Fiji Coup Supplement
31st July 2000
The Land Rent Debate - how the land rental system exploits the indigenous landowners
(two articles from the Sunday Times)
ALTA payments are fair, growers say(Sunday Times, Fiji, 23 July 2000)CANE growers have dismissed claims that the Agricultural Landlord and Tenants Act exploits landowners by denying them rent based on the true economic contribution of their land to agricultural production.
Fiji Cane Growers Association general secretary Jagannath Sami said the claims were made by academics John Davies and Courtney Gallimore were incorrect.
"My association is questioning the sources of figures being quoted by the two and demands an explanation from them," he said.
"We believe the rent formula provided for in ALTA is just and fair to both the tenants and land-lords."
Mr Sami said that under the provisions of ALTA the Native Land Trust Board-appointed committee of valuers declares the unimproved capital values for all types and classes of agricultural land every five years.
Annual rental is calculated on six per cent of the unimproved capital value.
Under the last valuers report issued In September 1997 first class land worth $8000 UCV was rented at $480 per hectare. Second class land worth $5000 UCV was rented at $300 per hectare, while third class land worth $2500 UCV was rented at $150 per hectare.
"Since most of the cane land is In the second and third class category, the figures above definitely do not tie up with the $65 per hectare as quoted by Mr Davies and Gallimore," Mr Sami said.
"Hence their criticism of ALTA is unjustified."
The Reality of ALTA Rents(Sunday Times, Fiji, 30 July 2000)We should like to thank Jagganath Sami for again raising the question of ALTA land rents (Sunday Times, 23 July 2000) and, in the process, providing the opportunity to further reinforce the reality of the agricultural land leasing situation in Fiji. Mr. Sami raises the issue of the declared unimproved capital values of sugar land and the fact that rents set at 6% of these capital values would result in rents of up to $480 per ha, and wants to know how to reconcile such figures with the $65 per ha figure we used as the average rent per ha for sugar land.
This is not a new issue. Had he read the whole of our document he would see the resolution there, in black and white. Alternatively, he could have just asked Grish Maharaj, who raised exactly the same issue in the Daily Post on March 4, 2000, alongside of which was an answering response.
However, for the sake of clarity and reinforcement, we would again like to explain the reality of ALTA rents and the mechanisms by which they are set.
First, we should like to state that we have absolutely no quarrel with the valuers employed under ALTA to assess the unimproved capital value of land. The figures they reach on land values are eminently reasonable and similar to those reached in our document using a totally different methodology. And while we judge the rental formula in ALTA to be inappropriate in terms of providing the necessary incentives to growers and landowners, and for producing some inequitable outcomes between farms in different locations, we concede that in terms of actual dollar values, if the figures for rents per ha that Mr. Sami quoted, namely $480 for class 1, $300 for class 2, and $150 for class 3, were actually paid by tenants, not only would they be generally fair, but we also doubt whether there would be an ALTA problem. Many landowners would no doubt be delighted to receive such rentals and any criticism of ALTA would then be limited to other issues like the duration of tenancy or compensation provisions.
However, the fact of the matter is that the figures quoted by Mr. Sami, generally, are not the rents that are actually paid by tenants. The figures derived from taking 6% of the unimproved capital values of land relate simply to the maximum possible rents that in principle could be applied. While some rents may be at, or close to, the permitted maximum levels, the vast majority are far below these maximums. The reason is that there is no guarantee in ALTA that these maximum rental levels will be applied, and even if they were, ALTA (section 24) allows tenants to appeal any rent levels to a tribunal that can then authorise a reduction in the actual rent paid.
In view of this, it is clearly vital at this juncture to spell out in full detail the amount of rent that is actually paid by tenants to prevent, once and for all, any possible misrepresentation of the reality of ALTA rents. To this end, the situation for sugar leases, as of July 25, 2000, is detailed in Table 1.
TABLE 1SUGAR CANE LEASES UNDER ALTA, 2000
TABLE 1ASUGAR CANE LEASES UNDER ALTA BY PER CENT, 2000
Table 1 above shows that while some land does carry rents that will be close to, or at, the maximum permitted level, the vast majority of leases pay less than $100 per hectare – a mere 9 hectares out of total of 103,473.57 hectares, representing less that one-hundredth of one percent, pays over $500 her hectare in rent. Indeed, dividing the figure for the total assessed rent payable on all sugar leases ($6,851,257) by the total area under sugar leases (103,473.57 hectares) shows the average rent per hectare on sugar leases to be $66.21. But remember this figure of $66 is an average, and in practice some rents will be above, others below this level.
What is particularly disturbing about these rent levels is not simply their absolute levels, but their relationship to the value of the output the land can produce. In this respect, a typical parcel of cane land, when farmed with due diligence, can easily produce 55 tonnes of cane per hectare, which, based on the average value of cane over the last few years ($50 per tonne), would be worth $2,750. Now given the current $66 per ha average rent paid by tenants, rent payments work out to only 2.4% of the value of the output the land produces. This is by far the lowest level of any country for which we were able to get data. To illustrate the magnitude of the difference between Fiji and international standards, consider Figure 1 below, which compares the proportion of gross agricultural income that goes to the landowner as rent in Fiji and several other countries.
