Deputy Minister of Finance & Land Bank briefing on support that is given to distressed farmers and the newly-developed Wholesale Financing Model

Agriculture, Forestry and Fisheries

10 September 2013
Chairperson: Mr M Johnson (ANC)
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Meeting Summary

The Deputy Minister of Finance and the Land Bank briefed the Committee on support given to distressed farmers and the newly-developed Wholesale Financing Model.

While the Land Bank was the leading financial institution in the agriculture sector in South Africa, it was a small role player within the rural development strategy. It would like to see extension officers, co-ops, disaster management funds, a marketing board and subsidies higher than 2% of the GDP. Other countries spent between 20-25% of their GDP on agriculture, which gave them the muscle to withstand losses.

The Land Bank had resided within the Department of Finance until 1996. It was then transferred to the Department of Agriculture, Forestry and Fisheries (DAFF) and had subsequently returned to work within the Department of Finance.

Between 2003 and 2007, clients had left Land Bank due to interest rates escalating above that of the co-ops and commercial banks. In 2007, Land Bank implemented a turnaround strategy to reduce the interest rate and to retain investors. 

In 2009, the non-performing loans were at 22.5% (R3.2 billion), which threatened sustainability of the bank. NPLs then decreased over the next four years to R1.4 billion. In line with a growing book, performance had grown and impairments had reduced.

The Land Bank had disbursed R1.8 billion to emerging farmers over the past three years and this amount for development was expected to increase to R6 billion by the end of the MTEF period (2016/17). To achieve R6 billion by 2016, different elements of Land Bank had been established: Retail Emerging Market (REM) which targeted small-scale black farmers, offered a cash flow lending based approach; concessionary funding and interest rates; non-financial support (end to end farm support); and cashless disbursement. The emphasis was on comprehensive support. The Wholesale Finance Facility (WFF) was also launched to form part of the network of support through market-established intermediaries to ensure that emerging farmers received subsidized interest rates and comprehensive support.

The DAFF had contributed R50 million and the African Development Bank had contributed R500 million to REM. The current balance in the ring-fenced account was R21 929 295. In order to retain investors, Land Bank had ring-fenced REM and R248 million had already been disbursed since inception. Total capital of R1.2 billion from corporate funding for REM through the WFF was in the pipeline but still had to be approval by Cabinet.

The Department of Finance was preparing documents on the success outcomes and would approach Cabinet to ask for further support for emerging farmers.

The impact of the disbursements through the REM model so far had been that 280 farmers had been financed; 4 387 permanent employees; 1520 seasonal/temporary employees; 51 007 beneficiaries; 9 254 hectares farmed (owned); 49 217 leased/communal hectares farmed which would not have been possible without REM; mentorship 219; 730 farmers attended training programs; value of assets increased by R42 million and was growing; and turnover of the 280 farms increased by R12 million.

Challenges to implementation were: grouped-loans posed serious difficulties - groups had disintegrated and no longer operated together; farms had been abandoned and tracing of owners was time consuming; farms had been vandalised – loss of value; indebtedness of most farmers was too high; some farmers were uncooperative due to wrong information circulated about Government assistance; and Land Claims were still not finalised. Monitoring by extension officers left much to be desired.
 
The Land Bank would continue to work closely with the Department of Rural Development and Land Reform, DAFF and strategic partners and participated in the National Land Acquisition Recapitalization.
Members asked if the Land Bank’s role in agriculture had crystallised; if it was improving on its non-performing loans; how the performance book improved against farmers’ debt while maintaining its market share; how it was possible that Land Bank could have an interest rate that was lower than other banks; why the capital adequacy target was not achieved; if the new approach of Land Bank would develop sustainable commercial farmers; whether Land Bank would promote co-ops; what assistance was offered to fishing communities; and if any of the current clients were in the fishing industry.

They also asked at what point Land Bank decided whether a farmer would not make it and would not repay a loan; how the Land Bank would assist a struggling farmer to repay a loan which was in arrears due to drought; if  both DRDLR and DAFF were involved with support and mentorship at all 280 farms; and who was responsible for the extension officers; and how reinstating the Maputo Declaration would affect the lives of the farmers; and if DAFF’s target to create one million jobs by 2030 would be realised.

