specific policy changes in the next section. The principles fall conveniently under three headings:

1 the incentive framework, 2 regulatory and support services, and 3 equity/poverty/natural resource considerations.

The incentive framework, growth and employment: As noted, following years of distortionary policies, South Africa's agricultural sector was not as efficient and competitive as it might have been. This means that the value of aggregate output was less than it could have been, and the pattern or production, that is the choice of farming activity, was not always optimal. Agricultural employment was also less than it would have been in the absence of (a) interest and capital subsidies, and (b) tax incentives that encouraged capital substitution. Clearly the objective for the agricultural sector is to have a highly efficient and economically viable market-directed farming sector characterized by a wide range of farm sizes. This can only be done by providing a level playing field that that does not favor one size or group of farmer over another. A central theme of agricultural policy will therefore by to establish a policy neutral environment through the elimination of past distortions.

A truly level playing field will only be feasible with respect to present and future programmes. From an equity perspective, new farmers ought to receive the same level of support that was available over generations to the large farm sector. However, this will not be possible given fiscal constraints. But through judicious use of targeted support programmes, it is Government's intention to direct future assistance at the small farm sector (as I will discuss later).

It is Government's intention to establish an incentive system for the sector that is based on: world market prices, a system of tariffication rather than controls or restrictions, an agricultural marketing system that should ensure equitable access to all, and a trade system that encourages exports and comparative advantage within South Africa. In this context, South Africa will no longer be pursuing self-sufficiency as a goal in itself since it will produce where it has comparative advantage to do so. High priority will however be placed on household food security given the very large proportion of the population living below the poverty line (see below).

Given the future market driven nature of the sector, blanket subsidies and assistance, for example to keep interest rates low or for fencing will no longer be supported by the national Government. Interest rates will be market related and the ability to repay will be the basis for extending credit to farmers. A specialized form of subsidy in the past has been drought assistance to farmers. In future, drought will be recognized as a normal phenomenon in the sector and farmers will be required to employ risk minimization strategies.

One of the key challenges is to enable a pattern of domestic production which matches the country's comparative advantage. Past policies on drought, water, tax write-offs and the like have combined to push, for example, maize production into marginal areas where

South Africa has comparative advantage in the production of livestock and other activities. South Africa is a dry country and water is fast becoming a scarce resource. Water has been a free good with a result that it is not used optimally. we foresee increasing competition for water use for industry and consumption. Our Government has recently introduced new policies to address issues of water pricing and water rights.

Comparative advantage means that there should be a focus on labour intensive rather than capital intensive strategies. There is little doubt that removal of many of the past distortions including the removal of certain past labour laws will increase the demand for labour.

Regulatory and Support Services: In addition to setting the incentive framework for the sector, Government has responsibility to establish the regulatory and legal framework, carry out a number of regulatory tasks (for example with respect to natural resource management and animal disease), and ensure that appropriate advice is available to farmers (support services). In the past, quality services have frequently not been available to small farmers. For the future, therefore, it is imperative to ensure equitable access to services.

It will also be important that every activity of government can stand up to scrutiny, that is, the activity is both necessary and justifiable. In this context, for each activity it is necessary to determine if it should fall in the public or private domain. Some activities have traditionally fallen clearly into one domain or another (e.g. the construction of a dam for multiple purposes, or the construction of roads). More recently, many conventional wisdoms have been challenged with the construction of toll roads by the private sector, and more and more research undertaken by private companies. Recently a decision has been taken to make South Africa's Revenue Service more independent and more private sector oriented.

For the future, it is proposed to re-examine all activities undertaken in the sector, whether they be regulatory or of a support nature to determine if they best fit into the public or private domain. Thus, it might be concluded that research or disease control should be the responsibility of Government because of associated externalities. That does not mean to say that the activity should be undertaken by Government. It is possible that others could provide a better service at lower cost; "others" could include the private sector, universities, parastatals, NGOs etc. The Department should undertake only those activities for which it has the expertise and resources to provide a better quality service than could be provided by contracting out. Each activity will need to be examined on a case by case basis.

In the same vein, it is Government's intention, to the extent possible, to promote the principle of user payment for services where appropriate. In the past, Government provided a range of services generally free of charge. There may be convincing arguments for certain services to be provided without cost recovery (e.g. the provision of market information or the promotion of environmental concerns etc.). In the future, Government will only provide services free if there is a convincing argument to do so. This would include most regulatory functions. We will be examining other programmes in future based on two principles (a) user payment for services and (b) ability to pay. Where previously disadvantaged farmers are deemed too poor to pay, a finite exit strategy should be worked out before the service is introduced.

