Address by Deputy Minister; Isiqongo BEE/Agri Project: briefing; Chinese delegation visit

AGRICULTURE AND LAND AFFAIRS PORTFOLIO COMMITTEE
13 June 2006
ADDRESS BY DEPUTY MINISTER; ISIQONGO BEE/AGRI PROJECT: BRIEFING; CHINESE DELEGATION VISIT

Chairperson: Ms D Nhlengethwa (ANC)

Documents handed out:
Portfolio Committee Minutes (handed to Members only)
Portfolio Committee Budget Proposal for 2007/8
Portfolio Committee Proposed Programme for third quarter, 2006
Copy of PowerPoint presentation on Isiqongo BEE/Agri Project, by Isiqongo Consortium
Information Services Research: Overview of Agricultural Sector and Land Reform in South Africa

SUMMARY
The Committee considered and approved its programme for the third quarter. The Committee considered and approved its budget, subject to some revisions suggested during the meeting.

The Isiqongo BEE/Agri Consortium (Isiqongo) gave a brief presentation on their composition and activities. It aimed to create sustainable and profitable Agri opportunities, assist previously-disadvantaged farmers to participate, via Isiqongo’s model, which would result in broad participation, and the opportunity for farmers to receive mentoring. Isiqongo consisted of Isiqongo Investments, Millenium Group from America, and LDP Consulting. The consortium was already involved in initiatives in the citrus, poultry and deciduous fruit industries, had access to capital and was self-funding. Launching a large-scale Black Economic Empowerment (BEE)/Agri initiative would, however, require funding for the purchase of farms, and would also require identification and acquisition of suitable land by BEE farmers. Isiqongo was seeking official support for the model, asking for assistance in accessing government structures, assistance in identifying black farmers, cooperation with training institutions and better participation with the Land Bank. The challenges facing the sector were summarised, and the main problem identified that most investors were unwilling to finance the purchase of farms. Isiqongo did not present the model in detail, although it was included in the presentation slides handed to Members.

Questions related to the composition of the consortium and Membership of the Board, the location of previous programmes, the outcome of discussions with the Land Bank, and the involvement and terms and conditions imposed by Millennium Group and other US investors. The Committee queried what role Isiqongo expected it to play, whether Millennium Group had previously been represented in Africa, what types of farming would be encouraged, and in particular whether the farming would attempt to address shortages and products currently imported into South Africa.

A delegation from the Agricultural and Rural Affairs Committee of the National People’s Congress of China attended the meeting. The Chairperson and two Members gave a brief presentation on agriculture and land issues in South Africa. The delegation from China reported that it would be interested in establishing regular visits and exchange of ideas, since the history and current situation in the two countries showed many similarities. The Deputy Minister of Agriculture thanked the delegation and reported that the Committee would certainly consider this proposal. His Department and Ministry believed that there were several areas where South Africa could benefit from Chinese experience.

MINUTES
Consideration of Minutes of previous meeting
The Minutes of the previous meeting were handed to Members.

Mr S Abram (ANC) suggested that this matter stand over until a convenient time, either at this or a subsequent meeting, when Members had had a chance to study the Minutes. Dr A van Niekerk (DA) seconded this proposal

There was insufficient time to return to this item, so that the Minutes were not formally approved.

Consideration and adoption of Portfolio Committee Budget for 2007/8
The budget for 2007/8 was circulated. The Chairperson reported that it would need to be approved by 15 June.

Mr Abram queried whether the budget of R960 000 for proposed public hearings should be split equally between the hearings. He commented that there was no certainty that the hearings would be held in that financial year but needed to be included in the budget.

The Chairperson confirmed that this was a broad estimate and therefore the figure should be allocated equally across all proposed hearings

Mr B Radebe (ANC) noted that Gauteng, but not Limpopo, was included in the oversight visits. He believed that Limpopo should receive a visit.

Mr Abram commented that the budget and the programme were not cast in stone and that priorities would determine whether changes were necessary. He agreed that Limpopo should be added to the oversight visits.

Dr van Niekerk commented that the Committee, when doing oversight, was often placed in a difficult position, in that it did not, in advance, receive a programme or an indication of what places would be visited to enable Members to do some research. He requested that the budget should include planning.

Mr D Dlali (ANC) agreed, and added that the Committee needed more flexibility, should visit places identified by Members of the Committee and should not rely on the Departments of Agriculture and Land Affairs to set up all visits.

It was agreed that planning should be undertaken, and that Members should identify programmes that they felt were of importance.