Members were also interested to know whether the Minister and new Director-General had sent apologies for not attending the meeting and if Land Bank had succeeded in recouping any of the AgriBEE R100 million disbursed to fictitious projects and lawyers.

The Land Bank requested support from the Committee to be able to continue to work with distressed farmers. The new model was working, but financial assistance was required to be able to implement it. Land Bank welcomed the suggestion that all the development finance institutions and players in agriculture should collaborate and come up with a comprehensive working document and the most efficient way to go forward.
 

Meeting report

Opening Remarks
The Chairperson said that the success of any farming activity relied on accessible and affordable financing. It was a pillar for sustainability of natural resources, whether talking about land, crops, mineral assets or fish management. The other pillars were marketing, research and development and value addition. In July 2008, the Land Bank was transferred from the Department of Agriculture and Land Affairs (now called the Department of Agriculture, Forestry and Fisheries (DAFF)) to the Department of Finance.

Comments by the Deputy Minister of Finance
Deputy Minister Nhlanhla Nene, Department of Finance, said in addition to accessibility and affordable finance, sustainability of the Land Bank itself, and the Agricultural Bank of South Africa, was important. The Land Bank was a government-owned bank of South Africa, founded in 1912 by the then-government of South Africa as a development finance institution. This Committee, as well as the Portfolio Committee on Rural Development and Land Reform, had been instrumental to the progress made in support of emerging farmers and to holding the departments accountable.

Since 2008, the bank had grown its loan book from R13 billion to almost R30 billion by July 2013.
The performing book had grown by more than 100%, indicating the emphasis not only on growing the loan book, but the quality of the book. Despite the global economic challenges, non-performing loans and impairments had improved by more than 30%. The agricultural market share had increased by 31% and the bank had disbursed R1.8 billion to emerging farmers over the past three years and would increase that figure to R6 billion by the end of the Medium Term Expenditure Framework (MTEF) period (2016/17). In accordance with the bank’s 2016 corporate client landscape, there would be acceleration in disbursements after 2016. Without a shadow of doubt, the bank was the leading financial institution in the agriculture sector in South Africa.

In 2010, Cabinet approved the piloting of two programmes aimed at assisting financially distressed emerging farmers who were clients of the bank. These were the Curatorship Model and Value Chain Financing Models.

The Inter-Ministerial Committee, consisting of National Treasury, the Department of Rural Development and Land Reform (DRDLR) and the Department of Agriculture, Forestry and Fisheries (DAFF), proposed that the financially distressed farmers would transfer right of control of the land to the DRDLR whilst allowing them continued access to the land. The main idea was to protect the new enterprises without compromising the sustainability of the bank. About 283 farms were identified and R232 million cash back guaranteed was made available, of which R208 million was from DRDLR for mortgage loans and R24 million came from DAFF for production loans.

Although progress had been slow, daunting and challenging, 18 of the 283 farms with loans to the value of R18 million of the total mortgage loan had now been regularized and resuscitated and were no longer in distress; 37 loans for ‘deceased estates’ had now been settled; and some farms had been sold to the DRDLR. About 50% of the 283 farms had been processed, while 146 farms were still outstanding.

The original strategy was to complete the resuscitation process before introducing the second phase, the value chain financing model. Given the challenges, a review and decision was taken to implement the next stage to benefit new entrants to the sector. The Value Chain Model was conceived as a comprehensive package which went beyond financing. It included technical support to safeguard the success of the enterprises. Owing to the added support of this package, all preconceptions about emerging farmers had changed.

The bank created the new division, the Retail Emerging Market (REM), which had a specific focus on black emerging farmers who were not commercial farmers, nor interested in equity and large agri-businesses. They would not ordinarily qualify for financial assistance elsewhere.

The Wholesale Finance Facility (WFF) was then launched to form part of the network of support through market-established intermediaries. The WFF was funded through both the bank and government funds to ensure that emerging farmers received subsidised interest rates and comprehensive support. DAFF had contributed R50 million to the WFF and R248 million had already been disbursed since inception of REM. While the bank had made the necessary provision for defaults, this part of the loan book was performing best.

