Perishable Products Export Control Board: 2008/09 Annual Report Briefing

Agriculture, Land Reform and Rural Development

19 October 2009
Chairperson: Ms N Twala (ANC)
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Meeting Summary

The Perishable Products Export Control Board (PPECB ) briefed the Committee on the PPECB Annual Report for the 2008/09 period. The report outlined the background, performance highlights, strategic outputs, employee profile, financial performance and challenges. Although financial targets had been met, there was less money available to producers since markets were under pressure due to the exchange rate, input costs, inflation, reduced credit availability and worldwide aging in population,  which spent less on fruit. PPECB income was 16.3% above the budget, mostly due to increased volume and price increase of 10.1%. Advanced field technology equipment formed a significant part of PPECB expenditure because of its reliance on accurate available information. The majority of the income, being 62%, was from Agricultural Product Standard (APS) inspection services delivered. Monitoring and control of cold chain export levies and Value Added Services (VAS), which was a private certification service, totalled 8% of the income. Finalisation of amendments to the PPECB Act would allow PPECB to respond faster to global changes and compliance issues.

Members’ questions included the PPECB mandate, the Auditor-General’s audit report, amendments to the PPECB Act, private standards and cost implications thereof, export capacity building, employee gender and race profile, entry-level staff turnover and electricity tariffs. The PPECB Act was being reviewed by the Department and was in the closing stages. This would be followed by policy development and strategy, in terms of food control, to meet the requirements of this country. PPECB required policy on its mandate to be finalised, but in the broader requirements for fulfillment of its mandate, the services it currently rendered outside of its mandate were essential for competitive performance of the export industry. Private Standards had helped in raising the safety standard of food worldwide. The downfall of Private Standards was that the extent to which they were incremented caused an increase in the price of food. This would be the topic of discussion at the World Trade Organisation (WTO) meeting the following week. South Africa had submitted comments and hoped to be included in discussions on how best to deal with Private Standards. PPECB had advised Government on a strategy plan to ensure there was no need for a South African producer to pay in dollars for Global Gap audits. The need for policy by Government on integration of export, import and local markets would assist with regulation of costs incurred.

Meeting report

Appointment of Acting Chairperson
The Committee Secretary, Ms M Koff asked the Committee to nominate an Acting-Chairperson as Mr M Johnson (ANC) was away at a conference in preparation for the conference in Copenhagen. Members proposed, seconded and appointed Ms N Twala (ANC) as Acting Chairperson.

Perishable Products Export Control Board (PPECB) Annual Report 2008/09 briefing
Ms Elaine Alexander, Chairperson: Perishable Products Export Control Board (PPECB), together with Mr Johan Schwiebus, Chief Financial Officer, PPECB, briefed the Committee on the PPECB Annual Report 2008/09. The report presented the background and performance highlights against 2008/09 strategic outputs, employee profile, financial performance and challenges. PPECB was responsible for research and development; quality inspections; food and safety audits; training and advice; industry statistics; private certification services; cold chain management and inland phyto (plant health) inspection. PPECB worked hand-in-hand with the pack houses, inland depots, export ports, cold stores and their relevant inspectors, until the product reached the consumer, including monitoring of the temperatures on the ships. PPECB was proud to have received an unqualified audit.

With increased produce inspection and compliance requirements, PPECB encountered increased logistical issues and therefore required additional capacity to handle these issues. An 8% reduction on agricultural export products year on year was due to growing compliance needs and the global recession. Since fresh produce income was one of the highest agricultural returns in terms of export products, PPECB believed that enhanced service delivery through training and increased labour would add 3 to 4 jobs per hectare of land and increase income through higher volume of product and export, rendering the industry better able to compete internationally. Table grape exports had dropped from 3 to 4 million cartons down to 60 000 cartons of produce, but the PPECB had been working hard to re open these markets.

The challenge at ports was that there were changes in business operations and holdups. PPECB was working with ports closely to keep the product moving and enhance competitiveness in the industry.

