Industrial Policy Action Plan (IPAP) 2015: public hearings Day 2

Meeting report

The Chairperson welcomed everyone to the meeting and the agenda for the meeting was adopted.

The Department of Trade and Industry (DTI) on high impact for accelerated growth in Agriculture and Agro- processing Programme

Ms Unati Speirs, Chief Director: Agro-processing, DTI, said South Africa's agro-processing sector played a significant role in terms of job creation and sustainability in the economy. Despite the 2008 economic meltdown, food processing continued to be resilient and it was one of the largest manufacturing sectors by employment. The food and beverage industry contributed about R101 billion to the Gross Domestic Product (GDP). She showed how South Africa had been evolving from a primarily import market to achieving a positive trade balance between imports and exports on slide 3. 

 The forestry and forest products industry contributed about R12.2 billion to the GDP.  The timber industry contributed 7.7% to the manufacturing GDP and 25.5%to the agricultural GDP. South Africa had 1.34 million ha under forestry and the total value of timber produced in South Africa was R 6.7 billion, while associated value-adding sectors contributed a further R20.4 billion; with sales to processing plants adding a further R17.4 billion. The sector provided the raw material for beneficiation in subsectors such as pulp and paper, sawmilling, particle boards for furniture manufacturing, mining timber, construction and poles.

Ms Speirs gave an overview of the Manufacturing Investment Programme (MIP) funding (slide 7) that showed the investments made in provinces and she mentioned that although provinces such as the Western Cape and Gauteng still got the majority of the investment schemes, the Department was slowly bringing other provinces such as the Eastern Cape and Mpumalanga into the fore. Similarly the Aquaculture Development Enhancement Programme (ADEP) focusing on fish, oysters and abalone had been established in the Western and Eastern Cape. The Manufacturing Competitiveness Enhancement Programme (MCEP) had the highest uptake, creating 13 583 jobs over six provinces.

DTI and the canning industry association established the Public Private Partnership (PPP) canning initiative and hosted a generic domestic market campaign in collaboration with the South African Fruit and Vegetable Canners (SAFVCA), Proudly South African and the Culinary Arts Association of South Africa (CAASA). The event aimed to educate the general public about nutrition and functioned as a platform to market and promoted the consumption of local produce to preserve and protect jobs in the Agro-processing sector.  The Rhodes Foods group launched and showcased new products revitalising the canning industry in South Africa. The products included various permutations of fruit cocktails, jams and vegetables. The products had easy to open lids that did not require a tin opener like the traditional canned products. In 2014, DTI also hosted the planting of 10 ha orchard trees at Robertson in Western Cape and phase 2 of the project was being wrapped up and the projects for phase 3 were now being identified.

Ms Speirs gave an overview of the, Small Scale Maize Milling Industry and said they would also be presenting to the Committee on their businesses and the challenges they faced. She went on to focus on regional integration and said facilitating the incubation of small poultry growers would improve on their competitiveness and contribute to employment creation in the sector. South Africa used to export meat (beef, skins, cloven-hooted animals and animal products) and poultry (chicken: chilled and frozen, and eggs products) to the United Arab Emirates (UAE) and Saudi Arabia. The meat from South Africa had been regarded as the best and of a good quality in the Middle East. South Africa was currently working on compiling the information required by the Gulf States.  In order to attempt to expedite the process, the Department of Agriculture, Forestry and Fisheries (DAFF) intended to send a full report on South Africa’s Avian Flu status to Saudi Arabia. Once this was done, South Africa would be exporting chicken to Saudi Arabia in 2016. She gave an overview of the projected values and tons per annum and also mentioned that the DTI had put in place various tools to enhance the agro-processing industry and economic transformation, which included, but was not limited to:

-Processing traditional exports such as coffee, cocoa, and cotton;

-Scaling up promising non-traditional exports such as fruits by upgrading the supply chain - from farms to processing factories, increasing farmer incomes and generating jobs in factories and allied agri-business services;

-Importing substitution potential, which was growing in importance given the rapid rate of increase in agricultural imports into Sub-Saharan Africa - the total value of imports rose 62% between 2007 and 2011 to reach $37 billion

-Exporting promotion programme for wine in Russia, China and the United States of America (USA);

-Drawing smallholder farmers into the procurement processes of the large Agro-processors in 2015.