Lessons had been learned from the challenges and farmers were now succeeding. Cabinet had mandated the Inter-Ministerial Committee to pilot the Curatorship model and Emerging Farmers Support Facility and if proven successful after evaluation, to explore the possibility of expanding the models on a wider scale in the sector. The Department of Finance was preparing documents on the success outcomes and would approach Cabinet to ask for further support for emerging farmers.

The Deputy Minister concluded by requesting continued support for the bank from the Committee, as well as from the Portfolio Committees on Finance and Rural Development, to enable it to discharge its responsibility as required by legislation

Land Bank Presentation
Mr Phakamani Hadebe, CEO, Land Bank, stated that the entity’s Business Sustainability Scenario Model was calculated within risk tolerance levels and mapped the path to achieving 35% of the market share by 2016. By end of March 2013, the market share target of 30% had been achieved.

The cost to income target was relatively high (80.9% i.e. for each R1 received, 80.9 cents was used for cost) because the Land Bank had been dealing with legacy issues, legal costs and review of matters. However, systems had been put in place to ensure that the bank was more efficient and actual performance in 2013 cost to income was 67.7%. Development Finance Institutions (DFIs) generally should have the cost to income of about 65%. Commercial Banks were at about 50-55%.

The reason why the Land Bank (LB) did not reach its net interest margin was the cut in interest by the repurchase agreement (REPO) while Land Bank had commitments over a period of two years which it could not alter. However, the target was missed by only 0.2% (3.4% versus 3.2%).

The issue of capital adequacy required attention. Assets against liabilities had caused capital adequacy to maintain at 24.4%. The Land Bank was currently engaging with Treasury on this particular matter.

In 2009, the non-performing loans (NPL) were at 22.5% (R3.2 billion), which threatened the sustainability of the LB. In 2013, the target was at 8% and the bank achieved 4.9%. NPLs had reduced over the four years to R1.4 billion. In 2012/13 alone, NPLs had reduced by R52 million.

In 2009, performing loans were at R11 billion. By March 2013, performing loans had grown to R26.5 billion. The loan book target was 15% and 24.1% had actually been achieved.

Total impairments – loss of asset value due to writing off NPLs - had decreased marginally by R 9 million but in 2009 it was at R2.3 billion. In line with a growing book, performance had grown and impairments had reduced. Over the past three years, the LB had given R1.8 billion in disbursements.

The target for loan development was R550 million but R654.6 million was actually achieved. The Land Bank was expected to achieve R6 billion by 2016. To achieve R6 billion by 2016, different elements of Land Bank had been established: Retail Emerging Market (REM) targeted small-scale black farmers only, who could not otherwise access finance from other institutions due to lack of credit; Retail Commercial Banking (RCB) to fund those who could access credit; and Land Bank Insurance Company for business and corporate banking.

Between 2003 and 2007, clients had left the Land Bank due to loan interest rates escalating above that of the co-ops and commercial banks. In 2007/08, the Land Bank implemented a turnaround strategy to reduce the interest rate.

The REM division was created as a response to the challenge of the Land Bank not meeting its developmental mandate. In summary, challenges included onerous collateral and security requirements; high cost of funding based on risk resulting in high interest rates; high rates of defaults resulting from little or no support to the farmers; little or no integration of the agricultural value chain for emerging farmers; and a lack of dedicated focus to emerging farmers. The REM model offered a cash flow lending based approach; concessionary funding and interest rates; non-financial support (end to end on farm support); cashless disbursement.

A further problem was that the Land Bank operated on 100% borrowed money, except for money received for recapitalisation from government. The DAFF had contributed R50 million and the African Development Bank had contributed R500 million to REM. In order to retain investors, the Land Bank had ring-fenced REM.

The current balance in the ring-fenced account was R21 929 295, less approximately R6 153 797 funds to be disbursed in next two months, resulting in a balance of R15 775 498. Total capital of R1.2 billion from corporate funding for REM through the WFF was in the pipeline but still had to be approval by Cabinet.

The impact of the disbursements through the REM model so far had been: 280 farmers had been financed; 4 387 permanent employees; 1520 seasonal/temporary employees; 51 007 beneficiaries; 9 254 hectares farmed (owned); 49 217 leased/communal hectares farmed which would not have been possible without REM; mentorship 219; 730 farmers attended training programs; value of assets increased by R42 million and was growing; and turnover of the farms increased by R12 million.

