Center for Effective Global Action

International development agencies have renewed interest over agriculture’s pro-poor potentials. South Africa’s agriculture though contributes less than 3% to GDP, has the highest employment per unit of GDP. The sector is sharply divided into small and large farms. Data reveals an increasing land productivity gap between both types of farms. Using data from various sources1, this paper assesses the agricultural production impacts of inequality and land redistribution, first in the whole agricultural sector, then the sugarcane sub-sector, comparing small-scale and largescale farm performances and considering the causes of the productivity gap. It also analyses the comparative poverty effects of both farm-types. Time series are corrected for unit roots and estimated using robust estimation, which corrects for heteroskedasticity and outliers. Specification tests help to determine the right panel model for sugarcane. The results suggest that inequality (land redistribution) is associated with slower (enhanced) agricultural productivity. This positive effect of land redistribution can be because land constraints in South African large farms may not be binding and therefore the negative impact on large-farms does not dominate. The impact of land redistribution though negative for large-scale and positive for small-scale producers is not significant. This implies that redistribution efforts must be accompanied by significant ease of other constraints facing small farmers. Other inputs like fertiliser and irrigation facilities show more significant impact on small farm production than land alone. Much of the difference in productivity arises from disparity in input use, specifically fertiliser and irrigation. There is possibility of positive external effects from large-scale chemical and labour use to small-scale production as they attenuate the gap in productivities. The finding also suggests the need to strengthen the human capital (particularly education) of small-scale producers. Both large and small-scale sugarcane production have significant poverty reduction effects, but the effect from small-scale production is clearly higher.