Cash transfers successfully alleviate poverty in many developing countries. South
Africa is a case in point, implementing one of the largest unconditional cash transfer
programmes internationally, and with substantial benefits to household well-being
along multiple dimensions. Yet, grants discourage formal labour market attachment,
creating dependencies on the fiscus. This study uses a fuzzy regression discontinuity
design to establish that state-funded Old Age Pensions encourage non-market
economic activity (in the form of small-scale farming), and improve the self-reported
food security of rural households that farm, vis-à-vis those that do not. The role of
small-scale farming is of broader interest in rural development, given the context of
the 1913 and 1936 Land Acts that constrained this form of livelihood in former
apartheid homelands. This paper’s contribution is two-fold: grants are an effective
channel to actively promote rural development through small-scale farming, and they
improve food security by non-market mechanisms.