In 2010, Rabobank had been commissioned by the Land Bank to assist with restructuring the credit facilities of distressed farmers and in March 2012, the Land Bank embarked on a restructuring model design with Rabobank. The final phase of training and implementation would take place in 2014.

Challenges to implementation were: grouped-loans posed serious difficulties  - groups had disintegrated and no longer operated together; farms had been abandoned and tracing of owners was time consuming; farms had been vandalised – loss of value; indebtedness of most farmers was too high; some farmers were uncooperative due to wrong information circulated about Government assistance; and Land Claims were still not finalised. Monitoring by extension officers left much to be desired. The current status of the number of distressed farms and loans is listed on slide 17.

The Land Bank would continue to work closely with DRDLR, DAFF and strategic partners and participate in the National Land Acquisition Recapitalization. In conclusion, the Land Bank requested support from the Committee to be able to continue to work with distressed farmers for three years. The model worked, but financial assistance was required to be able to implement it.

Discussion
The Chairperson said that the Departments of Finance, DAFF and DRDLR would need to be present at the following meeting with Land Bank. He reminded everyone that while the presentation gave cold figures, what brought Land Bank to the Committee was food security and food safety. He looked forward to hearing about the process regarding the investigations into Land Bank. If it was sub judice, it would need to be discussed in confidentiality.

Mr B Bhanga (COPE) said that there was an argument that the success of the white commercial farmer in South Africa was as a result of the work that the Land Bank had done in the past. He asked if the new approach of the Land Bank would develop sustainable commercial farmers.

Mr Hadebe replied that over time, some of the Acts that had supported the Land bank no longer existed. The Land Act needed to be reviewed. Historically, the Agriculture Credit Board supported farmers with loans at an interest of 2%, but since the Land Bank borrowed money and was under threat of the NPLs, it was difficult to secure investors. To develop emerging farmers to commercial farmers, the Land Bank would approach Cabinet and request funding with a plan according to what worked together with DAFF, DRDLR and with the assistance from agricultural formations and existing commercial farmers. Extension officers were paid but not able to assist.

Ms Mdlalose added that the REM client transactions were seen as a project. There was an off-take agreement, and money was followed. It did not go to the farmer without the Land Bank facility being repaid. The plan was to ensure that the farmer was subsidised and sustainable. At some stage they graduated from REM and would be treated as commercial clients. Policy was adjusted to mitigate risks.

Mr Bhanga asked if the loan book had stabilised and if Land Bank was improving on its NPLs.

Mr Hadebe replied that the Land Bank had grown its book more than 100% and had stabilised. The two key levers that determined the success of an instrument were the quality of the book and the willingness of clients to come to the bank. NPLs had decreased from 22% to 4.9%. However, for every NPL, the Land Bank was affected. Hence the ring-fencing of the development side of the bank.

Mr Bhanga asked if the Land Bank issue currently in the public discourse and alluded to by the Chairperson, was now stable and if the entity’s new location in the Department of Finance was a conducive environment for it to deliver on its identified objectives. He would not apologise for saying that he had lost hope in DAFF, as it had failed the poor people by not delivering on food safety and food security.

Mr Hadebe replied that globally, development bank institutions resided with Finance departments. The Land Bank had been with the Department of Finance until 1996. It was then transferred to DAFF, for good reasons. The Land Bank was a financial institution and now that it was working with Treasury, there were benefits to being in that environment.

Mr S Abram (ANC) said that with due respect, when someone was brought on trial, the matter was not sub judice. He recalled that during the Annual Report in 2007, he told the Land Bank that if it were a private sector bank, it would be in liquidation. For that, he was castigated by the then-Minister and stopped from asking questions by the then-Chairperson. The allegation was that the then-Chairperson was a recipient of R6 million and spent it on two BMWs. He asked whether the Land Bank had succeeded in recouping any of the AgriBEE R100 million disbursed to fictitious projects around the country and lawyers in Polokwane, This was in the media and was not a secret. He also asked how many people were on trial and at what stage the court procedure was.

