Debts and other Constraints in the Agricultural Sector

LAND AND ENVIRONMENTAL AFFAIRS SELECT COMMITTEE
12 November 2002
DEBTS AND OTHER CONSTRAINTS IN THE AGRICULTURAL SECTOR

Chairperson: Rev P Moatshe (ANC) [North-West]

Documents handed out
Departmental Agricultural Debt (Appendix)

SUMMARY
The meeting focused on the outstanding debt being managed by the Department of Agriculture. According to the recommendations of the Straus Commission, the Department should not be involved in direct lending to farmers anymore. The Department is still managing debt inherited mainly from the previous regime. The Land Bank, Village Banks and other financial institutions have not yet fully covered the gap created with the closing of the Agricultural Credit Board.

MINUTES
Presentation on Departmental Agricultural Debt
Mr J Venter, Senior Manager Debt Management: Department of Agriculture, gave a brief overview of the outstanding debt and presented several categories the debt is divided into. Approximately 80% of the debts owing to the Department of Agriculture (the Department) is owed by established 'white' farmers.

Mr M Mbonga, Department's Deputy Director General: Agriculture, Economics and Business Development, stated that the Straus Commission recommended that the Department not be directly involved in the lending process, and such loan transactions have consequently ceased. The outstanding debt was borrowed before 1997.

A gap has opened since the closure of the Agricultural Credit Board and alternative institutions, such as the Land Bank and Village Banks, have not yet been able to close it. Village banks have experienced phenomenal growth but have recently been experiencing difficulty, and many barriers still bar entrance and participation of previously disadvantaged emerging farmers in the sector. In particular, the high interest rates are having a profoundly negative affect on these farmers. The institutions in the sector are generally strong but they have not yet reached the levels expected of them with regard to policy. South Africa is still maintaining food security, yet the purchasing power is limited, especially of those in the agricultural sector.

Discussion
Mr V Windvoel (ANC) [Mpumalanga] referred to a statement made by Mr Venter concerning the Coloured Farmers Assistance Law of 1973, and asked why such terminology is still being used and whether the law has not been repealed.

Mr Venter replied that the Coloured Farmers Assistance Law, along with all similar laws, had been repealed by the State President in 1995. Some of the outstanding debt had been agreed to under conditions agreed to under that Act, and as such the contracts are still in affect. When the Agricultural Debt Management Act of 2001 comes into affect all debts would fall under that single legislative framework.

Mr Windvoel stated that in future similar reference should be made when referring to the Coloured Farmers Assistance Law and other outdated laws.

Mr R Nyakane (UDM) [Northern Province] asked for details on the policy regulating the writing of debt, and contended that it is not helpful to grant more loans to people who are already struggling to pay off an existing loan. This is a problem particularly in the North West Province. The information on cases should be sent to the State Attorney.

Mr Venter responded that there is a set procedure that has to be followed before a case can be sent to the State Attorney, and this would only happen when debtors make absolutely no attempt to communicate with the Department after several letters and inspectors have been sent to them. The relationship between the Department and the debtors is generally quite good.

The writing off of a debt will only take place after all possible steps in retrieving the money have been considered, and whether the farmer will be placed in undue hardship is also considered. Other considerations are whether the State's claim has been proven successfully and the possibility of repaying the debt either now or in the future. The amount written off for the year 2001/2002 at March was R 18 098 235, and the number of deceased estates are on the increase. This reflects the age demography of the debtors.

The Chair asked why the North-West Province's debt was so high and what the criteria was for the writing off of a debt.

Mr Venter replied that most of the debtor farmers in the North West Province are category 3 farmers, and as such they were not be able to access loans through commercial banks or other institutions. The Agricultural Credit Board was bound by policy to keep these farmers going by providing them with loans.

Mr Nyakane stated that when poor farmers are granted loans they often spend some of the money on personal items and, if there is money left, they spend it on the intended agricultural projects. In future the Department should continuously monitor the progress of farmers after their loans have been granted.

Mr Venter replied that the Department is no longer in the business of lending money, but stated that he is sure that the Land Bank is aware of the scenario expressed by Mr Nyakane.