The Department was working on the establishment of a domestic agribusiness hub, 27 rural agro-processing parks and a furniture manufacturing hub. The hubs would improve productivity, create employment, increase competitiveness and optimise the use of the current natural resources in the regions. Other objectives of the hubs were developing skills through agri-business and food processing by creating a central processing and marketing company; and to allow for the provision of common infrastructure facilities where the enterprises gained advantages through co-location with shared infrastructure, logistics and input costs.

Discussion

Mr D Macpherson (DA) asked how the Department was engaging with DAFF and the Department of Rural Development and Land Reform (DRDLR), because agro-processing could not be happening if farms were being lost and it was a worrying trend. The land restitution policy was “airy-fairy” and it did nothing to settle the farming community or grew farms. He asked where DTI stood on these particular points, especially on land capping and the current failing land restitution process.

The Chairperson cautioned Members against making generalisations.

Ms Speirs replied agro-processing dealt with production land which was an indicator of potential. In Alexandria where chicory was grown, the Department had a huge problem where the industry declined within two to three years from 100 to 25 farmers and Nestlè imported chicory from India.  All those farms were converted into game farms and could not be reverted back. Nestlè and the industry approached the Department for assistance and DTI then used communal land where the community was allowed to farm the processing facility within the community. It allowed Chicory SA to take 40% of their own chicory from the communal land. DRDLR assisted the farmers to turn ordinary land into productive land. In the next planting season, it would increase from 40% to 60%. When Nestle approached the Department there had been no transformation in the industry and they could not get any points on their BEE scorecard, because the industry at that time was the only grower of chicory. The Department intervened and Nestle was now buying all the chicory being produced. In that particular region, the community, the local councillors and traditional leaders got involved in the process. DTI had a very strong and strategic relationship with DRDLR and ensured that any related projects were collaboratively approached.

Mr B Mkongi (ANC) said the land issue was very important, especially in the wine industry. There had been reports that the people who entered into partnerships with land owners, especially in the Western Cape, got raw deals. He asked what was being done, because people never really got the chance to actually own land. He asked what the chances were of developing a Special Economic Zone in the George/Knysna area. There was a lot of potential for economic development in those areas.

Mr Speirs replied that perhaps the most important aspect about wine in the Western Cape was the future. Land and soil management practices would not always give the Western Cape an advantage, because of over use. The Department was looking at the Northern Cape as a strategic area for the revamp of the wine industry, because land eventually got exhausted. Most of the black brand owners in South Africa did not own any land or winelands. These brand owners were not prioritised and packers, usually around peak seasons, increased prices or wines were not delivered. The Department had engaged companies on secure contracts, but it was a continuous process, unless there was a change where brand owners would become land owners. The George/Knysna area was a forestry area and a furniture hub would be the most effective economic solution, especially because of the timber-based products. This had been explored by the Department and it was found that the area was also ‘low-skilled’. It should be developed by focusing on the skills development component of the sector.

Adv A Alberts (FF+) asked for more information on the graph (slide 4) that showed the high and low growth potential products. The sugar cane industry was also regarded as having high growth potential and he asked if there were some more information, especially with a lot sugar cane farmers going bankrupt, because of cheap sugar being imported to South Africa. He also noted that the maize industry did not have high growth potential and he asked why that was the case and what could be done to change the situation.

