Department, AgriBEE Charter Council & Forestry Charter Council on their action plans and implementation of Transformation Charters; Land Bank on AgriBEE Fund & Mafisa and Retail Emerging Markets Programme

Agriculture, Forestry and Fisheries

04 November 2014
Chairperson: Ms M Semenya (ANC)
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Meeting Summary

The AgriBEE Charter Council briefed the Committee on its strategic plan and budget for three years 2015/16 to 2017/18. The Council was established as an advisory body to the Minister of Agriculture, Forestry and Fisheries. Its main purpose was to advise the Minister and the sector on all issues relating to transformation. The Council played a monitoring and evaluation role on the status of transformation, and also served as arbiter on issues relating to the implementation of the AgriBEE sector code. Transformation would be created through the promotion of equitable access and participation of black South Africans in the entire agricultural value chain, an improvement in living and working conditions of vulnerable farm workers, and better protection and standards of land rights and security of tenure.

The Committee asked about the challenges identified in the transformation of the agricultural sector. They asked about the activities, output and overall impact of the Council, considering the rising level of farm evictions and intimidation. They questioned how AgriBEE intended to carry out its role and mission of improving living conditions of farm and vulnerable workers, when the Department had a budget proposal only for salaries.

The Forestry Sector Charter Council (FSCC) briefed the Committee on the Council’s actions plans, including the financial implications of the implementation of the Forestry Transformation Charter, the main objective of which was to extend economic opportunities and benefits to the previously disadvantaged black group. The FSCC’s annual B-BBEE progress report on scorecard implementation for 2012/13 showed a sector level 5 status – a one level drop from the previous year, while qualifying small enterprises achieved level 3. The report indicated there was average performance in ownership, and poor performance in management control, employment equity and skills development. The objective for 2013/14 was to assess the status of transformation in the forestry sector. The assessment had been undertaken by a service provider; managed by a steering committee. The preliminary report had been discussed by the steering committee at the end of September, and the final report would be presented to Council by the end of November.

A Member asked what support was given to the local communities to run the Langeni Forest in Mthatha, to ensure that they were able to have it fully transferred to them. In KZN, the community had made several claims for Ingeli forest to be transferred to them. What was the Department doing to ensure that the community benefited by having the land transferred to them? Why certificates were continuously awarded to entities, and not to local communities?

The Land Bank briefed the Committee on its role in administering of the Micro Agricultural Financial Institution of South Africa (MAFISA) loan finance scheme. The purpose of MAFISA was to provide loans to previously disadvantaged black farmers at a nominal interest rate. On-lending was done through intermediaries identified by DAFF. An agreement to manage the funds had been signed in 2006 to provide custody and management of the funds, and to make payments to intermediaries on the instruction of DAFF. In 2008, due to challenges experienced by the Bank in the administration of MAFISA, the new management revised the agreement. In November 2013, R136.3 million had been repatriated to the National Revenue Fund on the instructions of the National Treasury, after a request by the DAFF to use the funds had not been approved. A Retail Emerging Markets (REM) division had been created as a response to the challenges of market failure regarding black emerging farmers, such as onerous collateral and security requirements. There had been a high cost of funding based on risk, and high rates of default resulting from little or no support for the farmers. There had been little or no integration of the agricultural value chain for emerging farmers, and a lack of dedicated focus towards this sector. The REM model included a unique cash flow lending based approach, concessionary funding and interest rates; and non-financial support.  An institutional review of Land Bank was being undertaken because there was a need to look at a new funding model -- a new financing structure that would make the Land Bank sustainable financially.

Members said the Land Bank’s report lacked substance, and more information was needed to engage on the issues. This would be required before a scheduled meeting with the Minister.

Consideration and adoption of the Committee report on the Fishing Agreements and Conventions was unanimously postponed.

Meeting report

Opening remarks by Chairperson

The Chairperson welcomed officials from the Land Bank and AgriBEE to the meeting. She introduced the Committee members and read apologies from the Minister, Deputy Minister and Mr M Hlengwa (IFP).The meeting was convened after the legacy report was reviewed, with outstanding feedbacks from the Department on the implementation of the AgriBEE Charter and Forestry Charter.

The Director General introduced her team and delegates from the Landbank.

Briefing by AgriBEE Charter Council

Mr Edwin Mohlahlo, Chairperson: AgriBEE Charter Council, briefed the Committee on the strategic plan and budget for the period from 2015/16 to 2017/18.