PPECB was also involved in capacity building by training emerging farmers, auditors, students in Agriculture Export Technologist Programmes and by signing partnerships with other government departments and entities, such as the National Agricultural Marketing Council (NAMC). The Harmonisation Programme ensured uniform accelerated skills, transfer and interpretation of standards within inspection, and the cold value chain.

PPECB was a national body with an employee profile that was more balanced than in the past. The number of women was less due to night shifts and physical demands on ships. However, PPECB was working to ensure that women had an equal number of jobs within PPECB.

Mr  Johan Schwiebus, Chief Financial Officer, PPECB, said that PPECB was solvent in accumulated reserves, liquid assets and strong cash reserves. From 1994 to 2007, income had increased progressively. Although financial targets had been met, there was less money available to producers since markets were under pressure, owing to the exchange rate, input costs and inflation, reduced credit availability and worldwide aging in population, who spent less on fruit.

PPECB, which operated as a regulatory operator, had a responsibility to fulfill Public Finance Management Act (PFMA) requirements. PPECB was a diverse stakeholder that tended to diverse and specific needs across the country. It focused on improvement in services and real efficiency. Its objective was to make information available through spending on technology. Expenditure and management of Cold Chain was a key risk. PPECB strategy had successfully responded to reducing costs without losing efficiency.

PPECB income of R142.7 million for 2009 was 16.3% above the R122.7 million budget, and was up from the previous year’s income of R118.0 million. The increase was mostly due to increased volume and price increase of 10.1%. The surplus had been spent on advanced field technology equipment, which reduced the net result to R13.8 million. 56% of purchases were from Black Economic Empowerment (BEE) scored entities.

Expenditure on employment cost 72% of total expenditure and 12% of total expenditure was spent on activity costs for employees, such as accommodation, travel and subsistence allowances. Information technology expenses formed a significant part of PPECB expenditure, because of the emphasis on accurate available information.

The majority of the income, being 62%, was from Agricultural Product Standard (APS) inspection services delivered. Monitoring and control of cold chain export levies and Value Added Services (VAS), which was a private certification service, totaled 8% of the income. Although the total income for 2010 would be below budget, PPECB envisaged a break-even budget due to current savings. 

Ms Alexander said that currently compliance and quality control of local fruit standards, as well as imports, was not being met. Where farmers had to comply to APS, with already increased costs for production, PPECB charged for certification services to recover costs only, so as not to further burden farmers.

Finalisation of changes to the PPECB Act requested by the Minister would allow PPECB to respond faster to global changes and compliance issues. This would enable enhanced function and competitiveness in the export industry. Food safety and control operations were shared between Department of Agriculture, Forestry and Fisheries (DAFF) and the Department of Health, and in some instances, the Department of Trade and Industry (through South African Bureau of Standards.) The challenge was for Departments to work together and respond faster. DAFF responsiveness had been difficult in the past as DAFF had not been capacitated, but the Minister and DAFF were currently working closely. She commended the Minister for the positive response to PPECB from the Department.

Discussion
Mr L Bosman (DA) commended PPECB on its financial performance. He thought ‘Private Standards’ was getting out of hand and asked what percent of standards in the country were private, compared to international standards.

Ms Alexander said that she had given a presentation on Private Standards at an international congress in Beijing, and the issue had also been raised at the International Trade Forum to be taken to WTO, and she was pleased that it was now recognized under the General Agreement on Technical Barriers to Trade and by the Phytosanitary Committee. Private Standards were more rigorous than country standards, and a clause that sought self regulation of standards by countries may constitute a non-tariff and barrier to entry. International bodies were requiring audits and these were expensive.  WTO had not prioritized these issues in the past. The EU Commission, in 2006, commissioned a report, which showed the cost of compliance and the enormous impact on developing countries and small farmers in terms of capital on the ground as well as the on-going costs. She noted that the fruit industry in South Africa had recently faced another compliance audit on ethical trade, despite the fact that South African labour laws were compliant. Retailers from the United Kingdom (UK) had said that South Africa was a danger because of the ability of the Department of Labour to police controls. With respect to the retailers, she had reason to believe that one of the Non Government Organisations (NGOs) had caused a problem at a retail shareholder’s meeting. She added that Private Standards had become a way of differentiating and marketing, yet some were not scientific based and therefore did not comply with WTO rules.

