Commercialisation of Black Farmers; Market Access Action Plan; BRRR

Meeting report

Budgetary Review and Recommendations Report: Adoption

Chairperson requested the Committee to start with the consideration and adoption of the 2018 Budgetary Review and Recommendation Report (BRRR).

Mr N Paulsen (EFF) said the Committee amendment on page 1 did not say for whose benefit, for what goal and what services the Committee was mandated to perform. People who were supposed to be benefiting from what the Department did were not benefiting.

The Chairperson responded that it was the mandate of the Committee to ensure the people were benefiting

Mr Paulsen then asked, for which people?

The Chairperson said section 55 and 56 of the Constitution allowed for public participation. She asked if Mr Paulsen wanted that to be written into the report. If it sounded better, it could be included that the public needed to be engaged before any legislation was passed.

Ms A Steyn (DA) rejected the suggestion.

Mr N Capa (ANC) agreed with Ms Steyn.

The Chairperson declined the proposal of Mr Paulsen.

Mr Capa referred to the first paragraph on page 7 regarding the national food and national nutrition security policy. After going through the report, he had found that nothing was mentioned about it in the observations and recommendations. He asked it could be considered in the observations.

Ms Steyn asked that the food security programme, and NECA Ncera farms and the 10 farms forming part of the Public Works delay, be included in the report.

The Chairperson said a resolution on food security, investment in agriculture and the Ncera NECA farms must be formulated. Those issues must be added to the report, and the implementation of small scale farms as well.

Mr Capa moved that the Committee adopt the report.

Ms Steyn seconded

Mr Paulsen objected.

The Chairperson confirmed that the report had been duly adopted by the Committee.

 

Commercialisation of Black Farmers

Mr Sfiso Buthelezi, Deputy Minister, DAFF, asked Ms Elder Mtshiza, Chief Director: Comprehensive Agricultural Support Programme (CASP) to give the presentation.

Ms Mtshiza said the goal of the framework for the commercialisation of black farmers was to:

• Support sustainable commercialisation of black producer’s farming enterprises in the agriculture, forestry and fisheries sectors.
• Support the enhancement of production by black producers through deliberate, targeted and well defined interventions.
• Support inclusive growth, sustainable jobs, wealth creation, rural development and sector transformation.
• Make land reform work

The approach to commercialize black producers was twofold. It involved the development phase for potential producers to operate at commercial level (dynamic business model), and the provision of blended funding to commercialize black producers (re-engineering of agricultural development finance)

The development phase 1 entailed the DAFF and Provincial Departments of Agriculture (PDAs) entering into partnership with commodity organisations, state-owned entities (SOEs) -- such as the Agricultural Research Council (ARC),  the National Agricultural Marketing Council (NAMC), and the Perishable Products Export Control Board (PPECB) -- and Academic Institutions to support producers, and the submission of bankable business plans to financial institutions

She addressed the business model to support farmers.  There were 50 identified producers who fitted the selection criteria for support. These included agriculture specific and forestry specific criteria. She gave a status report on development phases. Tasks that had been completed were:

• Provision of a list of identified 50 producers to be commercialised per province as per defined criteria.
• The NAMC providing a list of commodity organisations in South Africa.
• Developing criteria for prioritising commodity organisations to participate in Phase 1: Proof of Concept.
• Conducting a review of producer support services which may be provided.

Ongoing tasks included setting up and holding meetings with prioritised commodity organisations to negotiate participation in Phase 1, and signing service level agreements between the DAFF and PDAs, and partnering prioritised commodity organisations and partnering entities.

The Department was still waiting on National Treasury to approve the deviation from procurement processes when enlisting the services of these identified partners to support black producers. Other tasks had not begun yet.

The categories of producers were large-scale commercial, medium-scale commercial, smallholder producers and household/subsistence producers. Each had a different income per annum and a different form of financial support. One of the support mechanisms was blended funding. This initiative proposed that government should develop blended financial instruments (loans and grants), administered centrally to improve access to, and affordability of, finance by black producers, and reduce their reliance on grants.