Mr Abram commented that the budget also included a figure for workshops, seminars or other training, which was again a possibility rather than a definite. He suggested that the figure was low but felt that the Committee’s priorities could be adjusted to deal with this, so that for the time being there was no need to adjust it.

Ms L Ngwenya (ANC) asked how the number of delegates and the priority seminars were fixed.

The Chairperson replied that the different caucuses or study groups would make the determination. Delegations could include alternates.

Mr T Ramphele (ANC) queried whether the budgeted figure included the cost of flights and accommodation; if so he felt the figure was too low. He pointed out that some of the seminars or conferences might be overseas, and noted that some of the accommodation provided in the last year had been below standard.

Mr Radebe agreed, stating that if these figures were for the 2007/8 year they had not taken inflation into account.

It was agreed that the figure budgeted under this item needed to be increased.

Mr Ramphele asked why study tours did not appear in the budget. He stated that the Committee had not always received information on what was being held, and he would like to know what the Committee was entitled to attend.

The Chairperson explained that this appeared in a separate budget from the Committee’s budget. The question of entitlement was still under negotiation. Presently, a lump sum was allocated in respect of all Committees, and the Chair of Chairs meeting was still debating how the sum should be distributed. This would be decided once all Committees had approved their budgets. Each Committee would make recommendations and the respective merits of the claims were then decided.

Mr Radebe did not think that this was a fair principle. He pointed out that Committees were established precisely because Parliament considered their work to be important, and it was invidious to try to distinguish their merits. He believed there should be minimum and maximum quotas fixed, so that each Committee could assess its priorities.

Mr Abram stated that it seemed that the allocation would depend on the way in which each Committee made its recommendations. He suggested that the Committee should consider, at a separate meeting, where its priorities lay, and how to submit the proposals. For instance, the budget proposals prioritised the Eastern Block, and this was a matter on which the Committee would have to begin working now.

Mr Radebe asked whether the budget allocation for research matched that in the previous year, and the Chair confirmed that the same figure had been used.

Mr Abram cautioned that there would be problems if the budget was not planned properly, and there was under spending or rollover. He commented also that the Committee secretariat should be careful to check all expenditure on small items, such as lunches ordered, to ensure that there was no wastage, and that the Committee received value.

Mr Dlali moved for the adoption of the budget, subject to the addition of Limpopo in oversight visits, adjustments on the travelling expenses, and later consideration of priorities for study grant applications. Mr J Bici (UDP) seconded the proposal. The Committee approved the budget, subject to the revisions.

Consideration and adoption of Third Term Committee Programme, 2006
The Committee programme was tabled. There was some discussion whether the dates needed to be fixed during the oversight period from 31 July to 11 August, but the Committee agreed that this could be done later.

Mr Radebe noted that the Agri/Black Economic Empowerment (BEE) Charter was created last year and that a report was due. The Land Summit Resolution Report was still outstanding. He requested that both items be added to the programme for consideration in the third term

The Committee agreed to adopt the programme, with the amendments suggested by Mr Radebe.

Briefing by Isiqongo Consortium (Isiqongo) on the Isiqongo BEE/Agri Project
Mr B Konki (Isiqongo) reported that the Isiqongo Consortium was a consortium consisting of Isiqongo (Pty) Ltd, The Millennium Group, USA, and LDP BEE Consulting, an arm of the LDP accounting firm. Its mission was to create sustainable and profitable Agri opportunities, and to ensure participation by BEE farmers, through the innovative Isiqongo Model, which would result in broad based participation by farm workers and land claimants while providing dedicated mentoring programmes.

Isiqongo was a 100% black owned and controlled company, undertaking a wide range of work in the ICT, hotel and leisure industries. The Millennium Group acted as funder and investor. LDP Consulting was involved in other agricultural projects and funding. The model was developed by the consortium to facilitate investment and create an environment to align investment and empower previously disadvantaged individuals.  The consortium was involved in the poultry, deciduous fruit and citrus industry and had already achieved success. It had access to capital, through a number of funders, including access to USA development funds. It was self-funded, except that it could not fund the purchase of farms by the BEE farmers. It aimed, therefore, to launch a large-scale BEE/Agri initiative based on economically viable opportunities.

The agricultural industry faced many challenges, and it was essential for role-players to make the right decisions. Problems were driven by land availability, rather than economic opportunity. There was inadequate funding available for the purchase of farmland since investors were not keen to enter this arena, as many did not understand the industry. Isiqongo aimed to manage the interests of investors, while providing access to funding by BEE farmers, who would include those receiving compensation on land claims. Other challenges included the struggle to be competitive in global markets, the decline in profits, the complexities of managing a farm, consolidation of markets, and the decline in research.