Mr Windvoel asked how the deceased estates and cases of those farmers who are selling their farms and leaving the country are dealt with.

Mr Venter responded that 80% of the debtors have adequate security and as such the Department, as the bond holder, will be aware of their attempts to sell their property.

The Chair asked whether the farms of uninsured farmers were expropriated after their death.

Mr Venter replied that, with regard to deceased estates, the normal process of appointing an executor would apply. The handling of deceased estates is a field unto itself, and often the children of the farmers apply to take over the debt and continue farming.

A Member stated that the people in the Makhatini Flats are living under poor conditions and the Department should investigate this.

Mr Venter responded that the Department sends inspectors every six weeks to the Makhatini area to speak to the community and to try to renegotiate agreeable loan repayments.

A Member asked whether the outsourcing of the debt had been considered.

Mr Venter replied that there are currently 130 people dealing with debt collection in the Department and, with the new law coming into affect, outsourcing can be considered as an option.

Mr Mbonga added that, according to the recommendations of the Straus Commission, the Land Bank should have taken over the management of the debt but an agreement was made between the then Minister of Agriculture and the Land Bank which resulted in the Department managing the outstanding debt.

The Land Bank is in the ongoing process of major restructuring and it is also one of the few institutions that run the step up program, however a special mortgage rate that falls a few points below the commercial rate has been established to assist emerging farmers. A range of governmental and other grants and measures are also in place to assist emerging farmers.

Fifty-two Village Bank institutions have been declared bankrupt and a summit is planned to assist the sector. Currently Village Banks are unduly burdened by regulations, and the Department will in future work closely with the sector to ensure capacity building and proper management. Investigations are ongoing on the missing R3m from Village Bank funds.

The Land Bank has been thrust in a central role by the Straus Commission and the Department is assisting it to find its feet.

Mr Windvoel asked whether there was a timeframe on the repayment of outstanding debts. One should be careful when outsourcing debt as there may be sensitive cases which would be better handled by the Department.

Mr Venter responded that it was impossible to accurately predict when loans will be paid up as drought and other natural phenomena could affect repayments, but the number of debtors were declining. Furthermore, it is not possible to simply foreclose on farms, and the Department tries instead to keep them in business so that they can continue to repay their debt.

Mr Windvoel stated that there should at least be a target.

Mr Mbonga replied that the first goal is to get farmers current by eliminating arrears, and it is possible to set incentives to motivate earlier settlement of debts.

The Chair asked about the relationship between the Land Bank and the Department, and how far the country has come in alleviating poverty in South Africa.

The Department responded that the relationship between the Land Bank and the Department is a very close one. Mr Mbonga is the Ministers representative on the board of the Land Bank, and the Department is now starting to see the enormity of the problems facing them.

A Member proposed that the Department should try to access the Skills Development Fund to assist the Village Banks.

Mr Mbonga replied that, with regards to training, the Department has been rather "ad hoc" and they do not have figures to present the training done.

The meeting concluded.

Appendix

DEPARTMENTAL AGRICULTURAL DEBT

1. BACKGROUND

Origin

Loans granted in terms of -
- Agricultural Credit Act, 1966 (Act No.28 of 1966)
- Coloured Farmers Assistance Law, 1973 (Act No.1 of 1973)
- Ad hoc assistance schemes eg. State Assisted Production Loan Scheme for Small Farmers through Financial Intermediaries)

Debt originated from subsidy schemes such as Land Conversion Scheme

2. LEGAL FRAMEWORK

- Agricultural Debt Management Act, 2001 (Act No. 45 of 2001)
- Public Finance Management Act, 1999 (Act No.1 of 1999)
- Agricultural Credit Act, 1966 (Act No.28 of 1966)
- Coloured Farmers Assistance Law, 1973 (Act No.1 of 1973)
- Treasury Regulations
- Departmental Financial Instructions

3. STATUSOFDEBT

Total farming debt

Land Bank - R 8 861,7mil 29,7%
Commercial Banks - R12 544,2 mil 42,0%
Co-operatives - R 3 160,4 mil 10,6%
Department of Agriculture - R 783,6 mil 2,6%
Other - R 4 495,1 mil 15,1%

R29 8459 mil