The Black Producer Commercialisation Programme was the first blended instrument developed in partnership with Department of Rural Development and Land Reform (DRDLR) and the Land Bank. The target was to commercialize 450 black producers over a five-year period. The categorisation of these producers had been done, and the commercial producers would either be small, medium or large scale commercial producers along the agriculture, forestry and fisheries value chains.

The completed blended funding tasks were:

• The agreement between DAFF and the Land Bank was signed in March 2018.
• Development of the blended fund’s governance framework, operating manual, process maps and artefacts.
• The tripartite agreement between DRDLR, the DAFF and the Land Bank was signed at the end of September.
• The Funding Forum appointments had been made by Directors General (DGs) of the DAFF, the Department of Trade and Industry (DTI), the DRDLR, the Department of Environmental Affairs (DEA) and National Treasury (NT).

Ongoing tasks included approval of three applications by the Funding Forum, processes to support producers with specialised technical support in partnership with commodity organisations and SOEs, and in-depth internal training at the DAFF, PDAs, the DRDLR and the Land Bank.

The joint marketing and communication plan was to be approved by the DGs and Ministers.

Discussion

The Chairperson said this particular programme had come about after the State of the Nation Address, and was a pronouncement by the President that in the 2017/18 financial year, 450 black farmers would be commercialised. When called by the Committee, the Department had said it would be too difficult a task to carry out within the given time, and five years was more realistic rime frame to commercialise those farmers. The presentation was therefore about the framework that would be followed to commercialise the farmers.

Mr Paulsen asked if the Department had identified the 450 black farmers. He said surely not all the farmers were at the same level of commercialisation, so how would the Department monitor and report the progress of commercialisation within the five years?

Ms Steyn asked for a copy of the signed memorandum of understanding (MOU) for the Committee to be able to plan before going into the joint meeting with the Department.

Mr A Madella (ANC) said there were over 200 000 smallholder farmers in South Africa, and now the plan was to develop 450 commercial farmers in five years. He was worried, because now there was an integrated approach -- there was not only the DAFF with the aforementioned mandate, but also the Land Bank and the DRDLR, but the target had remained the same. Although there were more partners that had come into play, why had the target not been increased? It would take forever to convert 200 000 smallholder farmers at the rate things were being done at the moment.

Ms M Cheu (ANC) asked if the Department had look at the issue of redress. She commented that there were not many black farmers in the Western Cape, so was the Department redressing the past through commercialising 450? Did the Department go and inspect the farms? There was a farm in Mamelodi that implemented blended farming, but it was white-owned, so she found it difficult to understand the notion of blended farming. Her main concern was whether the Department actually went to the farms to inspect whether the farmers really met the criteria for funding.

Ms Steyn asked about the criteria used to select the farmers, one of which was that enterprises should be within 100m from agri-parks. However, how many agri-parks were currently functioning and how would they assist? The idea was that marketing would happen through the agri-parks, but if there were no agri-parks up and running, how could they assist? In addition, must a farm meet all 14 points of the criteria before it could be chosen? For example, having water rights in place was a challenge for some, so could they be helped to achieve the criteria and then be funded?

Mr Capa asked about loan approvals by financing institutions, and what the mechanism was to ensure the criteria were met.

The Chairperson said the programme was meant to be annual, but it had now stretched to five years. She noted that the presentation had included forestry and fisheries, and she was unsure as to what the intention was. The Portfolio Committee had been briefed by the Department that 6 000 small holder farms were supported, but the Committee expected it to categorise the farms. The Committee would like to know how far the Department was with categorisation, as that would be very helpful to during constituency visits.

When the programme was announced, it was expected that the DAFF would have a plan to carry it out, so what was the action plan for the farmers? It was confusing that at this point the Department was still speaking of a bankable business plan, so clarity was needed on that. By now, the Department should be presenting its execution plan. She lastly commented that the list of farmers given to the Committee was incomplete. Whoever had compiled the list had not indicated from which province some farmers came. The person responsible must double check and make sure there was no missing information.