Equity, Food Security, Women and Natural Resource Issues: The above sets the incentive and institutional frameworks. In addition, it is imperative that programmes address issues of poverty and equity, food security especially household food security, the role of women, and South Africa's natural resources.

Despite the benefits and subsidies enjoyed by the few, agriculture has done little to benefit the lives of the majority of rural dwellers. Poverty is considerably more widespread in rural than urban areas. One measure finds that over 16 million people in South Africa had incomes lower than the minimum subsistence level with the majority of these living in rural areas.

The main programme to address equity will be Government's programme of land redistribution, restitution and tenure security which I will describe shortly. As noted also, we intend to develop and target support services to the previously disadvantaged as part of our equity focus.

As noted earlier, Government will no longer be pursuing a goal of self-sufficiency. Instead, emphasis will be placed on food security especially at the household level. While there is adequate food at a national level, this unfortunately does not apply at the individual level because of issues of access and ability to pay. Programmes will need to be examined for their contribution to household food security both directly, and indirectly through their impact on rural incomes and the distribution of those incomes. Since all evidence suggests a strong correlation between food production on small farms and food security, efforts to increase production will help achieve Government's goal of food security.

The rural population with its high proportion of poor contains a high proportion of women (the incidence of poverty is highest in female-headed households). Again, all programmes are being examined to ensure that women have equal access and indeed that programmes are targeted at women.

Finally the natural resources of the country constitute a national asset which is essential for economic welfare of present and future generations. It is Government's responsibility to ensure that the overall policy and incentive framework encourages efficient and sustainable resource use. As noted, one of the consequences of past policies has been the spreading of cultivation onto marginal lands. Poverty too can lead to degradation as household units cannot afford to be overly concerned about future generations when they are concerned about survival today. Sound natural resource management is therefore a major thrust of my Ministry.

Specific Policy Reform Initiatives -- Already Taken Or Underway

A great deal has been accomplished over the past few years in eliminating the inefficiencies that have characterized large parts of the sector (e.g. subsidized interest rates, favorable credit regimes, tax concessions on investments, price supports, restrictive practices etc.). While the framework has been put in place to address the equity issue, less has yet been achieved. I now will mention briefly some of the specific measures our Government has taken to modernize the agricultural sector and to make a start to address the crucial equity and poverty issues.

The RDP and the White Paper on Agriculture: Our Government has clearly articulated objectives and strategy for the sector in two landmark documents (in addition the GEAR): (a) the Rural Development Programme which highlights the importance of small and micro-enterprises which form the basic productive unit in the agricultural sector; these privately owned enterprises have scope to considerably increase employment and growth, and (b) a White Paper on Agriculture produced in 1995 which lays down the principles to establish a "highly efficient and economically viable market-directed farming sector, characterized by a wide range of farm sizes, which will be regarded as the economic and social pivot of rural South Africa and which will influence the rest of the economy and society". It stresses:

1 developing a new order of economically viable, market-directed commercial farmers, with the family farm as the basis; 2 the broadening of access to agriculture via land reform which should be enhanced by adequate agricultural policy instruments, and supported by the provision of appropriate services; 3 financial systems should support all farmers. Given the generally very well functioning financial system in this country which serves the commercial farming sector, this means that, for the time being, we need to focus on the resource-poor and beginner farmers, enabling them to purchase land and agricultural inputs; 4 trade and the marketing of agricultural products should reflect market tendencies; 5 agricultural production should be based on the sustainable use of the natural agricultural and water resources; and 6 developing agriculture's important role in the regional development of Southern Africa and other countries.

Marketing Act and Decontrol of Prices: There has been extensive deregulation of controlled markets in terms of the old Marketing Act. At the end of 1996, the Marketing of Agricultural Products Act replaced the previous Act. It provided for a sunset period of up to a year for the phasing out of statutory controls. The new Act provides for certain interventions (e.g. registration, information collection, levies, and a degree of control over exports) but any new proposals for their utilization need to be justified in terms of improved market access, the promotion of marketing efficiencies, the optimization of export earnings, and the enhancement of the viability of the agricultural sector.

