Efficiency and equity gains in the rental market for arable land: observations from a communal area of KwaZulu-Natal, South Africa

Abstract

Between 1993 and 1996, Thomson made a concerted effort to stimulate a rental market for arable land in the Upper Tugela Catchment region of the former KwaZulu homeland, South Africa. The number of transactions increased with associated gains in equity and efficiency. This study revisits the market and examines its performance in the year 2000. It was found that the number of rental transactions and lessees had declined, but that the area of land transacted had increased sharply. This apparent anomaly can be explained by an increase in fixed transaction costs that prevented prospective participants from entering the market, and a decrease in variable transaction costs that encouraged lessees to trade larger areas. Lessees are consolidating land from several different lessors, with gains in equity and efficiency still evident. Government extension staff could play a key role in sustaining and broadening access to rental markets for cropland in communal areas by reducing fixed transaction costs as Thomson did.