The AgriBEE Charter Council had been established in terms of the Broad-based Black Economic Empowerment (B-BEE) Act No 53 of 2003, with equitable composition of stakeholders as members of the Council. The Council was inaugurated on 5 of December 2008, and consisted of major stakeholders in the agricultural sector. The Council was established as an advisory body to the Minister of Agriculture, Forestry and Fisheries. Its main purpose was to advise the Minister and the sector on all issues relating to transformation. The Council played a monitoring and evaluation role on the status of transformation in the sector. It also served as arbiter of issues relating to the implementation of the AgriBEE Sector code in the sector.

The functions of the Charter Council included monitoring implementation of the AgriBEE sector code in the agricultural sector, as well as to review the code, provide guidance on sector-specific matters affecting B-BBEE in entities within the sector, compile reports on the status of B-BBEE within the sector, facilitate communication and popularisation of the AgriBEE sector code, develop an implementation framework for the AgriBEE, and alignment issues of the AgriBEE sector code.

The vision of the Council was to be a principal advocacy agent in the transformation of the South African agricultural sector. Its mission would be achieved through the creation of an enabling environment for transformation in the agricultural sector, through the promotion of equitable access and participation of black South Africans in the entire agricultural value chain, the improvement of living and working conditions of farm and vulnerable workers, and the improvement of protection and standards of land rights and tenure security for labor tenants, farm workers and other vulnerable farm dwellers.

The Council’s strategic objectives were to monitor the implementation of the AgriBEE Charter in the agricultural sector as well as to review the charter, provide interpretation and guidance with respect to the AgriBEE Charter, share information with sector members and approved accredited agencies, facilitate communication and popularization of the AgriBEE Charter, and advise the Minister of DAFF with regards to the matters of the AgriBEE.

The projected annual budget for 2015/16 was R 5 154 378, which was based on the Council being established as an independent entity. The projected budget for 2016/17 was R4 887 686, and for 2017/18 it was R6 670 223.

Briefing by Forestry Sector Charter Council

Mr Pasco Dyani, Chairperson: Forestry Sector Charter Council (FSCC) briefed the Committee on the Council’s actions plans, including the financial implications of the implementation of the Forestry Transformation Charter.

The forestry sector uses 1% of the total land (1 273 357ha) and employs about 146 000 in sawmilling, pulp and paper, timber boards and mining timber, and provides livelihood support to about 850 000 people. It contributes 1% to the national GDP, and represents 7.7% of manufacturing GDP. Production is focused mainly on pulp and paper and sawmilling products. The sector derives 70% of its revenue from exports. The Forest Sector Charter originates from the B-BBEE Act, No 53 of 2003.  It was launched in 2005, a steering committee was established, and it was published as a sector code in June 2009.

The main objective is to extend economic opportunities and benefits of the forest sector to the previously disadvantaged black group.

The FSCC was launched in May 2008 and operated as a section 21 company.

Its main responsibilities include facilitating, overseeing, and encouraging the implementation of Charter; to monitor and report on the Charter undertakings; to monitor and report on the status report; to publicise the Charter; and to participate in government, industry and Council forums.

The Charter reports to the President’s B-BBEE Advisory Council, the Minister of Trade and Industry and Minster of DAFF. The Charter is composed of 20 board members and an independent chairperson.

The FSCC’s annual B-BBEE progress report on scorecard implementation for 2012/13 showed a sector level 5 status – a one level drop from the previous year, while qualifying small enterprises achieved level 3. The report indicated there was average performance in ownership, and poor performance in management control, employment equity and skills development.

The objective for 2013/14 was to assess the status of transformation in the forestry sector. The assessment had been undertaken by a service provider; managed by a steering committee. The preliminary report had been discussed by the steering committee at the end of September, and the final report would be presented to Council by the end of November.

The 2014/15 business plan budget of R8 506 095 had been funded 60% by government and 40% by industry.

Discussion: FSCC

Mr L Ntshayisa (AIC) asked what support had been given on the issue of certificates to work at Sabie and Merensky by the Department or local government.

Mr Dyani replied that DAFF was in a better position to answer questions on certificate issuance, as the Charter was not required to issue certificates. Some of the members in the Council board were executive directors at MTO Forestry, and would continue to encourage assistance to those communities close to them.

Mr Z Mandela (ANC) asked what support was given to the local communities to run the Langeni Forest in Mthatha, to ensure that they were able to have it fully transferred to them. He asked who PG Bison was in partnership with in terms of the local community, and how the local community was benefiting. In KZN, the community had made several claims for Ingeli forest to be transferred to them. He asked what the Department was doing to ensure that the community benefited by having the land transferred to them. He asked why certificates were continuously awarded to entities, and not to local communities.