Mr P van Dalen (DA) also indicated that there was some missing and incorrect information on the list of farmers provided to the Members, such as incorrect contact numbers. That would make it difficult to visit the farmers.

DAFF’s response

Mr Buthelezi said the contact details were a mistake, and that the Department would go back to get the correct contact details.

He said it was very important that when commercialisation began, the goal was to try to make the farmer a business person, and that was why they needed help. Secondly, it was important to recognise that there should be a starting point -- there were farmers who were already commercial but had challenges, such as a lack of access to funding for black businesses. It was indeed important to know how far the commercialisation process was so that there could be a clear starting point, as Mr Paulsen had said. The commercialised farmers must be identified, and this would be filtered into the next presentation so that the Department and the Committee could monitor the progress or lack thereof. In addition, the draft MOU would be made available to the Committee.

On the point made by Mr Madella about the number of farmers to be commercialised being 450, despite the fact that there were now other partners with the same mandate, the number could be increased but until now not much had been done to reach even that 450, so it might be ambitious to have a bigger number. The Department could look into it, but first progress must be made with the current goal of 450.

Regarding the proximity to agri-parks being a success measure, it was question of providing market access for produce. One of the matters raised had been the issue of excessive government markets. The government spends about R800 billion on procurement of goods and services, and it had to buy from farmers. It was an area that the Department would like the Committee to help with, as provinces and municipalities should be buying products from their own farmers and communities. It was important that farmers were not treated as homogenous. Some farmers wanted access to export markets, and to be a successful fruit farmer one needed an export market in the mix. An audit had to be done so that the Department knews what was needed and exactly where.

Ms Mtshiza said that the point around the level of progression of each individual farmer was important. The 450 farmers had been identified by the provinces, and the Department had noted that the list had to be edited to ensure that the contact numbers were correctly captured. She apologised for submitting wrong numbers.

The baseline work, such as the proper profiling of farmers, needed to be done together with the partners. The National Treasury had been approached concerning grant funding, and the target would be revised.

On the question on redress, the enterprise that had been visited in Mamelodi was not funded through blended funding, as the Land Bank had indicated. It was actually an enterprise that they had supported because of issues of transformation, by buying an equity stake. The Department had not supported any farmer through blended farming, but with blended farming the redress was also looking at the acquisition of commercial access by black farmers.

The Chairperson added that the Committee intended to visit AgriBEE-funded farmers, and not those funded by the Land Bank, so if the document said the government had not funded anything, what did it mean?

Ms Mtshiza said her point was that the Department did not support any farm through blended farming.

She continued to answer the question of the proximity to agri-parks, and said the intention of turning agri-parks into aggregator sites and collection points was for them to be used for packaging, and to provide marketing and distribution to government departments and government entities. Strengthening the production capacity of producers within a particular radius was still a focus of government, and it needed to be achieved.

On the 14 points score, applicants had to get at least six points of the economic benefit criteria. Looking at the criteria as a whole, not one farmer would fail to achieve at least six points.

On the question of whether the loan approvals were the responsibility of financing institutions and whether the applicants met these requirements, the Land Bank and partnering institutions that would be working with the DAFF on the blended funding had been requested to carry out due diligence and assess applications on their bankability. At the point where they did not meet the loan approval criteria, the institution had to advise the Department the gaps that were hindering the loan approval, so that the ARC and NAMC could work with the farmers to ensure the business was assisted to obtain approval of the loan. So, no business would apply for loan approval and not be assisted in case of failure. 

Lastly, on the question of the baseline, she said that a thorough profiling of the farms must be done to determine where it was on the scale of the categories that had been outlined. 

Mr W Maphanga (ANC) asked what would happen to a farmer who had been commercialised if he became bankrupt?