Ms Speirs replied that the sugar cane industry was one of South Africa’s biggest economies and it also had high growth potential and was very labour intensive. Currently, in South Africa, the choice was basically between brown or white sugar and there were many other alternative products. The Minister formed a new agreement with the European Union (EU) to export sugar and it would give the industry a chance to create new and alternative products. It was a much monopolised industry, but there were supporting industries and key limitations like the industry’s aging infrastructure. It was an industry that should be invested in through exploring alternative products and biofuels to curb energy consumption. The drought also hit the industry hard and South Africa was a water scarce country. It led to 40% to 60% of the industry not planting cane and it was a high risk for the industry.  Maize required silos and the Foundation for African Business and Consumer Services (FABCOS) would be able to put up six new silos. Currently all the silos in South Africa had been privatised. Members would hear from the presentations how the changing infrastructure would support industries.

Mr M Kalako (ANC) commended the sector for the positive trade balance achieved between imports and exports. The Department of Traditional Affairs (DTA) had also started with agro-processing focusing on traditional land and emerging farmers. He asked if there was coordination between the departments (DTI, DTA and DRDLR) to maximise the use of the funds allocated to the projects. He asked which countries were South Africa’s stiffest competition in the European and other markets.

Ms Speirs confirmed that the DTI was working collaboratively with all relevant departments.

Mr J Esterhuizen (IFP) said the agro-processing sector’s performance was closely related to the overall rate of economic growth in South Africa. It was also important to ensure that local producers were appropriately positioned to benefit from the BRICS agreement. He asked if traditional leaders had been involved in the discussions around the establishment of the 27 rural agro-processing parks.

Ms Speirs said the DTI would ensure that traditional leaders were involved in the process.

The Chairperson referred to the furniture manufacturers and the assistance they have been receiving from MCEP and she asked how sustainable this process was. She referred to the labelling of exports and she asked what the impediments were since South Africa had labelling legislation that required that the country of origin be indicated as per the World Trade Organisation (WTO) requirements.

Ms Speirs replied that furniture and caskets were initiatives started with MCEP, because there were a lot of casket imports and she confirmed the sustainability of the project. When wine was exported in bulk, it was blended in the destination country. South Africa requested that if blend contained at least 70% to 80% of South African wine, it should be labelled as such.

Chairperson thanked the Department and said the positive trade balance between exports and imports was perhaps the single most important aspect, because it improved food security. She asked that the Committee be informed about the upcoming forestry seminar.

The Foundation for African Business and Consumer Services (FABCOS) on localising food production in South Africa

Mr Phillip Usiba, Deputy President, FABCOS, said the organisation aimed to bridge the divide between the formal and informal economies of South Africa and to ensure that township and rural businesses became part of the mainstream South African economy. South Africa was a highly dualistic economy characterised by high productivity (modern) on one hand and low productivity (informal) on the other with little interaction between them and a division along racial lines. Sectors represented by Associations in FABCOS included agriculture, retail (food and beverages), construction, informal trading and clothing and textiles. The organisation had reach across all provinces.

Mr Alan Campbell, Treasurer-General, FABCOS, said in 2008 FABCOS commissioned the Trade and Industry Policy Strategies (TIPS) to undertake research into the causes for the rising costs of food and fuel and what the appropriate response should be from small businesses. The study found that all food stuffs that were consumed in South Africa were transported in one form or another. Because of the distances from consumers, the value chain was much longer and the accompanying costs much higher. This contributed directly to the rising cost of food. Small businesses, particularly black farmers, were completely excluded from the value chain. The study also revealed that lower income groups spent a higher proportion of their disposable income for food on grain products (36.5%), meat products (15.1%) and vegetables (12%) than those with higher incomes. Higher income groups spent more of their disposable income on a variety of food stuffs, with meat as the highest proportion at 24.1%. Since early 2007, rural prices have tended to grow faster than urban prices. One of the recommendations made by the study was that alternative value chains should be created that were shorter, more cost effective and much more inclusive.

The study led to FABCOS developing an industrial policy that prioritised small business and aimed to establish an alternative value chain. The policy was premised on the ideal that communities needed to be at the forefront tackling the food crisis. FABCOS approached Homegrown, GWK and Buhler to jointly embark on a journey of packaging food manufacturing facilities that were localised, simplified and miniaturised. The goal was to deliver a compact “maize mill in a box” that produced maize meal using farmers in the vicinity and supplied communities in the immediate catchment area at relatively lower prices.

