EFFICIENCY OF LAND USE

In the communal agricultural sectors three reasons for market failure were advanced (a) free access to communal grazing which is a problem if the group is larger than the immediate family (b) lack of incentive to invest in improved pastures and fodder production due to the free rider situation and (c) opportunity cost of land differs from what market forces will determine. Commercial land expropriated should be resettled on a private individual tenure basis by small scale farmers and not on a communal basis. Under a communal system the return (rent) on grazing land is zero while the return on arable land is low due to lack in permanent tenure. This explains idle arable land in KwaZulu in spite of population pressure. The rental value is the cost to the farmer for non usage of land if it can make a positive contribution. The market mechanism penalizes the commercial farmer for the non usage of commercial land. A land tax does not increase this cost and will thus not bring unproductive land into production. (The supply of land is not perfectly inelastic due to improvements). Taxes on agricultural land have certain advantages such as (a) avoidance less possible than income taxes(b) a wealth tax and (c) may better target to wealthy landowners who with the assistance of tax experts arc better able to avoid taxes. Disadvantages of land taxes are that administration cost may be high and the tax is the same in good and bad years