FIGURE 1Source: Davies and Gallimore, "Reforming the Leasing and the Use of Agricultural land in Fiji: an Economic Incentive Approach, 2000It should further be pointed out that not all of the 103,473 hectares currently under sugar leases are in fact used to grow cane. Some is devoted to higher valued vegetables and some used for other commercial purposes. Taking this into account, rent as a proportion of gross lease income may be an even smaller fraction than 2.4%.
Now if the 2.4% share going to the Fijian landowners is not exploitation, then what is? It should further be remembered that the current rents of $66 per ha are much higher now than historically – indeed it took the coup of 1987 for any serious attention to be paid to addressing rent levels. Indeed, the submission of the Fiji Labour Party to the JPSC on ALTA, dated February 1999, points out that rents have reached the levels they are at today, as summarised in Table 1, only following some hefty recent increases, with some rents having increased by as much as 800-900%. Consequently, while today’s rent levels are low enough, the recent increases notwithstanding, throughout the approximately one century during which Fijian land has been leased, the returns to the landowners have been unconscionably low, nothing short of a national disgrace.
Finally, with respect to sugar leases, we wish to focus on the implications of the unequivocal statement of Jagganath Sami that, "We believe the rent formula provided for in ALTA is just and fair..." The dollar value of the rents to which he referred, remember were $480 per ha for class1 land, $300 for class 2, and $150 for class 3 land. Now if we multiply these "just and fair" rents by the actual area under each class we can obtain a figure for the "just and fair" total rental income from the entire cane belt. In this regard, according to Grish Maharaj, in his letter noted above, 40% of the cane leases were on class 1 land, 30% on class 2 and 30% on class 3. Consequently, the "just and fair" rents payable, in total, on each class of land would be:
40% of 103,473 ha = 41,389 ha x $480 = $19,866,816Adding up the "just and fair" rents for each class of land we reach a total figure of $33,835,716. This figure, remember, relates to the total "just and fair" rental income payable on the total 103,473 ha under sugar leases in the current year alone. However, as noted in Table 1, the actual rental income paid on all sugar leases amounts only to $6,851,257. Now the difference between the "just and fair" rents and the actual rents amounts to a staggering $26,984,459. This figure represents the lost landowner rental income attributable to ALTA’s indenture of native land – the exploitation arising from actual rents that are less than "just and fair." Now, over the 30 year life of ALTA, the total dollar value of this exploitation, this transfer of income from landowner to tenant, will be an enormous $809,533,770 – yes, over eight hundred million dollars. And if compound interest is factored into the calculation, the total figure easily exceeds $1,000,000,000 (one billion dollars). In other words, ALTA’s indenture of the 103,473 hectares of native land rented (for 30 years) for sugar cane production exceeds one billion dollars. Now, according to the 1996 Fiji Census of Population and Housing there are 66,998 indigenous Fijian households. If one billion dollars were equally divided amongst the 66,998 indigenous Fijian households, each household would receive approximately $15,000. This amount of money could, for example, be used as:
30% of 103,473ha = 31,042 ha x $300 = $9,312,600
30% of 103,473ha = 31,042 ha x $150 = $4,656,300
And remember, this would apply to every indigenous Fijian household – all 66,998 of them. Indeed, if indigenous Fijians were paid "just and fair" rents for their lands would there be any need for affirmative action programmes? Would there be any need for Fijian Affairs Board (FAB) scholarships? Would there be any need for government grants to the provincial councils? Would Fijians be under-represented in business ownership and the professions?
- down payment for a modest house, or
- payment for a first degree at the local university, or
- start-up capital for a modest business, or
- purchase of a small second-hand tractor, or
- purchase of livestock for farming, or
- purchase of farm equipment and farm structures, or
- purchase of a second-hand minibus, or
- purchase of a small second-hand carrier/truck, or
- purchase of a second-hand car/taxi
Just for the sake of completeness, it is worth turning now to the case of non-sugar ALTA leases. The situation here is summarised in Table 2 below:
TABLE 2NON-CANE LEASES UNDER ALTA, 2000
TABLE 2ANON-CANE LEASES UNDER ALTA BY PER CENT, 2000
Again by dividing the total assessed rent of $2,433,744 by the total area leased of 328,977.10 hectares, we obtain a figure for the average rent per ha paid on non-sugar ALTA leases of $7.40. That’s right, seven dollars and forty cents per hectare per year. To a significant degree this very low average rental is attributable to large forestry concessions. For example, one forestry concession of 92,500 hectares pays a total rent of only $22,767.
In conclusion, during the debate on ALTA there seems to be something of a convenient collective denial in some quarters about the reality of ALTA rent levels and the depth of the detrimental impact it has on the entire indigenous Fijian society. It brings to mind the delusions of the flat earth society. Yet the facts of the matter are plain for all to see, if they wish to see. We are indeed grateful to Mr. Sami for affording us this opportunity to again present the facts so that the paper’s readership can use them and make up its own mind on the issue of landowner exploitation.
John Davies and Courtney L. Gallimore,
July 28, 2000
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.
This article, 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.