Mr Campbell gave on overview FABCOS’ Industrial Policy Programme and the strategic partnerships the organisation had formed. He said without quality maize, it was not possible to produce quality maize meal and to compete with existing brands.  Maize was the second largest crop in South Africa after sugarcane and the industry was valued at R31 billion. There were 9 000 commercial farmers farming on 3 million ha of land at a yield of 4-5 tons per ha. These farmers produced 98% of total production and employed 150 000 farm workers.  The maize was transported 25% by rail and 75% by road. Initially, HomeGrown will source raw material (on behalf of the mills) directly from the commercial farmers as close as possible to each mill and within the proximity of the silo storage capacity. Over the short to medium term, FABCOS and GWK will increasingly produce competent black small scale farmers through FABCOS’ incubation programme. The farmers would be organised as a cooperative of maize growers and would be supplied with all the required inputs (seeds, fertilizer, chemicals), including financing and mentoring. The farmers will be selected based on their proximity to the micro mills.

Grain silo storage capacity in South Africa was approximately 17.5 tons. Each micro mill will have the capacity to store 100 tonnes of raw materials. This was sufficient for a week’s production and the maize would be extracted from existing silo owners on a weekly basis. HomeGrown will collect from the silos and deliver to the mills. Over time each mill would be expected to build enough storage capacity to avoid third party silos and accompanying costs. To improve productivity and efficiency levels in the mill, Buhler will train HomeGrown personnel to provide ongoing technical support and training to the mills. Maize was the most important staple food crop in the Southern African Development Community (SADC). Consumer maize meal choices were driven by factors such as affordability, habit, taste, hygiene and convenience. Super Maize Meal and Special Maize Meal were the most popular choices.

Mr Campbell gave an overview of the financial model and said the establishment of a single mill required an injection of R13.35 million where 60% (R6.2million) of the total CAPEX covered the cost of the containerised mill. Infrastructure and facilities (land improvements, finished product storage, silos for raw materials, warehouses and the generator) took up a further 24%. The rest was split (16%) between delivery costs, office equipment, and working capital.

Lethabo Milling

Mr Xolani Ndzaba, Chief Executive Officer, Lethabo Milling, said Lethabo Milling, (Pty) Ltd was a 100% South African black owned maize milling business,  and a new player in the maize milling industry. Lethabo Milling was positioned in the market at the same competitive level with the industry's main players on price, product quality and customer service offering. The company had created 44 jobs in Ventersburg – an area that had a high unemployment rate, as well as other social challenges. Women made out 40% of the staff complement and over 75% of the workforce was under 35 years old. The plant was built next to the N1 highway and the location of the milling plant and the distribution centre was the ideal location because of its accessibility to raw materials and to the market. The company had signed off-take agreements with Masscash Group, FABCOS and United National Breweries. Lethabo Milling aimed to progress the economic liberation agenda post the apartheid era in South Africa, because there was a need to access and own industries that were largely reliant on black consumption but lacked black supply from the production value chain side. The objectives were to increase the choice of company  buyers for BEE suppliers in this industry, to broaden consumer choices for quality black produced  products and to increase route to market options to black farmers for better pricing terms and profitability.

Mr Lethabo provided an overview of the company’s support structure (slide 7). He said the current industry value chain structure favoured big established players. They controlled market access, value chain price economics and access to unprocessed produce. There were barriers to entering such a competitive industry which was dominated by mainly white players. The high cost of machinery, lack of access to capital, non availability of sales contracts and a lack of trust or confidence in ideas from identified markets and financiers were other barriers to entry.

Lethabo Milling’s transaction was finalised by Massmart in partnership with ABSA after the off-take agreement had been signed with Massmart. This enabled the business to enter the milling industry and deliver a quality product to customers and consumers. He showed a milling franchise business model (slide 10) and said more than 40 jobs would be created in the next six months. Black farmers who have stopped farming in the area, because there were no markets for their products had been approached and an agreement had been forged that Lethabo Milling would be buying their produce if it was produced according the quality parameters.