Mr Hadebe replied that the assets were with asset forfeiture. Three farms, three estates and four cars had been recovered. R12 to R14 million out of the R100 million had been recovered but the case was on-going. The twelve people arrested were from the Land Bank and DAFF, ‘acting’ farmers and relatives of people working in DAFF and Land Bank. Lawyers were also arrested.

Mr Abram said that there was something wrong with the way in which Land Bank was throwing subsidised money at distressed farmers who were possibly not assist-able.

Ms A Steyn (DA) asked at what stage the Land Bank decided that a farmer would not make it and would not repay a loan.

Ms Lindiwe Mdlalose, Chief Risk Officer, Land Bank, replied that before a loan became a NPL, it fell into arrears. The Land Bank process would be to first investigate the reasons for the arrears. If it was beyond the farmer’s control, such as due to a drought, the Land Bank would try to offer intervention, restructure the repayment period and assist the client. If the arrears were in the control of the client, then legal processes were followed to recover the Land Bank’s money.

Mr Harry Moeng, Head of Distressed Farmers, Land Bank, added that the assessment on whether to continue assisting farmers was a lengthy process. It was difficult to get the farmers to sit down and discuss resuscitation, particularly because they would leave the farm and were not traceable. Some farmer groups of development farmers put together invariably clashed and before long they split up and took assets, sold them, and the condition of these farms were such that they needed complete renovation. This took time. Where it was possible and a farm was available, before proceeding with the rescue, the farmers had to be committed, they had to be mandated to speak about the future of the farm, there had to be a plan for the farm, partnership with mentors, guides, a market, technical support, an off-taker, and the process took a long time.

Mr Abram commented that in the past, co-ops were a conduit where farmers were assisted. He asked whether the Land Bank would promote co-ops.

Mr Mohammad Sizwe, Head of Retail Emerging Market, Land Bank, replied that the pre-existing co-ops were exactly the model that the Land Bank was looking for. It was clear that without partnerships in agriculture whereby the pooled knowledge could be transferred, the emerging farmers could not succeed. The established co-ops had a history in the commodity, in the market and with sales. This was the crux of the new model – to bring in all players in the market, including experienced input suppliers who could offer technical advice and support and monitors to graduate emerging farmers to commercial farmers.

Mr P Van Dalen (DA) asked what support was given to fish stocks and how the Committee could assist with capacitating fish farmers and to empower them and their communities.

Ms M Pilusa-Mosoane (ANC) also asked what assistance was offered to fishing communities and if any of the current clients were in the fishing industry.

Mr Hadebe replied that the Land Bank’s exposure to fishing was limited. Loans constituted less than 1%. The fishing industry had been investigated but the Land Bank had not been approached for assistance. The exact numbers would be submitted to the Committee as well as the role Land Bank could play in this regard within its strategy.

Ms Steyn asked if the Minister and new had DG had sent apologies for not attending the meeting. People felt cheated by the Land Bank and were worried about using the entity. This perception of the bank needed to be cleared.

Mr Hadebe replied that currently the Land Bank was comfortable and clients were coming in, but it took time to resuscitate the bank. There was a gradual increase in the loan book by over 100% in five years, indicated a willingness to come back to the bank, apart from it being cheaper than other banks. Farmers who had left were returning.

Mr Bhanga asked if the Land Bank would rescue a farmer who was struggling to pay back a loan to FNB but had a good business model.

Mr Hadebe replied that if the farmer was struggling with FNB, it would be a challenge for the Land Bank to take that loan. The National Credit Regulator would not permit the transfer. If the Land Bank had a suitable capital structure, it would be able to have a unit to cater for farmers who had great potential but were experiencing challenges. The REM sought to do just that. The Land Bank would like the Committee to visit farms which had been resuscitated through partnering between Land Bank and commercial farmers.

Ms Steyn asked for more detail on why the capital adequacy target was not achieved.

Mr Hadebe replied that in 2013, the capital adequacy target was 15%, an increase of R3.3 billion in loans. However, the book grew by R5.4 billion i.e. more was borrowed. The Land Bank had grown too fast and the balance sheet needed to be reviewed as to whether it should stomach additional growth. If it was a listed company, there would be returns and benefits. Capital adequacy was at 20%, a decision taken by Treasury because of risk. Since the Land Bank had matured and become more stable, this had been reduced to 15%. The entity’s profit did not translate into Rands and did not increase equity by a bigger percentage. 