Ms Elaine Alexander, DDG: DAFF commented that there had been challenges around collecting rentals, and one of the tasks of the Department was to ensure that those communities received the rentals. The Department was also ensuring that communities had access to working in the agro-forest industries with commercial partners, also in the indigenous forests. The Department provided support by involving the communities in sawmilling and other projects, and allowing access to the forest for firewood collection and beekeeping. There was an initiative to collect the firewood for biomass processing on a large scale. The Department allowed access to indigenous forests for spiritual purposes and mushroom collection. A previous initiative with SAFCOL involved looking at new types of mushroom production that could be done in the forest, and there had been collaborations with China on new mushroom initiatives around non-indigenous farms.

Ms A Steyn (DA) expressed disappointment at the slow pace of land transformation at state-owned forestry lands, and asked for a progress report for the last few years. She asked about the board representing the forestry sector industry, and the independence of the chairperson.

Mr Dyani replied that the board was composed of representatives of the timber industry and its own affiliates, which were the Pulp and Paper Association, SA Forestry Contractors Association, Forestry SA, and Cosatu. Government was represented by the Departments of Trade and Industry, Agriculture, Forestry and Fisheries, Rural Development and Land Reform, Water Affairs, the Industrial Development Corporation, and others. The Chairperson was independent, because the board’s mandate was given by the Minister and did not belong to any stakeholders within the Council, but from time to time he would consult with the Minister on any issue.

Mr C Maxegwana (ANC) commented that less focus had often been given to forestry by the Department and Portfolio Committee. He required elaboration on the problem of accessing land owned by entities by the people of the area. He added that 146 000 workers were employed in sawmills and the pulp and paper board producers, and asked what kind of job these workers had, as they were not permanent jobs and the government was concerned about non-permanent jobs. He asked for the reason for decline in the sector level 5 status from the previous year. He asked for the causal factors and improvement plans of the identified problems of poor performance in management control, employment equity and skills development.

Mr Dyani replied that in 2012/13, the sector was on level 5 status, which meant it had performed badly as compared to the previous year, where it had level 4 status. The Council was striving to get the sector to level 1. Safcol reported to the Department of Public Enterprises, and was represented by Forestry SA in the Council, and there had been no progress from the previous year. Given the retrenchment taking place in the sector, it would be difficult to give the figure of those who were permanently employed, and those working on contract.

Ms Khosi Mavimbela, from the Forestry Sector Charter Council, commented that poor performance and skill development were elements observed in the Council’s score card as priority elements that would be addressed.

Ms Z Jongbloed (DA) commented that there were 146 000 workers in employment. She asked what percentage of people had beenlaid off in the light of the Department’s exit policy announced some years back and revised recently. The replanting of forests had not started in areas of the Western Cape and there were entire community of forest workers in the Western Cape where people were unemployed and living off state assistance. She asked if investigations had been done on the difficulties experienced by these workers and plans to assist them.

Mr Dyani replied that the Council was not in touch with people, because its mandate was limited to monitoring and encouraging implementation of the Charter. He said it was high time it extended its mandate, as people did not know about the Charter Council. Funding was an issue affecting implementation, which had been picked up by the service provider working for the Charter.

Ms Alexander sought the indulgence of the Committee to provide a full report on the number of people laid off, if allowed.

Mr B Joseph (EFF) asked what had been done to implement the objectives of the Forestry Sector Charter Council. Clarity was required on the Sector 5 level, and its interpretation.

Mr Dyani replied that there were levels 1 to 5.

Ms Mavimbela commented that the levels went to level 8, which meant non-compliant. The sector was on level 5, which meant it was between compliant and non-compliant.

The Chairperson agreed that responses should be sent in writing, and commented that the forestry section of the Department had not been performing for quite some time. She asked the DG for a report before the next meeting, as there would be discussion on the issue of land reform and how to ensure that the forestry sector worked. She appreciated the honest responses.

Mr Mandela commented that his questions had not been satisfactorily answered, and hence would want written responses on the issues he had raised.

The Chairperson agreed that a written report should be brought before the Committee.

Discussion: AgriBEE

Mr S Mncwabe (NFP) commented that AgriBEE was the principal advocacy agent in the transformation of the agricultural sector. He asked about the challenges identified in the transformation of the sector.

