Onderstepoort Biological Products Ltd on 2010 – 2013 Strategic Plan; Responses of the Department of Agriculture, Forestry and Fisheries to outstanding matters raised by the Committee during previous engagements

Meeting report

Briefing by Onderstepoort Biological Products Ltd (OBP)
Advocate Dave Mitchell, Acting Chairperson, OBP Board introduced Dr Teresa Smit, Chief Operating Officer and Mr Ayanda Ntsho, Acting Chief Executive Officer to the Committee.

Mr Ntsho presented the strategic plan of OBP for the period 2010 to 2013 to the Committee (see attached document).  OBP was separated from the Onderstepoort Veterinary Research Institute in 1992 and was incorporated as a State-owned entity (SOE) in 2000. The mandate of the organisation was to prevent and control animal diseases that impacted on food security and public health.  OBP manufactured and provided animal health products and generated revenue of R100 million in the 2009/10 fiscal year.  The last grant received from the State amounted to R9 million in 2001 and the briefing highlighted the need for additional Government funding for a capital expansion project.

The presentation included an overview of the global market for animal health products and the position of OBP.  The global market was worth $19.2 billion, of which $4.7 billion (25%) comprised the market for biologics.  80% of the global market was dominated by only 9 players.  OBP’s biologics market share was $14.5 million.

A breakdown of the contribution of poultry, cattle, sheep and goats and pig farming to the gross domestic product (GDP) was provided.  Livestock farming was a key factor in rural economic development and food security programmes.  South Africa was a net importer of animal products and the programmes driven by the Departments of Agriculture, Forestry and Fisheries (DAFF) and Rural Development and Land Reform (DRDLR) was focused on developing the emerging farming sector to close the import gap, amounting to R2 billion per annum.  Assuring animal health was crucial and approximately R20 million per annum was required to fund the South African vaccine bank.  The dedicated vaccine facility was established in 1968 and most of the equipment and facilities used by OBP dated from that time.  The need for recapitalisation had been under discussion since 2000.

The strategic plan for the period 2009/10 to 2012/13 included twelve key strategic objectives, including the establishment of a vaccine bank and accessing Government funding for the capital expansion project.  The three key strategic focus areas were human capital development, building a profitable and sustainable bio-manufacturing company and the development of products to drive future growth.  A total amount of R70 million was required to recapitalise the manufacturing plant during 2010 – 2013 and allow OBP to adequately respond to outbreaks of animal diseases.  R50 million was required for a pilot facility upgrade.  In addition, State procurement processes for animal health products manufactured by OBP needed to be reviewed.

Discussion
Mr S Abram (ANC) thanked the delegates from OBP for the informative briefing.  He was pleased to note that other countries recognised the potential of South Africa and South African farmers.  He complimented OBP for its response to the outbreak of Rift Valley Fever (RVF) in 2009, which had a major negative impact on the livestock population and threatened food security in the country.  The farmers were very happy with the vaccine produced by OBP.  The Muslim community had observed a marked reduction in the availability of animals suitable for slaughter and an increase of 40% in the price of animals.  He noted that Onderstepoort was involved in any incidents concerning animal health and provided assistance to neighbouring countries as well.  More than 80% of the country was not suitable for crop farming but large tracts could be used for livestock farming.  He felt that the country was able to increase production but he was not convinced that the planning authorities knew how to unlock the potential.

Mr Abram remarked that the Committee had been informed of the plans developed by OBP on previous occasions and he asked how much had been achieved to date.  Members of the Committee had visited the OBP facilities and had observed the status of the plant and equipment.  He referred to a recent article in the farming magazine Landbouweekblad concerning the granting of a contract to provide animal health products to another company by the DAFF and wanted to know why the contract was not awarded to OBP.  He asked if OBP had failed to secure the contract because of a lack of capacity to deliver the required products.  He noted that the State had not provided any funding to OBP since 2001 and felt that Government needed to provide financial support for its objective to develop the emerging farming sector.  He asked if OBP had approached the DAFF with the request for the funding requirement of R120 million over the following three years.  DAFF had a total budget exceeding R2.7 billion and the total funding required by OBP was a relatively small amount.  He wanted to know why the Department had not made the necessary funds available to OBP to ensure that an important national asset was maintained.  He cited the example of the unsuccessful project to deliver tractors to the value of R50 million to provincial authorities and felt that the Department was failing the people of South Africa by failing to support the essential services provided by OBP.

Mr N Du Toit (DA) agreed that the development of the livestock farming sector in South Africa should be given a higher priority.  It was important that OBP remained on a good footing to minimise the risk of losing livestock to diseases.  He felt that the request for additional funding was reasonable and recommended that the Department gave it due consideration.  The Members were the first Government representatives to visit the premises of OBP and he suggested that the Department requested the Minister to pay a visit before she decided on the 2011/12 budget for the DAFF.  He agreed with the need for a capital investment in OBP.  Unlike a loan from a commercial bank, State funding for OBP should be seen as an investment in the agricultural sector in order to provide long term livestock security and to increase the number of livestock in the country.  He asked OBP to amortise the amount of R120 million required and indicate what the period of amortisation would be, what the gross and net profit margins would be and what percentage market share in South Africa, the African continent and elsewhere could be expected.