Ms Steyn asked the Committee to look into the issue of land ownership. What were the criteria for people on communal land? Must they have a lease agreement or PTO (Permission to Occupy)? The qualification for that was not very clear. Lastly, on the achievement of 6 points out of 14 points for the criteria; one of the points was that a farm must have at least 60% black ownership. May a farm be eligible, even though it did not fulfil the requirement for 60% black ownership?

DAFF’s response

Deputy Minister Buthelezi responded that the 60% black ownership was a requirement that could not be skipped, because the objective was the commercialisation of black farmers, so if that criterion was not met then a farmer could not be qualified to be assisted. On the possible bankruptcy question, he said this was tricky. The farmers should know that going into business involved risk, but the intervention of the government and the Department was meant to decrease the risk factor through blended funding, which entailed not taking a 100% loan, but getting a combination of a loan and a grant. He emphasised that there would be business failures, as it was the nature of running a business, but the blended funding intervention formed part of the mitigation for that.

The Chairperson said the point that Mr Maphanga raised was critical. The people being funded were being given conditional grants. Since conditional grants had started, some farmers in the province had been supported and were still being supported to this day because there were no criteria. Others just left without notification. She commented that the female farmer of the year could not get assistance, and the farm had been sold back to Land Bank, so the issue of bankruptcy was very important to look into. The Department needed to have a plan. Development that did not produce skills should never take place, and support had to be continuous. There was also an issue of under-spending in the provinces, and when they were about to reach the end of financial year, they would suddenly give funding which was then misused. A story must be told and feedback must be given, so it was clear that development was about building social cohesion.

She commented on the documents given to Parliament, and said they must be double checked. It was an embarrassment on the part of the DAFF and the DDGs that the information was not clear, and that some had even been omitted.

Mr Van Dalen added that another problem with the documents was that the coordinates given were not correct, and that meant the farms could not be found at all, since all the contact numbers were wrong as well.

Ms Steyn commented that the Sarah Baartman district had no information at all -- no contact numbers, no coordinates. This could lead to corruption, because the person assisted could not be found.

Ms Cheu asked if the information brought to the Committee had been verified. She requested the Department to proof-read the documents.

The Chairperson agreed, and added that documents that would be distributed outside of the Department must be signed by the political head or the accounting officer before they were dispatched. That was the policy of government.

Market access for smallholder producers

Ms Mtshiza said the National Agricultural Marketing Council (NAMC) was present for any questions that the Members might have on market access for smallholder producers, but she would give the second part of presentation instead of the representative from the NAMC. The presentation content had been provided by the trade and marketing branch. The question asked by the Committee had been around an action plan for unlocking and securing market access for smallholder producers in all provinces, including farmers that were part of the commercialisation programme.

One of the key factors for the success of smallholder producers was access to lucrative markets. However, these producers found it difficult to participate in markets because of numerous constraints and barriers, including the lack of systems to access market information, market intelligence and marketing support.  Furthermore, poor infrastructure -- roads, communication and storage infrastructure -- long distances to output and input markets, high transport costs and a lack of technical support, such as training on aspects of production and marketing, hindered access to markets. The DAFF had developed an integrated marketing strategy to guide and streamline the implementation of marketing support programmes that were aimed at creating a conducive environment for producers and other value chain players to gain access to markets.

In summary, she referred to the following:

• Initiatives to unlock market access for smallholder producers.
• Market access for smallholder producers.
• Access to European Union (EU) markets by black and Broad-based Black Economic Empowerment (BBBEE) compliant companies.
• Access to imports by black and BBBEE compliant companies – World Trade Organisation (WTO) Agreements.
• Access to  chicken imports by black and BBBEE compliant companies -- African Growth and Opportunity Act (AGOA).
• Access to local markets by smallholder producers facilitated by the DAFF and PDAs in 2017/18

Discussion

No questions were raised. The Chairperson thanked everyone for their contributions.

The meeting was adjourned.