Mr Bosman asked what the trend of private standards was in South Africa, compared to the international trend.

Ms Alexander said that in the EU, there were about ten compliance requirements with Private Standards, above what the EU Commission required itself, and there were about 22 different bodies that were requesting audits. Depending on who was chosen for the audit, the farmer had to comply and pay in pounds or in dollars.

Mr Schwiebus added that PPECB had advised Government on a strategy plan to ensure that South Africa reached the level that Kenya and Chile had in addressing Analysis of Supply Gaps in South Africa (SAGAP), and so that there was no need for a South African producer to pay in dollars for Global Gap audits.
 
Mr L Tolo (Cope) asked why there were 10 male and only 5 females on the board when gender equality was a priority to government. Furthermore, he commented that in the rural areas 99% of farming was performed by female labour.

Mr Zakhe Makhaye, Human Resources Executive, PPECB, clarified that in terms of the Act, the Minister was obliged to appoint members from those nominations from the top five producers in the country. If a male candidate was appointed to the board, the Minister’s hands were tied. However the Minister was sensitive to gender issues. Considerable strides had been made with employment equity in the past five years, and he guaranteed that at the 2010 Annual Report presentation, there would be a black female in the Executive.

In relation to further human resource issues, Ms Alexander said that PPECB had become a training institute for the industry as a whole, but that the high turnover of entry level staff appeared to be due to the salary factor.

Mr Zakhe Makhaye, Human Resources Executive, PPECB, said that this loss of staff to the industry and DAFF itself was being addressed. The process of export capacity building was ongoing for PPECB, as no other institution offered this training. He confirmed that salary and benefits compared to the Department were the cause for loss of capacity.

Mr S Abram commended PPECB on its performance but said that the Committee had insufficient time to understand the content of the documents, and asked that this be addressed by PPECB. He asked for the response of the Department to the review of the relevant legislation, and whether the legislation had been implemented. He suggested that PPECB should present its proposed amendments of the Act to the Department, rather than wait for the Department’s legal advisors to formulate the shortcomings.

The PPECB acknowledged the advice from Mr Abram with regard to the review of the Act, and said that PPECB had indeed addressed the Department comprehensively on future aspirations for PPECB, which included product quality standard services,  and which required interconnectedness between local and export produce. The time lag for implementation of legislation was an issue. The 15 000 export certificates issued to producers in the country were issued by PPECB to those who contributed to export consignments. This certification could identify the type of produce exported and be an indicator for the contribution of exports by emerging black farmers.

Mr Abram also commented that supermarkets had not discounted prices on produce over the past year, but that instead, prices had increased dramatically. Therefore the benefits of quality foodstuffs had not filtered to the local population. He asked if, in its experience of working with the NAMC, PPECB had noticed any aspects of collusion around determination of prices.

PPECB clarified that the presentation was referring to discount requested by the exporter to the farmer. Chain store owners and exporters sought to retain their competitiveness and turnover at the expense of the grower, who was already complying with standards. PPECB was not capacitated to respond to how prices related to the local market due to its lack of involvement in the local market
. Policy on integration of export, import and local markets would assist in this regard.

Mr Abram also asked what the financial implications were with regard to grey areas. In the Annual Report for 2008/09, the auditors had drawn attention to the Value-Added Services (VAS) rendered by the PPECB, which could be outside the PPECB Act (1993), as well as other supplementary information provided by PPECB which did not form part of the annual financial statement and was therefore presented as ‘additional information’.  He asked PPECB to clarify which services were outside of the specifications of the PPECB Act.

Ms Alexander noted that PPECB had reviewed inspection methodologies through production codes to ensure that hotspots, such as audits on cold stores, especially at sea ports, and areas in the Eastern Cape, were inspected more regularly.