Mr Mohlahlo replied that communication among stakeholders was a challenge; hence the Charter had taken on the role as an advocacy agency. There was no cohesion among the stakeholders, so there was a need to prioritise communication. Congresses of industry stakeholders had been attended for awareness on transformation. The Charter relied on media statements being issued, and depended on DAFF staff, as it had no budget for its own staff.

Ms Steyn asked if the independent chairperson of the AgriBEE Charter Council was appointed by the Minister. She commented that the Committee had not received AgriBEE’s annual report. She asked how the AgriBEE intended to carry out its role and mission of improving living conditions of farm and vulnerable workers, when the Department had a budget proposal only for salaries.

Mr Mohlahlo replied that the AgriBEE sector code addressed issues of the tenure of farm dwellers and the security of farm workers

Mr Joseph asked if the framework for AgriBEE had been developed and implemented. He asked what had been done in terms of advocacy pertaining to the transformation of the South African agricultural sector.

Mr Mohlahlo replied that a reporting template for the AgriBEE sector codes for 2012 had been developed to ensure that stakeholders and government were held accountable for their commitments. The reporting templates would also assist in determining how far the industry and government went on transformation.

The Chairperson asked about the activities, output and overall impact of the Council, considering the rising level of farm evictions and intimidation. She asked about the budget for 2014/15, as the projected budget provided was for 2015/16. She asked for clarity on the community consultation and communication strategy of both Councils, and how they both raised awareness.

Ms Mavimbela commented that certificates were valid for one year, so it was waiting for its financial year to end before verifying some information and compiling the report.

Mr Mohlahlo replied that the Council would ensure that the Committee was informed on what it was doing. He added that the Council did not implement but rather monitored, hence the introduction of an IT portal -- a web-based system for the industry stakeholders to upload their score cards, which indicated the level of the sector. The challenges could be reviewed by the performance of the media statement. 100% of the budget would be coming from the Department.

Ms Kwena Komape, CD: DAFF, commented that the Charter was publicized as section 9.1 in Dec 2012, and its first report was due at the end of the financial year. In the 2014/15 financial year, the Council had been accommodated in one of the directorate’s budgets, and that was why it had no figure. The IT portal uptake would dictate the number of inactive farms and the level of transformation within the sector.

Ms Edith Vries, DG, DAFF, said that the report would be reviewed by the time the Department came before the Committee.

The Chairperson commented that the sector had not done much, and should move with speed.

Briefing by Land Bank

Ms Lindiwe Mdlalose, Acting CEO: Land Bank, briefed the Committee on the role of the Land Bank regarding the administration of the Micro Agricultural Financial Institution of South Africa (MAFISA) loan finance scheme. The purpose of MAFISA was to provide loans to previously disadvantaged black farmers at a nominal interest rate. On-lending was done through intermediaries identified by DAFF. An agreement to manage the funds had been signed in 2006 to provide custody and management of the funds and make payments to intermediaries on the instruction of DAFF. In 2008, due to challenges experienced by the Bank in the administration of MAFISA, the new management revised the agreement. In November 2013, R136.3 million was repatriated to the National Revenue Fund on the instructions of the National Treasury, after a request by the DAFF to use the funds had not been approved. The current balance in the MAFISA account, as at 30 September 2014, was R2 593 270. A review was currently under way with National Treasury, DAFF and Land Bank to enhance efficiencies.

The purpose of AgriBEE was to facilitate broad-based economic empowerment in the agricultural sector through the provision of grants to black South Africans. The initial purpose of the fund was to provide grants for the acquisition of equity in existing commercial agricultural enterprises by previously disadvantaged persons. The initial agreement that was concluded around 2006 was revised due to poor controls and in 2008 a new agreement had been signed.

The role of DAFF includes the transfer of funds to the Land Bank; to receive applications from the provincial departments; to screen the applications and make recommendations; to forward them to the Land Bank for due diligence; final approval after due diligence by Land Bank; administer and manage the funds; perform due diligence on recommended applications from DAFF; and make recommendations to DAFF on applications.

In November 2013, R228 577 377 had been repatriated to the National Revenue Fund on the instruction of National Treasury. The balance in the AgriBEE fund as at 30 September 2014 was R 37 298 526.

Mr Mohammed Sizwe, Head: Retail Emerging Markets (REM), Land Bank, said the REM division was created as a response to challenges of market failure regarding black emerging farmers, such as onerous collateral and security requirements. There was a high cost of funding based on risk, and high rates of default resulting from little or no support for the farmers. There was little or no integration of the agricultural value chain for emerging farmers, and a lack of dedicated focus towards this sector.