Isiqongo was not seeking funding, but merely wished to present its model to Parliament. Isiqongo believed that any BEE efforts would have to be properly focused and driven. It was not seeking any unfair business advantage, but hoped that its model would be seen as superior. It required assistance in pursuing the model from all relevant stakeholders, and in particular needed assistance with accessing governmental structures, accessing low interest funding, exploring grants, obtaining cooperation from the LandBank, formalising joint structures, identifying farmers and obtaining cooperation from training institutions. It wished to establish formal working relationships to ensure that services, training and assistance were provided.

Discussion
Mr A Nel (DA) commented that the Portfolio Committee was a stakeholder in the agricultural industry. He enquired whether Isiqongo had held discussions with government, Agri-SA, the LandBank and the agricultural unions.

Mr Konki replied that Isiqongo regarded this meeting as the first stage, although it had previously been to the LandBank, Industrial Development Corporation (IDC) and the Development Bank of Southern Africa (DBSA). Isiqongo was hoping that the Committee could give it some direction on the way forward.

Mr Abrams noted that US investors were involved and asked what they would be obtaining from the deal.

Mr Konki stated that Isiqongo had already launched a project worth R1.2 billion in Knysna, and Millennium Group had bought 60% of that development. Overseas Private Investment Corporation (OPIC) was also involved, and their terms were that they would contribute in a 2:1 ratio; namely providing R2 investment for every R1 put in. OPIC also insisted on being involved in the project management.

Mr A du Plessis (LDP Consulting) added that OPIC funding was linked to a grant facility but also operated as a loan facility. Naturally they wished to make a profit, but the point was that they would make funding available where many others would not. Isiqongo was not seeking funding to purchase the land itself or to invest in the value-adding sector (for instance, distribution and packaging business for egg farmers). Isiqongo would seek funders to fund the purchase of the farms by the farmers, and the land identified was already linked to an existing and viable facility.

Mr Abrams asked what had been Isiqongo’s impression of the LandBank’s ability to contribute, since their rates were generally higher than other commercial banks.

Mr du Plessis answered that this was one of the problems. The issues could be addressed by accessing funding at lower rates than prime plus 2%. He stressed that Isiqongo wished to empower people to purchase their own farms, and then Isiqongo could help set up their links.

Mr Abrams asked if Isiqongo could give some indication of other projects managed by them, and whether the Committee would be able to visit these projects.

Mr du Plessis described one of the projects in addressing Mr Dlali’s question (below).

Mr Dlali asked when Isiqongo had been established as no documentation on the consortium or its companies was before the Committee. He asked for an indication of its successes and failures to date. He also asked for details of the Board Members, and their role in the consortium.

The Chairperson stated that this information had been forwarded to the Committee secretariat, and that it was indeed available.

Mr Konki added that there were four Members of the Board. The Board owned a 33% stake in Formula One Hotels, and was looking at taking a majority stake to transform Formula One into affordable hotels for the World Cup.

Mr Dlali asked for specific examples of why Isiqongo considered its model better than others.

Mr du Plessis stated that Isiqongo’s model concentrated on the farm, rather than the value-add businesses. Funding was readily available for ventures such as packaging and distribution. However, the opportunities, at the moment, lay in farming in order to supply to other ventures, and the success of the farming was virtually guaranteed by the distributors and packers willing to enter contracts. Isiqongo believed that it was vital to access the funding for the actual farming activities. The Isiqongo model had been developed by experience with an egg group in Transvaal, who had wonderful distribution facilities, which were underutilised, owing to insufficient farms being able to increase the throughput. If funding was available, farmers now enabled to buy farms would immediately be linked into participation in the value-add chain, with shareholder rights. This model could also be used for existing farms, where the owner wanted to sell. Isiqongo, realising that most BEE or land claimants’ farms would be small, wished to link them with other facilities, so that there was a ready-made model, with a mentoring programme, and mutual benefits.

Mr Dlali referred to the slides, which indicated that Isiqongo required assistance from the Committee in its approaches to the LandBank, despite the fact that there was already some sort of arrangement with it. He was not sure exactly what Isiqongo required of the Committee. Similarly, he was not sure what type of cooperation Isiqongo needed to establish with the Land Claims Commission. He pointed out that the majority of the Commission’s work had already been finalised.