The PPECB Act was designed for coaching. Currently, 30% of PPECB work was in terms of the PPECB Act and 70% of PPECB work was in terms of the APS Act which was part and parcel of plant health and non-code services. The Auditor-General’s agent, PricewaterhouseCoopers, had referred to VAS, which was PPECB certification for Private Standards, laboratory services and other development services, as not being defined through the APS or PPECB Acts.
Once the board had reviewed what actually constituted the services of the PPECB, it could comment on what fell inside or outside of the PPECB Act.

Ms Alexander apologised for the sudden scheduling of the meeting and said that she appreciated the oversight received from the Committee. The meeting was expected to be scheduled for the following year, but PPECB had requested the meeting before the Parliamentary recess. She added that the board was aware that it could be operating out of their mandate. However, on reviewing the export services for the country, it had realised that there was not adequate support to the industry. To fulfill their broader mandate and ensure competitiveness with export and compliance, it had responded by providing services to the country. In 2007, it had submitted recommendations to the Minister to increase the mandate.

Mr P Pretorius (DA) said that he noted that the 8% income derived from VAS was a substantial portion of income and asked if PPECB, apart from changing the PPECB Act, was prepared for the next annual report, where the Auditor-General may discredit this service.

Mr Luvuyo Mabombo, Chief Executive Officer, PPECB had been debating certification service issues for the past eight years and the debate was now concluded. The board believed that their services were enhancing the competitiveness of the perishable export industry of the country.

Ms Alexander said that there were lengthy PPECB debates on the board who believed that VAS was within the PPECB mandate was and those that believed they were not and these discussions were lengthy and thorough. They also approached the legal aspect of VAS, and attended a workshop to define and establish how the services enhanced the PPECB mandate and APS mandate. Having done that, the PPECB was then comfortable that PPECB was acting within its broader strategic mandate. This was concluded with the stakeholders this year, and once minuted as a board decision, the auditors were more comfortable with the executive operating within their mandate. In addition, a Micro Toxin Laboratory, serviced by PPECB for the growing nuts and similar markets, was not provided for under the Department. PPECB was thereby contributing to the country’s export market and enhancing its competitiveness.

Mr Pretorius asked for an explanation of the executive management remuneration to Dr G Bruwer, where the amount of R937 561 (March 2009) was very much larger than any other remuneration paid to members.

Mr Mabombo said that a disciplinary hearing was chaired independently of PPECB, and went against it. As a result, PPECB had to remunerate the executive with the equivalent to his annual salary.

Mr Pretorius enquired about the overseas travel cost figure which jumped from R179 648 in 2008 to R648 392 in 2009, and asked whether PPECB members traveled business or economy class.

Mr Mabombo said that the executives traveled on business class flights and the remainder of staff traveled economy class flights.

Ms N Phaliso (ANC) asked what contributed to the 8% reduction in year on year exports, and if there were any remedial measures tried and tested to prevent this.

Mr Mabombo noted that the reduction of 8% in year on year exports was a function of a reduction in volume of exports which PPECB inspected, and was not a function of reduction in assistance.

Ms Phaliso asked what measures PPECB had in place to facilitate entry of black farmers into local and international markets and the total figure for the year of these producers. She also questioned whether there was not an under-emphasis in this regard in PPECB activity.

Mr R Cebekhulu (IFP) asked if the types of imports which did not comply to safety standards, such as those which introduced bugs by not making use of appropriate chemicals, were in fact of any benefit to the country.

The Acting Chairperson asked for an explanation on how American Foulbrood Disease (AFB) had entered the country through infected imported honey.

Ms Alexander noted that with borders more open to import and exports and with South Africa being a net importer of product this year, there had been a strain on the capacity at border control. In broader terms, over the last seven  years, production had doubled yet there had been a slow take on increase in capacity during the previous Ministers’ terms.

The Acting Chairperson asked for a breakdown of the profile of the 78 students that were enrolled in the Agri-Export Technologists Programme, where only nine of them were still looking for permanent employment, and of the 16 senior inspectors who were completing the final phase of the New Managers Development Programme at Wits Business School, and of the four managers enrolled with the Stellenbosch Business School for 2009.

Mr Tolo asked about the lack of Indian employees in the PPECB employee profile.