Ms Pilusa-Mosoane (ANC) expressed sympathy for the need to renovate the facilities occupied by OBP for longer than 40 years.  OBP provided an important service and must have the necessary equipment to allow the entity to meet its mandate.  She pleaded with the DAFF to grant the request for the funds required.  The presentation highlighted the increased competition in the animal health products industry, which posed a threat to the continued sustainability of OBP.  She urged the Department to take urgent action to provide the necessary support for OBP, in the interest of the country.

The Chairperson asked if the Department was supportive of OBP.

Mr Peter Thabethe, Acting Deputy Director-General: Operations Management, DAFF responded by saying that the Agricultural Research Council (ARC) was a Government entity that received an annual grant from the Department.  OBP was an SOE and was expected to be profit-oriented.  The Department made no provision to provide an annual grant to OBP as the business was supposed to make a profit from its operations.  DAFF had already made the decision to focus on the ARC, followed by other entities in subsequent years.  He advised that he had engaged with the Director-General on several matters but the recapitalisation of OBP had not been discussed.  He suggested that OBP prepared a submission that could be presented to the Department of Public Works (DPW), the National Treasury and the Department of Science and Technology (DST).  The request for additional funding could then be submitted to Cabinet for approval.  This process had been followed to capitalise the ARC infrastructure.  OBP would need to make a very convincing argument, substantiated by an analysis of the impact and the risk if further investment was not made.

The Chairperson interrupted to ask what a more convincing motivation for the Department could possibly be than the strong recommendation made by Members of Parliament.  DAFF needed to prioritise and support the OBP and ensure that the entity was encouraged to grow by providing it with work.  He wanted to make it clear that the Committee expected the DAFF to support OBP.

Mr Thabethe understood the frustration of the Committee and said that the matter was being discussed.  DAFF had approved the budget to establish the foot and mouth facility.  The possibility of re-merging OBP with the Onderstepoort Veterinary Institute (OVI) was being considered.

Mr L Bosman (DA) expressed amazement at the lack of understanding of South Africa’s development needs displayed by the DAFF.  OBP played a major role in ensuring the general health of livestock in the country.  The importance of the agricultural sector was constantly emphasised and he found it inconceivable that the Department failed to appreciate the contribution made by OBP.  He pointed out that SOE’s generated profits from retail sales of products and it was necessary to invest in research and development as well.  It was not acceptable that Government entities awarded contracts to private companies instead of OBP to supply products.  The funding required by OBP was not considered to be a large amount and he urged the DAFF to take the matter seriously and consider granting the request.  OVI had a very different mandate than OBP and the possibility of merging the two entities had to be carefully considered.  He questioned whether Government was impairing the agricultural sector as the focus and funding provided was not aligned with the national priorities.

Mr Du Toit noted that the net profit declared by OBP for the prior fiscal year was R19 million, which was a relatively small amount and represented a slim margin.  The stability of the market cannot be relied on and OBP cannot afford to take risks.  Any profit declared by an SOE must be considered to be a bonus and he felt that the country would be better off if more SOE’s performed as well as OBP.  The company could be regarded as a model for other SOE’s.

Mr Abram observed that Mr Thabethe had merely provided reasons why no action was taken by the DAFF.  He was concerned over the negative attitude displayed by the Department, which was not conducive to the achievement of the country’s development objectives.  He reiterated that OBP provided an essential service to emerging farmers.  The organisation was born out of an emergency (i.e. the Rinderpest outbreak in 1908) and was responsible for ensuring the health of livestock in the country.  He pointed out that Parliament had approved the provision of substantial amounts to bail out other SOE’s and the amount required by OBP to provide an essential service was comparatively small.  He asked if Mr Thabethe had ever visited OBP.  He felt that the DAFF needed to set the right priorities and urged the Department to take the necessary action.

Ms Pilusa-Mosoane observed that OBP was not making progress, despite declaring a profit.  As an SOE, the entity should receive financial assistance from the State.

The Chairperson stated that the Committee expected the Department to offer solutions rather than excuses.  Most of the issues concerning agriculture had been raised on previous occasions but remained unresolved.  The interest of DAFF should be to ensure the production of safe food and the provision of food security for the country.

Adv Mitchell thanked the Committee for the input provided, which would be taken into consideration by OBP.  He acknowledged that the strategic plans needed to include specific target dates and performance indicators.  He advised that some work had been done on developing the recapitalisation programme but more would be done to ensure that the request for additional funding complied with the National Treasury framework.  OBP would take up the suggestion made by DAFF concerning the submission of a formal request for additional funding from Government.  The amount of R120 million did not cover all the investment required. OBP would utilise its own cash reserves but needed to ensure adequate contingency funds were available to cover any disease outbreak in the short- to medium term.  The new manufacturing plant required additional human capital as well.  OBP needed to ensure that the necessary skills were available and that existing processes were adapted to ensure optimum use of new plant and facilities.  The morale at OBP was high and the organisation was in a position to develop human vaccines in South Africa as well.  OBP looked forward to an opportunity to submit a report on the progress made to the Committee.  The company was clear on what needed to be done and the need to divert from its previous over-cautious approach to meet the challenges.