The solution was the implementation of the REM model, which included the following unique value proposition: cash flow lending based approach; concessionary funding and interest rates; and non-financial support. Two approaches had been identified to market REM -- a wholesale finance facility and direct lending. REM processes included planning, engagement contracting, preparation set up, execution operations and re-investing for maintenance. As at 30 September 2014, REM’s loan book exposure was R 391.2 million, with R723 million in the pipeline.

REM had financed 365 farmers with 4 986 permanent employees, and1 498 farmers had attended training programmes.

Mr Lefentse Radikeledi, Director, DFI National Treasury: commented that when National Treasury took over the Land Bank in 2008, it had no rosy history. A forensic audit had just been completed and it was discovered that a lot of reckless lending had taken place outside of its mandate. There had been a big write off of the book of the Land Bank, which had cost the government a lot of money. Treasury recommends and advises Parliament on how to spend money, using the Public Finance Management Act (PFMA) and Treasury regulations to manage those funds. All programmes that National Treasury recommended and advised the Parliament to pass, had well defined purposes. If any institution or department deviated from the purpose of its funding, it had to come from National Treasury and it was up to the Minister of Finance to approve the shift of funds from one programme to another. In terms of the Treasury regulations, the National Treasury had the power to recall unspent funds. He added that two letters had been written to Government departments, including DAFF and individual institutions. The first letter was written in July by National Treasury, but had been written basically as part of the process of rationalising surplus money that was sitting in the Department and government institutions. Those were funds lying idle, without having been spent for a period or more than a year.

The second letter was written in October, directed to DAFF, requesting DAFF to request Land bank to pay back the money linked to MAFISA and AgriBEE. The reason was Land Bank had advised National Treasury that DAFF had requested that they use the money for a purpose that it was not initially meant for, and the money had been sitting in the account for too long. National Treasury had advised DAFF it should return the money to the National Revenue Fund. In terms of National Treasury regulations and the PFMA, it had a responsibility to protect the fiscus and recall unspent funds. National Treasury tries to avoid situations where a department does “fiscal laundry,” where the money would not be spent for a period and would then be transferred to another institution, because when the money was transferred to another institution there was the chance that the funds would be used for s reason not approved by government. This would be interpreted as financial mismanagement and the Minister of Finance or the department would be called to answer. AgriBEE’s money had been recalled by National Treasury because the money had remained unspent in the books of the Land Bank for more than two years. Where funds are not used they are recalled, hence the recall of funds from Land Bank to the National Revenue Fund.

Mr Baldwin Ngubane, Chairperson: Land Bank commented that Land bank had attempted to show the Portfolio Committee the areas of activities it was addressing to balance the disparities in the agricultural, forestry and fisheries sector of the country on land that was government-sanctioned and government supported. An institutional review of Land Bank was being undertaken and he hoped that the Committee would play a part in the organisational review, because there was need to look at a new funding model -- a new financing structure that would make the Land Bank sustainable financially. This would involve new instruments, particularly in the retail emerging market, the issues of RICA in terms of securities, track records, which were real issues for the farmers.

 

Discussion

The Chairperson said that issues would be discussed before the Minister, along with the Comprehensive Agricultural Support Programme (CASP) and the Micros Agricultural Financial Institutions of SA (MAFISA) evaluation done by the DPME, in order to close this chapter of the legacy report. She urged members to note the report and asked the DG to forward the report on the CASP and MAFISA evaluation. She suggested that another meeting be scheduled in order to invite the Minister.

Mr Mandela commented that the information provided was not sufficient, and should be submitted fully before the Committee met with the Minister. He asked for details on the 365 financed farmers, the land leased and communal hectares that were farmed. Information was required on the reckless funding approved by Land Bank.

Mr LC Radikeledi said that the funds were approved prior to 2010.

Ms Steyn agreed that a discussion should be held with the Minister. More information was required on smallholder farmers, on the intermediaries-expired contract that was not renewed, and other issues. The document was flimsy, and full details were required on the financed farmers.

The Chairperson thanked the CEO and his team for coming and requested them to add all the information as an annexure was not provided.

Consideration and adoption of the Committee Report on the Fishing Agreements and Conventions

The Chairperson commented that there were lots of gaps in the Committee report on the Fishing Agreements and Conventions, and the support officials had requested time for the Department to fill the gaps. She requested that the issue be postponed.

It was unanimously agreed that it be postponed.

Consideration and adoption of Minutes

The minutes of the previous meeting were unanimously adopted, with amendment.

The meeting was adjourned.

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