Ms Steyn said that a farmer in the Free State was struggling to repay a loan due to drought. She asked how the Land Bank would assist in this situation.

Mr Hadebe said that no investor would give the Land Bank money to finance the drought. The International Development Corporation initially gave the Land Bank R500 million but with operational integrity, the cost was 2% and the farmers wanted the financial assistance for free. The Land Bank then explained the cost implications of borrowing and the farmers had since been applying for this assistance. However, it should have been the other way around. Unfortunately, disaster management assistance no longer existed.

Ms Steyn asked if the Micro Agricultural Financial Institutions of South Africa (Mafisa) was still in existence and what the connection was between the two institutions.

Mr Hadebe said that Land Bank managed Mafisa on behalf of DAFF. There were no problems.

Ms Steyn asked how it was possible that the Land Bank could have an interest rate that was lower than other banks.

Mr Hadebe replied that the government had created the Land Bank with food security in mind. Success was not about profit but about the number of farmers benefiting from the Land Bank. The interest rate was less than the market because it had an impact on the farmer’s ability to borrow.

Ms Steyn asked how the Land Bank performance book improved against its farmers’ debt while maintaining its market share.

Mr Hadebe replied that the total government debt was increasing at 10% annually up until 2009. Therefore, the Land Bank based its target for its performing book at slightly more than 10% per year. But from 2009 to 2013, the loans had increased by 13%. Instead of growing the book by 12%, it decided to grow it by 16% minimum to allow a bigger market share. In 2010/11, the Land Bank grew the performing book by 26%; in 2011/12 it grew by 64%; and in 2012/13 it grew by 26%.

Ms Steyn asked if REM was for black farmers only.

Mr Hadebe replied that the Land Bank was instructed by Cabinet to target black emerging farmers.

Mr Gaelher (UDM) asked how the Land Bank would assist communal farmers and what it envisioned for them.

Ms Steyn asked how the model would operate in communal land. People wanted to start farming but did not own the land; they were struggling to fall under the Recapitalisation Programme and could not get a loan from a bank because of Land Restitution.

Mr Sizwe replied that previously, the Land Bank could not use communal land, as it was acquired title for security. The Land Bank did not secure in the traditional form – it was not interested in using land for security and had access to alternative means for security, such as the product. This barrier had subsequently been removed and the Land Bank could now finance farmers as long as the farmer had rights to use the land, whether it was communal land, ‘Permission to Occupy’, leased land, or owned land.

Ms Steyn asked if both the DRDLR and DAFF were involved with support and mentorship at all 280 farms and who was responsible for the extension officers.

Mr Moeng replied that at times the DAFF and DRDLR officials overlapped in their integrated assistance to farmers. They worked closely on agriculture and rural development but there was room for improvement and efficiency. Extension officers had not been made available for distressed farms.

Ms Steyn asked if the Land Bank planned to look at the other hundreds of farms. The recap programme would not reach the hundreds of farmers needing assistance.

Ms Pilusa-Mosoane asked why amounts that had been approved to clients had not been disbursed, such as Afgri, Humansdorp and Senwes.

The Chairperson asked if the Land Bank’s role in agriculture had crystallised. The DAFF had stated in its Annual Report that its target was to create one million jobs by 2030 within the National Development Plan.

Mr Hadebe replied that agriculture was still the most labour-intensive sector. Statistically, for each R1 million spent in agriculture, ten jobs were created. In 2013, the total amount of loans disbursed by the Land Bank was R12 billion. The Annual Report could confirm these figures. 10% of that was injected into infrastructure.

Mr Moeng added that statistically, for every R1 million put into farmers, R700 000 (70%) went back into the agricultural system for farm infrastructure. Farmers used 30% for operations.

Mr Hadebe said that while the role of the Land Bank was financing, it was a small role player within the rural development strategy. It would like to see extension officers, co-ops, disaster management funds, marketing board and subsidies higher than 2% of the GDP. Other countries spent between 20-25% of their GDP on agriculture.