Mr du Plessis stated that the land claims were seen as an ideal opportunity to link the claimant’s access to land with the business opportunity, mentoring and advice to make their land immediately viable.

Mr Bici also asked how precisely Isiqongo wished the Committee to assist. He asked for clarity what type of funding was needed.

Mr Konki welcomed the opportunity to answer all questions as he stated that Isiqongo had basically wanted to receive feedback from the Committee and interact with it.

Mr Bici asked whether Millennium Group was represented anywhere else in Africa, and what businesses it had been financing.

Mr Konki replied that Millennium was involved in the project at Knysna. It was also involved in Mozambique, building 20 000 houses for police and teachers. It was also involved with a bank in Angola. This was Millennium’s first entry into South Africa.

Ms Ngwenya noted that Isiqongo would empower previously disadvantaged individuals, and she asked whether specific sectors, such as women or youth, were being targeted. She noted that “empowerment of PDIs” was in danger of becoming a mere slogan. In the agricultural sector, many people who had been given loans were worse off than before, and she asked whether any plans were in place for marginalised groups.

This question was not addressed in the time available.

Dr van Niekerk commented that it was commendable for the private sector to involve itself, but he was concerned that a private sector institution, operating in a free market, should be seeking guidance from the Portfolio Committee. He noted that with present agricultural trends, small farms were not showing themselves to be viable, and 50-60% of small-scale farmers were grossing less than R300 000 per annum. If new farms and new farmers were to set up, competing for the same products, in the same markets, he could not see that they would be likely to be profitable. Therefore, he enquired whether Isiqongo had identified new products and markets, particularly those where South Africa currently imported, such as seed oils and soya protein feeds for animals. He commented further that there was a need to transfer ownership of existing farmland, drawing in more people, to use under-utilised high potential land.

Mr du Plessis addressed this question, in part, during his answer to Mr Dlali. He believed small-scale farmers could be viable if linked into other value-add chains. By doing this, the small-scale farmer would in due course be able to increase operations. The emphasis of Isiqongo to date had been in citrus, deciduous fruit and egg farming. Isiqongo had not wished to enter into new products as the project aimed to link into existing opportunities.

The Chairperson thanked Isiqongo for its presentation and stated that the Committee hoped to receive a further presentation from it in due course, or to have time to visit its projects.

Study Visit of Chinese delegation, led by Mr Li Chunting, Vice Chairman of the Agricultural and Rural Affairs Committee (ARAC) of the National People’s Congress of China (NPC)

The Chinese delegation and the Portfolio Committee introduced themselves. The Chairperson, on behalf of the Portfolio Committee, gave a brief overview of the agricultural sector and land reform. She noted the social and economic changes following the abolition of apartheid, and pointed out that reforms had been aimed at bringing the previously excluded black economy into the mainstream, which had led to many changes in the agricultural sector and related land sector. South Africa had a dual agricultural sector, consisting of well-developed commercial land, and a predominantly subsistence-oriented sector in the rural areas. Racial segregation in the past had resulted in 88% of land under white ownership, whilst the remaining 12% of land attempted to support 72% of the black rural population in overcrowded former homelands. She sketched the brief historical background and described the major pieces of legislation and White Papers and their ambit.

Mr Abram reported that agriculture contributed less than 4% to gross domestic product, but accounted for 10% of total reported employment, and the backwards and forward linkages to other industries related to the sector accounted for about 15% of GDP. South Africa had a broad and well-developed agricultural sector, and was an exporter of around one-third of total produce. Although drought was a problem, the sector was well diversified, and was self-sufficient in many primary products. Mr Abram gave a brief overview of the major crops, livestock farming and statistics and invited the delegation to contact the Chairperson of the Committee for any further information.

Mr Radebe dealt with the land policy of South Africa. A common feature of all liberation struggles was land and dispossession claims. He gave a brief history of land policies and legislation from 1910 to 1994, and noted its effects on the black and rural populations. He reported that one of the most important aspects of the Constitution was the Bill of Rights, which, inter alia, protected property and provided for right of redress and compensation. Different mechanisms had been applied to the redistribution of land, including the willing buyer / willing seller principle. There were three main programmes underpinning land reform; land restitution or cash settlement to compensate for forced removals; land tenure reform for farm workers; and land redistribution. A primary principle had been the willing seller/willing buyer mechanism, but there were still many challenges, arising in part from the Courts not having been fully transformed. The government had committed itself to transfer 30% of agricultural land, by 2015, to the historically disadvantaged. The progress of land reform had been assessed last year when it was recommended that the willing buyer / willing seller principle be supplemented with measures such as expropriation, which was provided for in the Constitution. One of the main issues, on which the Portfolio Committee would welcome the benefit of experience of the Chinese delegation, was how to reconcile foreign investment (which generally raised property prices) with the retention of land by locals.

