Public Hearings on 2009/10 Fourth Quarter Expenditure Report: Agriculture, Rural Development and Land Reform & Land Bank briefing

Standing Committee on Appropriations

09 August 2010
Chairperson: Mr E Sogoni (ANC)
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Meeting Summary

The Acting Director-General of the Department of Agriculture, Forestry and Fisheries briefed the Committee on the background to the Micro-Agricultural Finance Initiative of South Africa (MAFISA) scheme.  The briefing included the background, budget, financial performance during the fourth quarter of the 2009/10 fiscal year and the impact of the scheme in terms of the number of jobs created.  To date, ten institutions had received accreditation to act as financial intermediaries to retail funding products provided by MAFISA.  The total amount of expenditure for the period January to March 2010 was R15.8 million.  Since its inception the scheme had provided financial assistance to 11000 emerging farmers. The average repayment rate was currently 75%.

The Chief Executive Officer of the Land Bank briefed the Committee on the Agri-BEE funds held by the Land Bank. A new Agri-BEE agreement was signed between the Land bank and the Department, which took effect from April 2010.  The new agreement put in place stricter controls and procedures.  The operational procedures were in the process of being compiled.  No payments have been made under the current administration of the Land Bank.  The amount available in the Agri-BEE Fund as at 1 June 2010 was R115 million.  An amount of R97 million was currently under forensic investigation.

Members wanted clarity on the beneficiaries and the accreditation of institutions.  Other questions dealt with the responsibility for monitoring that the funding provided was applied to the intended programmes, the onerous application procedures and the situation concerning distressed farmers.  The Committee requested detailed written reports from the Department and the Land Bank by 13 August 2010.


Meeting report

Briefing by the Department of Agriculture, Forestry and Fisheries (DAFF)
Mr Peter Thabethe, Acting Director-General, DAFF briefed the Committee on the performance of the Micro-Agricultural Finance Initiative of South Africa (MAFISA) for the fourth quarter of the 2009/10 fiscal year (see attached document).

The presentation included the background to the MAFISA scheme, the budget allocated, the financial performance for the period January to March 2010 and the impact of the scheme in terms of the number of jobs created.

To date, ten financial institutions have been accredited, of which eight were fully operational.  Each institution had signed a participation agreement with the DAFF for the provision of retail production loans to emerging farmers and other qualified applicants. Existing agreements with institutions stated that transferred funds revolved within the accredited institution in a dedicated MAFISA account over a period of five years.

Participating institutions provided performance reports on a monthly, quarterly and annual basis. The types of enterprises funded included livestock, field crops, vegetables, poultry, ostrich, sugarcane and grape production. The interest rate charged was eight percent.

To date, the MAFISA scheme had assisted 11000 farmers, created 560 permanent jobs and 7500 seasonal labour job opportunities. The total budget committed to MAFISA was R520 million.  R240 million had been transferred to intermediaries for production loan purposes and the remainder of R336 million was re-prioritised for mechanisation programme. An amount of R146 million was re-prioritised to assist distressed farms.

Briefing by the Land Bank
Mr Phakamani Hadebe, Chief Executive Officer, Land Bank presented a brief overview of the Agri-BEE funds deposited in the Land Bank (see attached document).

The presentation included an overview of the recent agreement signed between the DAFF and the Land Bank, which took effect in April 2010.  The operational manual was in the process of being finalised.  No funds had been paid during the current administration of the Land Bank. An amount of R47 million was originally deposited into the Agri-BEE fund on 19 October 2006. The total amount in the fund was R115,090,980 as at 1 June 2010.  An amount of R97 million was currently under forensic investigation.

Discussion
Mr M Swart (DA) advised that the Committee had observed during an oversight visit to the Eastern Cape that land allocated to emerging farmers was not being utilised. Millions of Rands were pumped into irrigation schemes that were dysfunctional. He wanted to know who was responsible ensuring that the funding provided was correctly used for the intended programmes.

Mr Thabethe explained that two types of development finance were made available to the Eastern Cape. R65 million was for ILLIMA/Letsema projects. A further amount of R60 million was intended for nation-wide projects that included projects in the Eastern Cape. The Department was compiling a comprehensive report to the Committee, which would include details of the projects.  With regard to the issue of checking and monitoring, the funding approved was not necessarily the same amount as the funds actually transferred.  The funds were transferred in smaller chunks. The Department deposited funds at the Land Bank and the Land Bank in turn transferred the funds to the relevant institutions. The Land Bank decided on the amount and the conditions for the transfer of funds.