Discussion

Mr Mkongi said it seemed that the domestic market was not favourable to local small and medium enterprises. He asked how the milling machinery was acquired. He asked Lethabo Milling if it had been easier to partner with an international company than a local company and whether the local market was “more hostile” towards such partnerships.

Mr Campbell replied that once all 24 micro mills were up and running, it would constitute 6% of the milling industry in South Africa. It would be a first for the country to have 6% black ownership in the industry. FABCOS went on a process to find technology suppliers approved by the DTI. There were two and eventually FABCOS settled with Buhler, a Swiss-German company operating in South Africa since the 1970s. FABCOS did not think it would be advisable to use Buhler for silo equipment, but only for the roller mills. FABCOS had an option to also use Roff Mills, a South African company located in Kroonstad.

Mr Ndzaba replied that it was a balancing act, because he had an opportunity to engage with the Masscash group, before they were taken over by Walmart, whereas their competitors were not too keen to engage. However, once the merger with Walmart happened, it made it much easier, because there were funds available for projects like Lethabo Milling to enter the market. It was difficult, because most companies, without giving any assistance in terms of development, wanted a quality product according to their standards.

Mr N Koornhof (ANC) asked whether FABCOS had any investments in the wine industry and he asked Lethabo Milling how quality control would be done on the maize directly acquired from the farmers.

Mr Usiba said FABCOS had members from the Western Cape who were involved in the wine industry, but the organisation itself had not prioritised it. It was perhaps something that could be proposed to look into at the next annual general meeting.

Mr Ndzaba replied that in terms of Food Safety System Certification (FSSC), independent quality inspectors needed to audit the facilities where the maize was stored and whether the minimum quality requirements were being met. Lethabo Milling was in discussions with the Free State Department of Agriculture to determine the requirement that would enable the signing of the off-take agreement.

Mr Esterhuizen said Members should receive copies of the presentations before the meeting. The idea of running small mills could reduce the price of maize meal, but it seemed it was not financially viable since he read somewhere that FABCOS had to close some of their chambers because of financial difficulties. He asked how this would be rectified if they had a deficit of R900 million and he asked how FABVEST Investment Holdings implemented into FABCOS. The implications of DTI’s policies were actually doing more harm than good.

Mr Campbell said FABCOS was one chamber and there had never been more than one and the media report had been factually incorrect. When FABCOS bought Premier Foods, the company had been almost R900 million ‘in the red’ and very close to bankruptcy. It took FABCOS five years to turn the company around and make it profitable before it was sold. FABVEST was a special purpose vehicle that was used at the time and FABVEST Investment Holdings did not exist anymore because it had served its purpose.

The Chairperson asked whether Lethabo Milling had a relationship with the German company, Buhler. She said DTI and all the presenters would be asked to respond in writing on what the industrial structural challenges in the industry were, because it seemed that even though there was no value addition to the product, the cost price of the product still went up. She asked what was regarded as a small mill in terms of the volumes produced and why Kuvusa Mills failed while others seemed to be successful.

Mr Campbell replied that FABCOS mentioned Buhler and it was a Swiss-German company that manufactured milling technology globally. Buhler was one of two companies currently used by FABCOS. In the milling industry, 2 to 3 tons per hour constituted a small mill, depending on the productivity of the mill. There were many risks that confronted small scale millers in the industry. They had to content with logistics, raw materials, running a mill for the first time and at the same get their product to the market. FABCOS provided guaranteed off-takes to the market by profiling retailers that were members of FABCOS, as well as non-members before millers were contracted to produce maize meal. It took FABCOS years to get to this point, because there were many risk mitigating measures that had to be put in place such as the consistent supply of raw maize in addition to accessing the market on the back of a proper brand. There was a proliferation of smaller brands and the aim was to create critical mass around Homegrown which was owned by the value chain itself, i.e. all the millers and farmers that contributed to its perpetuation.