Mr Li Chunting thanked the Members of the Committee and was pleased to note the successes in land and agricultural reform, moving to greater equity. China and South Africa shared similar histories and challenges, and it was to be hoped that South Africa, through its reforms, would increase economic development. He was impressed with the crop and livestock figures, particularly in regard to exports, which pointed to the fact that globalisation of agriculture by South Africa was already at an advanced stage.

Mr Chunting reported that in September 2005 the Speaker of the South African National Assembly and the Chairperson of the Chinese Standing Committee had signed a memorandum of understanding providing for regular exchange mechanisms. ARAC would therefore wish to establish reporting and exchange of information between its Committee and this Portfolio Committee, to renew cooperation and to explore new ways of mutual assistance in future. Friendship and understanding would be increased through regular exchanges, which would contribute to socio-economic development. Since both South Africa and China were large developing countries, it would be beneficial to each to examine not only their own problems, but also matters affecting world development. The Speaker had expressed her support, and the International Policy for Parliament was apparently under debate.

Mr Chunting outlined the structure of ARAC, which was founded in 1998 and currently had 24 Members and three working bodies employing more than 20 staff Members. ARAC’s main functions were to initiate legislation, and oversee law enforcement by the State, Council and different departments. Its major priority was to study and implement, in the modern socialist economy, protection of the basic interests of farmers, and maintain smooth implementation of the Chinese agriculture policy. Of China’s 1.3 billion population, about 800 million were farmers. Twenty years ago 350 million farmers had not reached basic living standards, but currently about 3 500 fell short of these standards. Once these standards had been improved, ARAC aimed to educate farmers to assist in the construction of a good socialist economy. Stability had been gained because farmers were satisfied with the management of agricultural affairs. ARAC was also investigating legislation to improve the capacity of subsistence farmers to compete in the market.

Mr Chunting reported that during the early years after formation of the People’s Republic of China the problem of land tenure had been addressed by confiscating land from the landlords and distributing it equally among farmers under a lease system, which could not be altered for 30 years, based on a Cooperate Product Contract, within a family group. It seemed that the difficulties faced by South Africa and China were substantially similar. Therefore Mr Chunting wished to propose that regular exchange visits should be conducted between ARAC of NPC China and this Portfolio Committee of the NA of South Africa, in order to foster better understanding and to accelerate co-operation on rural affairs and agriculture. He therefore extended invitations to the Chairperson and other Members to visit China. Secondly in view of the similarity in products (the differences lying in the amounts produced and exported), he suggested that the Departments of Land Affairs and Agriculture should visit China to investigate the technology and discuss ways to improve agricultural co-operation between the two countries.

Mr Chunting reported that China had no barriers to imports; that there was zero duty, for instance, on agricultural products from Taiwan, and that there were few hindrances to South Africa increasing its agricultural trading with China. He suggested that the Consul General in Cape Town was an ideal link to promote understanding and opportunities and that this consulate had received high accolades.

The Deputy Minister of Agriculture, Mr D du Toit, thanked Mr Chunting for his input. Although the Portfolio Committee did not take instructions from the Executive, it was clear that there were indeed many benefits to be gained from cooperation and exchange and he therefore would strongly recommend to the Committee that they formally discuss the proposals. He undertook, on behalf of the Ministry and Department of Agriculture that assistance would be given to the Embassy in Pretoria and the Consul General in Cape Town. This visit was opportune, and China’s international interaction was highly regarded. The Deputy Minister commented how substantially both South Africa and China had transformed in the last thirty years. Now both were living through substantial global changes that shifted all parameters, and it would be vital to balance the different interests and opportunities in developing countries, especially India and China. That would be a vital part of the continued interaction between China and South Africa. One of the greatest examples China offered to South Africa was the productive use of all land and the tremendous increase in productivity was to be admired.

Ms Ngwenya thanked the delegation on behalf of the Committee, stating that it had been honoured to exchange information on the Chinese land transformation programme. China was an important world leader in the field, and South Africa would greatly appreciate its support. The Committee was also impressed by the extremely low unemployment rate, especially compared to the high population, and by the way in which China focused on economic development. She was sure that the Committee would find regular exchanges extremely beneficial.

The meeting adjourned.