Price controls in the sector, again mainly in terms of the Marketing Act, have largely been liberalized. Prior to 1994, amendments were introduced to change the price setting formula in grain industries from a cost-plus to a market-based system. In 1995, the single channel fixed price arrangements for maize were replaced by a floor price scheme operated by the Maize Board and funded by stabilization levies. This arrangement will remain in place until the end of 1997 when there will be a free market for maize with no statutory interventions. These changes have led to substantial declines in real farm output prices but has tied prices to those of the world market thus improving South Africa's economic efficiency(which should benefit agricultural producers in the longer run, agro-processors and consumers). Further examples include the eventual abolition of price controls on dairy products, and later on flour, meal and bread, and the termination of consumer price subsidies on maize meal and bread. Single channel markets will disappear with the abolition of marketing boards in late 1997.

Trade Issues including the Elimination of Non-tariff Barriers: Following conclusion of the Uruguay Round of GATT, there has been an elimination of most non-tariff barriers to trade (e.g. quantitative restrictions and use of import permits) and their substitution by tariff equivalents. South Africa is also actively involved in negotiations with SACU, SADC, and the EU to further improve market access on favorable conditions. Our Government's position on agricultural negotiations is to seek improved access to a broader range of products than has always been the case in the past.

Our Government has been negotiating with the EU for an ambitious free trade accord. At present, the EU is holding to the position that any such free-trade agreement would exclude 40% of South Africa's farm exports. We would also like to address EU subsidies on agricultural exports that would gain duty free access into our markets. In the same vein, we would like to negotiate accelerated access to the US markets and look to the "African Growth and Opportunity Act" to help in this regard. Without such access -- in the US and elsewhere -- we simply will not be able bring growth and jobs to the bulk of our population. I would personally ask you, Senators, to assist us in this regard. I would like to take this opportunity to thank the United States for technical support we are receiving through the Binational Commission (BNC) on the trade front, for example, a recent Agribusiness Trade Opportunities Forum.

Our commitment to a freer agricultural trade predates our ratification of GATT. Our White Paper on agriculture that I mentioned above established our general intention of removing distortions in agriculture and making the sector market oriented. Our achievements are considerable. We have deregulated agricultural marketing to such an extent that its level of support, currently 12% measured by the Producer Subsidy Equivalent, ranks it amongst the counties with the lowest levels of support such as New Zealand (3%) and Australia (7%). It compares with the United States at 17%. Having put our tariff profile squarely on the side of those countries whose farmers are to compete with farmers of the world on an equal footing, South Africa would like to see an international agriculture sector where decisions are made according to market forces, undistorted by interventions by governments.

Subsidies and Specialized Tax Treatment: Other subsidies have also been removed. For example, subsidies on diesel fuel, which primarily benefited the farming sector and which has contributed to over-mechanization, were eliminated in early 1997. Furthermore the tax treatment for agriculture has been amended so that, for example, capital purchases can now only be written off over three years rather than in one year as in the past. This reduces the implicit subsidy for capital equipment to large farmers. Subsidies from the national Government for many support activities such as subsidies for fencing, installation of irrigation facilities and on-farm infrastructure are also in the process of being eliminated. Subsidies for activities with a public good element (e.g. soil conservation) may continue.

Drought Relief: In this context, Government is revamping its drought relief support programme. In the past, this policy served to weaken farmers' inclination to adopt risk-coping strategies. A consequence was to adopt high-value, high-risk monocultures rather than diversified strategies. In the future, drought will be recognized as a normal phenomenon with (a) relief only provided in exceptional circumstances such as in national disasters and (b) an incentive system that encourages farmers to adopt low-risk technologies rather than planting drought susceptible crops in areas prone to drought.

Rural Finance: Our Government has taken a number of measures to liberalize the rural financial markets. There has been an increase in interest rates on loans to near market levels thereby eliminating past distortions that encouraged over-mechanization at the expense of employment. A recent Presidential Commission examined all aspects of rural finance. It contains recommendations for further improvements to rural financial markets including a new role for the Land Bank. This will involve much greater use of private and public sector partnerships to build, from the bottom up, a system of financial services that provides broader access for all.

Also in the arena of rural finance, Government has taken a decision to scrap the Agricultural Credit Board which played such a significant role in providing (a) cheap credit to large farmers and (b) support through rollovers of loans to highly indebted farmers thereby preventing the market from working and keeping inefficient farms in existence. The amount of Government funding for "cheap" credit has been enormously reduced. ACB has also been making a great effort to collect on past overdues with a result that there has been a significant improvement in its portfolio.

Support Services to Farmers: Work is largely ongoing in the re-design of many of the support programmes to farmers. No decisions have as yet been taken but we are considering a range of options for the modernization of support services. This is likely to include much greater use of private-public partnerships -- already there exists in South Africa a large and dynamic private support sector (providing advice to commercial farmers on fertilizer use, seed use, farm machinery etc.). For support to small farmers, we expect to build on this technically very competent system, possibly through increased outsourcing of selected services. We intend to be more selective in our targeting of services paid for by Government, especially to ensure that previously disadvantage groups benefit. Those that can afford to pay, will likely be required to pay a larger share of the service than they have done in the past.

