Land values and production deregulation of the South African sugar industry

Much uncertainty surrounds the direction of future land values in the South African Sugar Industry following agreement to abolish sucrose production quotas, pay growers a blend sucrose price and retain a (initially higher) tariff on raw sugar imports from 1 April 1998. An econometric model shows that expected real net realisation revenue/hectare and real interest rates drive real quota land values. Quotas will be worthlesson abolition, but some quota rents will be transferred into higher land rents at the new blend price, raising subsequent non-quota land values. This would offset to some extent an expected fall in current A-pool land values which reflect the combined value of land and quota. B-pooll and values will rise as the expected new blend price will be above the net export realisation price which currently determines the profitability of B-pool production. The prospect of asset value losses explains why quotas will only be phased out over four years, growers lobbied for a greater proceeds split to support the blend price and the tariff was retained.