Without the Land Bank, the agricultural sector, especially commercial farming, would not have advanced as it had, but instruments were no longer in place to enable the bank to perform optimally. Government assistance was now non-existent, except for recapitalisation and the partnership with DAFF; the Land Bank had liquid asset classification because the instrument that the Land Bank provided to the market was liquid; and the partnership with the Reserve Bank was not as it used to be.

If government entities were committed to improving access to affordable funding, the funding had to be accompanied by a comprehensive strategy, or the emerging farmer would not survive. Big corporations, commercial farmers and co-ops were consolidating and co-ops were taking on individual farmers who had an existing balance sheet.

Mr Sizwe added that until there was infrastructural support, transport costs would eat up many of the farmers’ profit. Sustainable commercial farming required centres for exchange and comprehensive support, not only grants.

The Development Banks of China, India and Brazil were heavily subsidised. 70% of Brazil’s funding mix for agriculture came from government. In India, it was 65% and in China, 85% of its borrowing for agriculture came from the Reserve Bank, the REPO market, which gave them the muscle to take losses. While the South African government had been instrumental in resuscitating the Land Bank, when comparing its assets to liabilities, it was not strong enough to withstand losses. This was why it was necessary to ring-fence REM.

When the Land Bank Act was reviewed in 2006, out of the 12 objectives, one was on commercial farming, one was on food security and all others were on development. However, government did not offer the tools to meet the objectives for development. It also became clear that certain ideas in the review were not actualised. Transfer of R5 billion from the Agriculture Credit Board to the Land Bank did not happen. The Strauss Report stated that government should assist the Land Bank with development of the emerging farmers, but this report was never implemented into the Act as was intended.

Mr Hadebe asked the Committee to review the Land Bank Act and whether it met the targets of the Land Bank. There were obvious gaps. Secondly, he asked the Committee to assess whether it met the Land Bank’s capital structure - whether it had the correct funding mix to assist the farmer. The IDC survived because it had a huge equity on its balance sheet and could take losses. Thirdly, a comprehensive rural strategy: leaving people on a piece of land and hoping that they would produce food was the biggest mistake that the Land Bank had ever made. In 2008, the Land Bank had to write off R4.5 billion on emerging farmers because it provided the loan only. The pilot project with the 230 farmers had the WFF in place and offered aftercare to emerging farmers. The Land Bank had further approached co-ops, to fund them through DAFF and work together with and empowering the new farmers. Should the pilot project be successful, the Land Bank would approach Cabinet with a proposal to receive government funding, rather than continuing to borrow money.

The Chairperson suggested that all the development finance institutions should meet under one roof to find a finance model that made progress.

Mr Hadebe agreed that bringing all institutions under one roof would be a big step forward.

Ms Steyn said that unfortunately, in Cabinet, Ministers sometimes took decisions without full understanding of the content. On oversight visits, it was clear that farmers needed a support programme, as proposed by Professor Nick Vink. The comprehensive package, not only financing, would get farmers on their feet and turn around the current problems: social upliftment; the legacy of the past, land, poverty and inequality. She asked how this message should get through to government. 

Mr Hadebe suggested calling all players in agriculture at national and provincial level to meet and lay down the foundation upon which they could come up with a working document and the most efficient way to collaborate going forward.

Mr Abram said that the culture of dependency had to end. “Our parents and grandparents brought us up with very little. Of all occupations, nothing was more productive than agriculture”. He commended the Land Bank officials and Ministers Manuel and Gordhan and Deputy Minister Nene for rescuing the entity. There were people who had been placed in a position of trust who had abused that trust - R100 million had been cheated from the poor- and they would suffer the consequences. In his 13 years of experience on the Committee, he was sure that the Land Bank should be run by professionals in the Department of Finance. He then added that there was something wrong that provincial MECs did not account to Parliament, which provided their budgets.

Ms Pilusa-Mosoane asked how reinstating the Maputo Declaration would affect the lives of the farmers.

Mr Hadebe said that the Maputo Declaration stated that 10% of the government budget should go to agriculture. In South Africa, currently, 2% was spent on agriculture. Before trying to achieve 10%, systems had to be put in place. For example, there were 2000 extension officers paid to do a job but the product was not there.

The meeting was adjourned.
 

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