Mr Ntsho advised that OBP provided additional services to the agricultural sector as well as training.  The entity had the necessary capacity to deliver on its mandate and to fulfill Government contracts.  OBP would participate in any discussion concerning the merger with OVI.  He disagreed with the statement made by Mr Thabethe that the matter of the recapitalisation of OBP had not been discussed as he had been involved in discussions with DAFF and with the National Treasury.  It was unfortunate that OBP needed to re-sell the same idea whenever there were changes in office at the Department.  There was a certain reluctance to divulge information in meetings open to the public which could benefit OBP’s competitors.  He said that OBP strived to constantly improve and deliver better services and products.  He agreed that the agricultural sector in South Africa had tremendous potential and it was necessary for OBP to focus on where the organisation could make the biggest contribution.

The Chairperson asked if the process of appointing members of the OBP Board had been completed.

Mr Thabethe undertook to request the office of the Director-General of DAFF to provide a written response to the Committee.

Mr Bosman suggested that the Committee requested the Minister to finalise the appointment of the OBP Chief Executive Officer and the members of the Board.

Mr Abram understood that the short-listed candidates had been interviewed and that the matter had been with the Minister since August/September 2010.  He expressed concern over the lack of a sense of urgency and the tendency to procrastinate by the Department.  Issues tended to take a lengthy period of time to resolve.  He felt that there was a need to change the culture of the Department in order to deliver the national objectives announced by the President.

Outstanding matters from previous interactions between the Committee and the Department of Agriculture, Forestry and Fisheries
The Chairperson referred to the document prepared by the DAFF that summarised the outstanding matters arising from previous interactions with the Committee.  The document listed the date of the meeting, the matters on which responses were required and the progress made but omitted any indication of the relevant target dates.

Mr Abram asked when the document was compiled as there was no date provided.

Mr Thabethe confirmed that the document was updated on 22 November 2010.  He asked if the Committee wished to discuss each item in detail.

The Chairperson said that Members had not had adequate time to study the information provided.

Mr Bosman suggested that Members were allowed time to study the document and that the matter was postponed to the meeting scheduled for 24 November 2010.

The Chairperson agreed that the matter could be postponed to the following day.

Mr Abram suggested that the Committee made use of the available time to discuss certain matters in the report that could be dealt with relatively quickly, for example the three issues raised on 27 July 2010 concerning stock theft.  The loss of livestock through theft had a major negative impact on emerging farmers in particular.  The progress reported did not include any data on the number of incidents reported, the number of arrests or the actual results achieved.  He felt that the responses provided were inadequate and the Committee was unable to determine if any progress was being made.

The Chairperson recalled that the Committee had clearly communicated to the Department that a detailed response was required.  It was not sufficient to submit vague plans and actual statistics and factual information had to be provided.  He felt that the document compiled lacked detail, for example it was necessary to specify where the stock theft hot spots were and what action had been taken to combat stock theft.

Mr Thabethe apologised for misunderstanding the Committee’s requirements.  The Department had a great deal of information and reports available but had provided only a synopsis in the document compiled for the Committee.  If required, copies of the reports could be provided to Members as well.

The Chairperson asked for more information on what had been done by DAFF to combat stock theft in the country.

Mr Thabethe replied that the combating of stock theft was an ongoing process.  The Department was involved in discussions with stakeholders (e.g. ARC and SAPS) and had initiated a branding campaign but an additional element was required and the process had not yet been concluded.

Mr Abram remarked that stock theft was ongoing as well and did not stop while the Department was in a meeting.  One of the problems was that the animals belonging to emerging farmers were not branded.  He explained that the Committee required a detailed response that included an analysis of the problem and the action taken to resolve it.  The information provided was meaningless and could not be used to explain to emerging farmers what was being done about the theft of their livelihood.  Tangible information was required and the Committee needed to know exactly what the re-branding programme entailed and what the results were.  He referred to the outbreak of RVF during 2009 and said that the Department had been conspicuous by its absence during the outbreak.  He felt that the DAFF should be more pro-active and should be able to substantiate how the budget of R2.9 billion would be applied.

The Chairperson agreed to postpone further discussion to the following day.  He suggested that the pages of the document submitted to Members were numbered.

Ms M Mabuza (ANC) was leaving the Committee to chair the Portfolio Committee on Public Works.  She thanked the Chairperson and the Members for their support and the good relationship built up over the previous years.  She was passionate about agriculture and had learnt a great deal from the other Members.

Mr Bosman extended his congratulations to Ms Mabuza on her appointment.  He thanked her for her contribution to the Committee and said that she would be a worthy chairperson of the Committee on Public Works.

The meeting was adjourned.