The Chairperson said she wanted some understanding on the volumes produced and what constituted a small mill. She asked that all the presenters provided the Committee, in writing, the volumes produced in a week and working conditions of the mills.

IL Molino Specialty Grains: Cultivating change to stimulate growth

Mr Mohamed Essack, Director, IL Molino, said was IL Molino was the only non-white small scale wheat miller in the country. It was founded in 2006 and had overcome various difficulties in an anti-competitive environment to increase production from 500 metric ton per month to currently processing 2 500 metric ton of wheat per month. IL Molino was situated in Johannesburg South, within close proximity to the Johannesburg Central Business District. Due to its positional advantage, the mill delivered to small bakeries, confectioners and biscuit factories within a 60 kilometer radius. The staff complement had grown from 10 in 2006 to 55 this year.

He showed pictures of the mill that showed the second expansion as well as the branding which was “Baker’s Dream”. The milling sector was dominated largely by four main players: Tiger, Pioneer, Premier and Foodcorp. Barriers to entry were extremely high given economies of scale and long term establishment by larger players. The mid to small scale milling sector was very small and threatened by large dominant mills aggressive pricing strategies. There was a need for more competition and growth among smaller millers to bridge the gap between the large and small scale sector. In order to compete, strong milling knowledge was needed, as well as strong supply partners.

South Africans consumed about 3 million tons of wheat annually and local production made up 40% of the annual consumption; a drop from 60% in 2006. This was mainly due to the growth in other commodities such soya beans and maize where the yields were much higher. Farmers moved on to where the profitability was higher and it also contributed to the drop in production.

The Western Cape and the Free State were the main areas for wheat production and it was of an excellent quality. If growth and planting of wheat locally were promoted, it would make a massive difference in the industry. Government had implemented duties on wheat imports and it helped to an extent where it encouraged farmers to plant locally, but it had driven the price of flour up, because Russia, Brazil and Argentina had massive crops and their prices were very low.

In terms of challenges, price fixing and price targeting in certain areas of the wheat milling industry were rife. Access to world-class machinery came at a price and bigger mills had the advantage of access to capital. The biggest challenge had been access to working capital. DTI had been excellent in providing rebates and incentives, but the cash flow needs of the sector where nothing was offered in credit, created challenges for day to day functioning. About three or four years ago the Competition Commission fined the four big millers for price fixing and that money was paid over to the Industrial Development Corporation (IDC). That money had not been earmarked and applications to the IDC for funding would be made in the next couple of weeks. He also listed skills shortages and specialty flour being imported as challenges to the industry.

It had taken Il Molino nine years to move from 500 tonnes to 2 500 metric ton per month and to put together a $15 million deal with Louis Dreyfus Commodities to expand the mill.  He continued to give an overview of the status of the expansion of the mill and said the demand for wheat flour in South Africa was only growing and forecasts were for it to continue to grow over the next five years. The market needed more competition to allow the best priced flour to be available to consumers.

Discussion

Adv Alberts asked where Mr Essack thought the money generated by the fines for price fixing imposed by the Competition Commission should go. He suggested that the Committee also investigate this issue even if the Competition Commission did not form part of the Committee’s mandate.

Mr Essack replied that the fines were handed over to the Industrial Development Corporation (IDC) and as far as he knew the money had not been earmarked for anything. He would get back to the Committee in three weeks on this issue once he had a chance to engage with the IDC. He would be applying to the IDC to access those funds to use as working capital for the new plant. He suggested that the money be allocated to compliant companies at 0% interest rate to be used as working capital and the downstream integration of products with the necessary controls to ensure that the money was not being squandered.

Mr Mkongi said the structural arrangement of the milling sector was dominated by price fixing, collusion and lack of access to capital. Investigations should be done on the impediments put in place to frustrate transformation in the sector. He asked what threats the imports from India held to the growth of the industry.

Mr Essack agreed and said although the DTI had been assisting companies, it was important to get the downstream integrations done. There needed to be a financial hub specifically for companies trying to break down the monopolistic system, because currently such companies were getting lost in the “pool of companies looking for money”.  The Department had been great in identifying the impediments through IPAP, but it needed to go one step further as far as working capital.