Ms Alexander said that gender and race were considered by the Minister who appointed the board from nominations provided by the top 5 exported producers. There were changes within the industry, but there had been few women in the industry. This year a female farmer had been appointed by the Department as an observer and was mentored by PPECB. This was PPECB’s contribution to accommodate changes from a gender and race perspective.

Mr Makhaye said that, in regard to the profile of the six inspectors and managers on the New Managers Development Programme, there was one coloured male, two black males, one black female, one white male and one white female. At the Stellenbosch Business School Programme, there were two black and two coloured females on the programme.  With regard to employment equity, targets for national demographics were used as benchmarks. The proportion of the population would need to be reflected, which meant that there would be more Indians reflected in KwaZulu Natal than in Gauteng.

Mr Abram asked how the increase in electricity tariffs would impact on PPECB operations and on the industry.

Ms Alexander said that the integrity of the cold chain was maintained through electricity generation, currently mostly from Eskom. Increase in tariffs would impact negatively on production costs and would reduce competitiveness of the export industry. PPECB was concerned about the long term impact of increasing electricity tariffs, which increased 130% in cost the previous year, as long term sustainability of the perishable industry relied on the cold chain.

Mr Abram also asked what was lumped together in the 5% of the budget referred to as ‘other expenditure’.

Mr Schwiebus said that there was an error on page 22. The expense forecast amount should read as R20 838 million and not R151 323 million.

The cost of insurance, stationary, water, electricity and
licence fees for private certification constituted the 5% f ‘other’ expenditure.

The Acting Chairperson asked in which provinces, other than Limpopo, was PPECB working with emerging farmers to ensure their readiness for export markets and what were the success and challenges in those provinces.

Mr Mabombo said that PPECB had spoken to the five tiers of Government with regard the priorities of job creation and capacity building for emerging farmers in the rural communities. This would be reflected in the 2009/10 report. The capacity building initiatives were not limited to Limpopo. In 2003, as an agency of Government, PPECB had trained around 100 emerging farmers to assist them with pesticide use. In its development strategy, PPECB was committed to training farmers with their domain of fruit in their province and ensuring continued support of farmers.

The Acting Chairperson also asked how much research was being carried out by PPECB and how it financed its research and development activities and whether their research included the challenge of climate change.

Ms Alexander noted that PPECB funded its own research from their income in a cost effective manner. In the past, the research had focused on cold chain but was now broadening to include quality related issues.

Dr B Nshabele, Department of Agriculture, said that Private Standards had helped in raising the safety standard of food worldwide. The negative of Private Standards, as discussed at the present meeting, was that to the extent that they were incremented, there was an increase in the price of food. This would be the topic of discussion at the WTO meeting the following week. South Africa had submitted comments and hoped to be included in discussions on how best to deal with Private Standards.

Dr Nshabele noted that in regard to the questions on American Foulbrood Disease (AFB), imports and exports should, in terms of the law, be presented when coming into the country. Those who were not law-abiding usually caused problems such as AFB. He would consult with the experts to offer a clear and concise answer to the Committee in the following two weeks.

He noted that the Directorate for Agriculture and Forest Inspection Service in Government was established three years previously after an extensive study to examine how to guarantee safety of food in the local market. It was still in the process of recruiting capacity for the necessary inspections, both locally and at borders. In parallel, there was also discussion with the National border control agencies, which in the longer term would ensure that the country’s import and export control would prevent diseases such as foot and mouth and AFB from entering the country.

Dr Nshabele said that the amendment to the PPECB Act should be viewed as work in progress. PPECB was an element of DAFF Food Control, which included organisations such as South African Bureau of Standards, National Regulator for Compulsory Certification, Provinces and the National Department. Food control included legislation and inspectorate and even municipalities. DAFF was in the process of reviewing its food control system, which required careful consideration in terms of cost implications, and was in the closing stages of identifying the current situation. This would be followed by policy development and strategy in terms of food control to meet the requirements of South Africa. Countries differed and had their own circumstances with specific needs.

The Acting Chairperson thanked PPECB for supporting and growing the export of perishable food products industry and commended PPECB on their work.

The meeting was adjourned.

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