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Reforming the Leasing and the Use of Agricultural Land in Fiji

Te Karere Ipurangi - Maori News Online, Fiji Coup Supplement

9 June 2000

by John Davies and Courtney L. Gallimore

The authors would like to express their deep gratitude to the numerous individuals consulted throughout Fiji who provided invaluable insights into land issues, the problems they confront and the hopes they nurture. Thanks must also go to those who commented on earlier drafts of this study and cleared up many misconceptions in the process. Of course the authors alone are responsible for any errors or fact or omission. This study, it must be emphasised, reflects the views of the authors alone. It in no way relates to the official position of any institution to which the authors belong or have belonged.

The first draft of this report was written and circulated for discussion in September of 1999. This version includes some minor amendments introduced in the light of feedback and also to update certain factual information.

June 8, 2000.

Executive summary

This report argues that current problems surrounding the tenure and the use of native land have at their heart a single primary problem - the failure of leasing contracts under ALTA to be mutually beneficial to both landowner and tenant. Tenants have benefited, but landowners have not. Consequently, as ALTA leases expire, many mataqalis are refusing to renew them, either at all, preferring instead to cultivate their own land, or else not renewing them under the auspices of ALTA.

The primary, but not the only, problem for landowners with ALTA is that the rents it prescribes are extremely low. In 1995, ALTA rents averaged $36 per hectare, a figure far below any other country for which the author was able to find details. Thus, for example, the daily rental proceeds from an average 4.2-hectare farm - just over 40 cents per day - are insufficient for its landowner to purchase a newspaper! For sugar land, which carries higher rentals, the average rents per hectare as of March 2000 were $65. Had the rental formulas used in the most tenant-friendly of other countries been applied in Fiji, average rental rates on sugar land would be in the order of $275- over $300 per hectare, not $65 per hectare. ALTA, then, has exploited landowners by denying them rents based on the true economic contribution of their land to agricultural production.

Tenants, by contrast, have done exceptionally well under ALTA. Not only have they benefited from low rents, many (non-cane farmers in particular) have managed to avoid paying any rent at all. Indeed, in a good year, only 60% of the total rents contractually payable to the NLTB are actually paid by tenants. The economic position of tenants on sugar leases has also been advanced by:

Subsidies from the European Union. One of the most advantageous divisions of sugar revenues between miller and grower to be found anywhere in the world. From a rental formula in ALTA that ensures that none of the EU subsidies, or any windfall gains from devaluation, are shared with landowners. The reason why existing land tenure legislation has so exploited landowners is to be found in the history of the country. While the colonial government recognised Fijian ownership of native land, that recognition was evidently enough of a concession. More pressing, were the needs to maintain sugar profits and colonial finances. These were sustained through the exploitation of labour, and the instrument of exploitation was indenture. But once labour became emancipated and demanded both land security and greater shares of sugar revenues, there was no choice but to follow the path of least resistance and shift the burden of indenture on to land. And currently, the primary instrument of land's indenture is the ALTA legislation, which effectively emasculates the ability of the NLTB to act as trustee to the landowners.

Under the combined influences of ALTA and the indenture of native land, the last 30 years has witnessed a huge transfer of real income from landowner to tenant. Agricultural productivity has also suffered in that there are few positive incentives in the ALTA legislation that encourage tenants to improve farm productivity. Similarly, there are no effective measures in the legislation to discipline tenants who do not farm efficiently or even pay their rent.

The most immediate consequence of ALTA is that it provides no incentive to the landowner to lease his land. Given the low rents it permits, even the most inefficient landowner/farmer would lose nothing by cultivating his own land as opposed to leasing it out. And by minimising the potential pool of available leases, a continuation of ALTA constitutes the gravest possible threat to the tenants' future.

For tenants, then, as well as for landowners, ALTA is the problem, not the solution.

The study sees the solution to the ALTA problem as lying in the creation of an institutional mechanism that will enable leasing transactions to be based on the informed consent of both landowner and tenant. In the process, leasing arrangements will be mutually beneficial to both parties. The market is proposed as the mechanism that can most expeditiously promote this result. A market orientated land policy has the further advantage of removing the dangerous ingredient of politics from leasing transactions.

To achieve market solutions, the study advocates the creation of a land exchange within which all agricultural leasing would be transacted. Within this land exchange, the NLTB would function not simply as trustee to the landowners but also as a broker or agent, providing the specialised knowledge that is necessary for leasing contracts to be based on informed consent. Tenants too would have their own expert counsel to promote intelligent contracts on their part. Within certain limits, market negotiations would be used to determine conditions of tenancy and rent levels.

With respect to the structure of rents (as opposed to the level of rents), the study contends that the national interest requires the identification of a rental structure that simultaneously provides the maximal incentive to the landowner to lease out his land, the maximal incentive to the tenant towards sustainable productivity, and rewards the tenant with a demonstrably fair share of gross agricultural proceeds. A structure that achieves these precise objectives, which reconciles the seemingly opposing interests of landlord and tenant is identified within the study. This proposed rental structure combines a fixed rental with a 'diminishing marginal sharecropping supplement'.

The study also recognises that future land policy in Fiji will not just be about leasing. It must also be about facilitating the desire of some mataqalis to resume cultivation of their ancestral lands. It is contended that an extension of the practice of contract farming offers a tried and tested method for successfully integrating subsistence farmers into modern commercial agriculture, something imperative for both the nation and for Fijian landowners when finally they have the opportunity to profit from their land assets.

Alongside the need to facilitate the entry of mataqalis into commercial agriculture, is the related need for a policy to mitigate the hardship suffered by tenants whose leases expire; to prevent the homelessness and financial losses currently associated with lease non-renewals. It is suggested that a most effective policy would be to require all future leases be split into a commercial agricultural lease and a separate residential lease. The benefits of this are numerous, including the prevention of homelessness currently associated with lease non-renewals, and the ability to make a tenant's residential investment realisable in cash through the sale of residential leases. This, in turn, would promote the mobility of labour and the general efficiency of the country's labour market.

With respect to the critically important sugar industry, instead of the end of ALTA being the crisis that many fear, in point of fact it offers a wonderful opportunity to modernise and reorganise the industry for the new millennium. It offers a clean break from many of the counter-productive incentives, practices, and attitudes that have been dulling innovation and crippling farm productivity. The move to a market-based leasing system not only maximises leasing opportunities to tenants, it further offers the chance for the best farmers to acquire the best leases and to increase their land holdings. It also permits landowners to engage in sugar production in a larger scale so as to permit realisation of the numerous efficiencies possible under a comprehensive system of contract farming. Given that EU subsidies are declining, and will inevitably be phased out, and that the current division of sugar proceeds between grower and miller has become unsustainable, these developments offer sugar a realistic opportunity of accommodating itself to the market realities of the new millennium.

John Davies is Professor and Head, Department of Economics, Acadia University, Wolfville, Nova Scotia, Canada.

Courtney L. Gallimore is Lecturer, Department of Economics, University of the South Pacific, Suva, Fiji.

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