Statistical analyses (discriminant, logit, and principal components) of water transfers in the Lower Orange River showed that water rights were transferred to farmers with the highest return per unit of water applied, those producing table grapes, and with high‐potential arable “outer land” without water rights. Only unused water (sleeper right) was transferred, while water saved (through adoption of conservation practices) was retained possibly for security purposes. A second study in the Nkwaleni Valley in northern KwaZulu‐Natal found that no water market had emerged despite the scarcity of water in the area. No willing sellers of water rights existed. Demand for institutional change to establish tradable water rights may take more time in the second area since crop profitability in this area is similar for potential buyers and nonbuyers. Transaction costs appear larger than benefits from market transactions. Farmers generally use all their water rights in the second area and retain surplus water rights as security against drought because of unreliable river flow. This study indicates that these irrigation farmers are highly risk averse (downside risk). Government policies that increase the level of risk and reduce security of licenses are estimated to have a significant effect on future investment in irrigation. In an investment model the following variables explain future investment: expected profits, liquidity, risk aversion (Arrow‐Pratt), and security of water use rights. The study is seen in the light of the New South African Water Act of 1998. According to this act, the ownership of water in South Africa has changed from private to public. This reform may not impede the development of water markets in South Africa since in the well‐developed water markets of the United States, western states claim ownership of water within their boundaries. All states in the western United States allow private rights in the use of water to be established and sold.
Butare, where this study was conducted, exhibits one of the highest population densities in Rwanda. As a direct result of population growth, most peasants have small fields and land fragmentation is common. The purpose of this article is to examine the effect of land fragmentation on economic efficiency. Regression analysis shows that area operated is primarily determined by the population-land ratio, nonagricultural employment opportunities, ownership certainty and adequate information through agricultural training. Results from a block-recursive regression analysis indicate that the level of net farm income per hectare, which indirectly reflects greater economic efficiency, is determined by the area operated, use of farm information, field extension staff visits, formal education of a farm operator, and the fragmentation of land holdings. Economies of size are evident in the data. The results obtained using ridge regression support the findings of two-stage least squares. Policies should be implemented to improve the functioning of land rental markets in order to reduce land fragmentation, improve rural education and access to relevant information; and strengthen extension facilities to individual farmers.
Three alternatives to the current peanut-price support, acreage-allotment program are considered. A linear programming framework is used to compare the effects of these policies on geographic location of peanut production, producer and consumer surplus, treasury costs, and value of allotments. Peanut production would expand in all areas except Texas under less restrictive production constraints. The largest expansion would be in Georgia and Alabama. Some version of the target price plan is considered to be a likely compromise program.
Irrigation farmers in the Lower Orange River were surveyed during October 2003 in order to study whether water marketing has promoted efficiency and to identify factors that affect future investment in irrigation farming. Econometric procedures (principal component and logit model) indicate that purchasers of water rights produce lucrative export grapes and horticultural crops with relatively less raisin, wine or juice grapes and less field crops; are more specialised in production; have more livestock (probably liquidity factor) and have a less negative view of the five-year review period. The water market has facilitated a transfer of water use from relatively lower value crops to relatively higher value crops, and also promoted the use of more advanced irrigation. An investment model using Ridge Regression indicates that the following variables are associated with future investment in irrigation farming; expected profitability, risk perception and risk aversion (Arrow/Pratt). Results confirm that farmers who are more risk averse invest less in the future as can be expected from theory. Policies that increase risk in agriculture will have a significant negative effect on future investment in irrigation. What is significant from the results is that irrigation farmers are highly risk averse (down side). Results also show that farmers who feel that water licenses are not secure expect to invest less in the future. The latter effect is thus amplified as farmers appear to be highly risk averse. This has important policy implications, and measures should be taken to improve the perceived security of water licenses. This could be achieved by keeping farmers more informed about the practical implications of the National Water Act (NWA) and specifically water licenses.
Binswanger attributes the problem facing poor people in financing land purchase to the inclusion of a real capital gains component in the price of land. This article attributes it largely to a cash flow problem which arises from positive inflation rates. The Ricardian rent return to land in South African agriculture is estimated at between 4 and 5 per cent while the Land Bank's interest rate is 15 per cent. Interest payments on a bond can therefore not be met from rents to land alone. If, as an extreme situation, the expected inflation rate were zero, farmers might have been able to borrow funds at 4 to 5 per cent. To bring debt servicing in line with projected cash flows in the real situation, mortgage interest rates could be subsidised; or, in an alternative affirmative action, the state could contribute towards the purchase price of land. These alternatives are discussed.
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