The President of the Free Market Foundation, Dr Sam Motsuenyane, today presented the 2002 Free Market Award to former Minister of Agriculture, Derek Hanekom, at a function held in Cape Town. The award is presented to recipients that have made exceptional contributions to the cause of economic freedom.
During his period of office, Hanekom piloted a number of major land reform bills through Parliament that sought to bring justice to the victims of forced removals and secure land rights for those South Africans who had previously been denied access to land.
Crucially, however, his reform programme was founded in economic realism, and he therefore set out to create a more just social and economic order by means that supported rather than undermined market mechanisms.
When he announced his intention to deregulate agricultural markets, the commercial farming establishment and other vested interests deployed every argument they could think of to discredit the proposed reforms. Despite their vociferous opposition, Mr. Hanekom successfully shepherded the new Marketing of Agricultural Products Act through Parliament in 1996. Following the promulgation of the Act he oversaw the dismantling and winding-up of the numerous agricultural control boards that had interfered in the marketing of agricultural products for decades to the long-term detriment of most farmers and all consumers.
These reforms swept away most of the authoritarian and uneconomic price-fixing arrangements that had existed under the control board system, and compelled South Africas farmers to become cognisant of world agricultural markets. A futures and options market developed, which provided farmers with real price information and allowed them to enhance their price-fluctuation risk management.
Protection of agricultural producers at the expense of consumers disappeared, and as a result, South African farmers have become more efficient, more responsive to consumer demands, and more competitive in world markets. Although these changes are not easily visible to the general public, all South Africans have benefited from them.
Overall, the reforms introduced by the ANC government during Mr. Hanekoms term as Minister have resulted in solid progress in land reform, and spectacular changes in agriculture generally. He received the award in recognition of the far-sighted and resolute manner in which he applied sound economics to both the land and the agriculture portfolios. In particular, his handling of the land issue facilitated rectification of past injustices in a way that did not undermine property rights but, on the contrary, recognised and restored them where they had been abused in the past.
Agricultural economists Nick Vink and Johan Kirsten (FMF Monograph No 25, 2000) found that food prices to the consumer rose at an average rate of 16.18% in the four years prior to deregulation of agricultural marketing (1990-1994), and then reduced to a rate of 7.98% per annum in the next four years (1994-1998). Although the overall CPI also declined in that period due
to tighter monetary policy, the authors concluded that the decline in food price inflation can partly be attributed to the process of market deregulation.
Vink and Kirsten found ample empirical evidence showing that deregulation of agricultural marketing, in which Derek Hanekom played such a central role, brought net welfare gains for commercial agriculture and therefore for the entire nation. Food prices declined, investment in agriculture increased, higher production per hectare was achieved, and farmers began producing higher value crops, with spectacular increases in the hectares planted to deciduous fruit such as plums and grapes. South African farmers are now considerably more efficient and are making their presence felt on world markets.
Without reference to the data, many people are calling for the reintroduction of control boards because of a single year in which there is a world shortage of wheat and maize combined with a dramatic decline in the value of the rand against the dollar. The proposals are ill considered. Economic theory tells us that higher prices will encourage increased production, which will drive prices down again. And we can already see that South African farmers are getting ready to sharply increase production in that tractor manufacturers have reported that this years tractor sales are 40% higher than the sales for the same period last year.
Seat-of-the-pants policy-making is most destructive and government should take care to gather all the relevant facts, and especially consider the economic consequences, before making policy changes. Derek Hanekom went through a long process of evaluating South Africas agriculture and land affairs, and gathering facts before deciding on policy and proposing legislation. The results were extremely beneficial to the nation.
Eustace Davie is a Director of the Free Market Foundation. This article may be reprinted without prior consent but with acknowledgement. The patrons, council and members of the Foundation do not necessarily agree with the views expressed in the article.
FMF Article of the Week\7 August 2002
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