On the research front too, we envisage a greater partnership with the private sector. Indeed, this is already happening with many government research stations receiving up to 30% of their funding from the private sector. This is new and we would expect to see further movement in this direction. I would particularly like to thank your Government for its support, as part of the BNC, to help seek financing for a number of research fellowships and for support we are to receive through the Cochran Fellowship programme. Human resource development is crucial to successful agriculture especially as we try to shift our focus to the previously disadvantaged.

Land Reform: Today, land distribution in South Africa is among the most highly skewed in the world. This is perhaps not surprising given the history of dispossession that I touched on earlier. Twenty nine percent of South Africa's rural population (mostly farm workers and their dependents) live on 88% of the agricultural land while 72% of its rural population live on the remaining 12%. Today, the ex-homelands are overcrowded, poverty stricken and lack infrastructure comparable to the white farming areas. With new laws allowing any citizen to purchase land in any part of the Republic, there has been some "africanization" of previously white owned land. It is a start but would probably not, as yet, make any significant dent in previous land ownership statistics.

Government has scrapped the Land Acts and related legislation that enforced racially-based segregated access to land. It has introduced a land reform programme that has three main elements:

1 redistribution, which aims to provide the disadvantaged with access to land for residential and productive purposes. The programme is market based; 2 land tenure reform which to designed to improve the tenure security of all South Africans; and 3 land restitution which covers cases of forced removals which took place after 1913.

The purpose of the land redistribution programme is to provide land for residential purposes and for agriculture (or similar productive purpose). Our government provides a grant of about US$ 3,300 per household to enable individuals or groups to purchase land based on its market value. This grant is complemented by a number of other grants and services, such as for planing, to help implement the programme. Land is purchased from willing sellers or from the State where such land exists. Several mechanisms have been used to date to enable prospective purchases to acquire land, from direct purchase to a variety of equity schemes.

The programme was launched at the end of 1994 as a series of pilot projects. This has now been extended to areas outside the pilot zones. The programme started slowly as Government wanted to test the mechanisms for such a market-based approach; about 325 projects have been approved involving some 64,000 households. Almost 1.8 million hectares have been approved for redistribution, slightly over 2% of the land suitable for farming. While this may seem small, we believe it is a very significant start to a programme that is a necessary condition for a more secure and balanced society.

Government has also introduced a programme of tenure reform which aims to bring all people occupying land under a unitary, legally validated system of landholding. It will devise secure forms of land tenure, help resolve tenure disputes and provide alternative for people who are displaced in the process.

Finally under the heading of land reform, our Government has initiated a programme of restitution of land, which involves returning land (or otherwise compensating victims) lost since June 1913 because of racially discriminatory laws. These three programmes aim, over time, to give the previously disadvantaged security and title to land thereby enabling them to develop as farmers, releasing their productive capacity and increasing employment since one universal finding of comparisons of small and large farms is that the former use more labour -- a factor of production in great excess in South Africa today.

Other reforms: The full list of reforms that we have, or are intending to introduce is too long to discuss here. Suffice it to say, that we have some 11 task forces working at the present time examining issues relating to: food security, rural finance, trade, marketing, cooperatives, farmers support services (extension, research, communications and training), natural resource management, drought and disaster management, livestock, land tenure, and employment. I would expect this to result in a second generation of policy changes to further enhance the performance of the agricultural sector and to make it more representative of society as a whole.

V. CONCLUDING REMARKS

Senators, I thank you for the opportunity to make a presentation before your illustrious Committee. I have tried briefly to sketch for you the economic and agricultural policies that we have been pursuing in South Africa. I have tried also to provide a little historical context so that you can see both the enormity of the task that we have ahead and, I believe, the very considerable achievements we have made to date. Our objective is to remove past policy distortions and to establish a comprehensive legal, institutional and policy framework which (a) ensures a level playing field for all in the sector including potential entrants and (b) is conducive to growth and employment creation. At the same time, we are making special efforts to reach out to bring previously disadvantaged people into the mainstream of the agricultural economy building on the comparative advantage of this group utilizing excess labour.

As noted, the opportunities are great in this wonderful country of ours. The task is enormous. We look to all our friends, and especially to the United States, to continue support for our country through open access to your markets, and technical and financial assistance. We would not be where we are today without your support. I thank you for it.