Ms Jenetha Mahlangu, Director: ADF: DAFF explained that MAFISA monitored the application of funds. The institutions concerned were accredited with MAFISA. The criteria included considering those beneficiaries or companies that were already operational in order to minimise costs for the Department.  A committee responsible for accreditation had been established.  The committee included representatives from the DAFF and the Independent Development Corporation. Money was transferred when the institution was accredited. The institutions were visited to verify what was actually happening on the ground. One of the requirements for the institutions was to open a dedicated bank account where MAFISA could monitor all the financial transactions. Bank statements were forwarded to MAFISA.

Mr G Snell (ANC) wanted clarity on the beneficiaries of the projects. He asked if there were new beneficiaries or the same beneficiaries who were receiving ongoing financial support.  He asked why there was a low uptake on the funds that had been allocated for projects.

The Chairperson supported Mr Snell on the issue of beneficiaries. He said that the explanation given by Ms Mahlangu was not assisting the Committee to obtain clarity as any organisation could be given accreditation and provided with funds. In many cases, the money was not utilised for projects and simply disappeared.  The main issue was the basis on which funds were provided to institutions.  For example, the South African Sugar Association and the Vrystaat Kooperasie Beperk each received an amount of R50 million. The basis for the allocation of the funds to these institutions was not clear.

Mr Jacob Hlatshwayo, Chief Financial Officer, DAFF, replied that the funding to the Vrystaat Kooperasie Beperk and the South African Sugar Association was approved but had not been transferred.

Ms Elder Mosia, Programme Director, DAFF, explained that the performance of MAFISA had been very poor. There was a need to review the internal processes.  The challenges encountered included the lack of viable business models. Certain farmers wanted to receive grants rather than loans. Those farmers who received grants had to start collaborating and working with the Department and MAFISA.

Dr P Rabie (DA) enquired if MAFISA had reduced the red tape involved in the granting of loans to emerging farmers.  During the Committee’s oversight visit to the North West province, the Members found that many farmers complained over the difficult process that had to be followed to access grants and loans.

Ms Mosia disagreed with Dr Rabie and said that red tape was non-existent. Farmers who applied for loans had to submit proper business plans. If the business plans were not up to standard, the loans were not granted. The applications were evaluated on the basis of the farming practices employed. Irresponsible spending was curtailed and the loans were being repaid at a satisfactory rate.

Mr Swart commented that Government departments presented budget proposals to Parliament every year.  The Departments were expected to spend the allocated budget, but the Committee found that the funds made available remained unspent.  He said that there was no point in making funds available that could have been put to better use elsewhere.

Mr Thabethe replied that the funds were with the Department but the major problem was to ensure that the money reached those areas that really needed it.  That was the reason for reporting the situation to the Committee. The Department would include recommendations to improve the current situation in the report being compiled for the Committee.

Mr L Ramatlakane (COPE) asked for an explanation of the term “distressed farmers”.

Mr Hadebe explained the term referred to farmers who had borrowed money from the Land Bank but had failed to pay back the loans.  These farmers were in arrears or had been blacklisted. There was provision for farmers to discuss the situation with the Land Bank and to agree on a workable solution before legal action was taken.  Legal action to repossess the farm was a last resort. Emerging farmers were faced with many challenges, including access to finance, access to markets and after-care services. Distressed farmers were farmers who could not service their debts. The situation was being addressed. The expertise was available to provide assistance but it was necessary to co-ordinate efforts. Other farmers were in a position to repay their loans but chose not to.  In many cases, repayments resumed when legal proceedings were instituted.  Other farmers made a commitment to repay the loans to the Land Bank over a period of time. If all efforts failed, the farms were repossessed by the Land Bank.

The Chairperson wanted to know if certain distressed farms were originally obtained through the land restitution programme.

Mr Hadebe replied in the affirmative. In many cases, the emerging farmers who received land through the restitution programme were provided with implements, equipment and fertilizer by Government.  Other farms belonged to communities but had failed because of in-fighting.

Mr Thabethe explained that certain farmers borrowed money from other financial institutions rather than from the Land Bank.  The Department was involved in discussions with financial institutions in an attempt to prevent the liquidation of farms because of the non-payment of loans granted to the farmers.

The Chairperson asked the Department and the Land Bank to submit a detailed and comprehensive written report to the Committee by 13 August 2010. The report should cover ILLIMA/Letsema, the forensic investigations into the Agri-BEE funds and the strategies to address the operational problems.

The meeting was adjourned.


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