Mr Kalako asked what could be done to motivate farmers to produce wheat. Some of the BRICS countries were massive wheat producers and he asked if there was any relationship agreement in as far as imports and pricing. He referred to the quality of wheat and he asked how the quality of produce in the Western Cape compared to other countries. The government inherited a viciously monopolised capitalist system and interface with the people who actually dealt with those challenges was very important.

Mr Essack said duties had been imposed to encourage farmers, but it was in a transitioning phase and by next year it would be clearer whether production had been ramped up. After American wheat, the Western Cape wheat was the best wheat he had encountered in the last 10 years.

The Chairperson asked if Primi Piatti used South African flour or if specialty grains were required. She also wanted to know if special machinery was used or could the machinery be recalibrated to produce the flour.

Mr Essack replied that Primi Piatti used “double zero” flour which was low protein white flour that could be made with the machinery currently used. Big millers had not been doing this, because they had big plants and the required volumes did not warrant changing machinery calibrations. Smaller millers could supply the volumes.

The Impact of IPAP on the South African Processed Fruit and Vegetable Industry

Ms Jill Atwood-Palm, General Manager, SAFVCA, said SAFVCA together with the South African Fruit and Vegetable Export Council (SAFVEC) was the national representation of the Fruit and Vegetable Processing Industry and it aimed to create a sustainable platform for the long-term growth and competitiveness of the industry. The industry had a national focus for climatic reasons and slide 5 showed the different fruit and vegetable focus per province. The industry was the main employer in many rural areas, because it was a labour intensive sector. It was strongly export-driven, especially in processed fruit where 82% was exported and South Africa accounted for approximately 9% of the world’s exported fruit.

The industry encompassed the following sectors:

Agro-Processing Sector:

-processed fruit and vegetables and value-added products (extent of over 200%)

-potential to be 90% of local origin and supported over 140 000 dependants in rural areas across the country

Farming

-processed over 400 000 tons of fruit and 200 000 tons of vegetables annually

-sourced from over 1 500 farms and employing close to 20 000 farm workers

Manufacturing

- Four fruit canning factories, two jam units, three fruit concentrate factories, one pineapple processor and over 10 vegetable and related units nationally; employing more than 14 000 factory workers

The PPP canning initiative was established to to create a sustainable platform for the long-term growth and competitiveness of the industry. The strategic themes of the initiative focused on transformation, marketing, market access and competitiveness - addressing the shaping for industrial policy. The initiative was an implementation vehicle that was aligned with the National Development Plan (NDP), IPAP and the Integrated National Export Strategy (INES) and it was fully integrated across the entire value chain. It was a common platform where it elevated the industry profile, because it created a unified voice to motivate interests.

Ms Atwood-Palm gave an overview of the exports to China and said it was the fastest growing export market and it grew from R55 million in 2004 to R342 million in 2014. Some of the challenges included trade barriers, protectionist actions, blocked imports and delays. She also gave an overview of the exports to India and said that although the exports were small at this stage, it had potential growth opportunities. Exports grew from R1.5 million in 2004 to R11.6 million in 2014. Some of the challenges included trade barriers, high and complex duty structures and complex business structures.

She summarised both the industry’s generic and domestic market campaigns and the Emerging Farmers Tree Planting Scheme that was focused on transformation in the industry. The National Cleaner Production Centre of South Africa (NCPC-SA) was a national programme of government that promoted the implementation of resource efficiency and cleaner production (RECP) methodologies to assist industry to lower costs through reduced energy, water and materials usage, and waste management. The NCPC had engaged directly with individual companies and audits had been conducted at some units with no report back. MCEP was an excellent incentive, but the process had been challenging and although some approvals had been received, it was limited to 50% of applied amount. Delays in the application process had taken up to 16 months.

Ms Atwood-Palm said the industry had harnessed the opportunities as a beneficiary of IPAP across various interventions. In particular, the very successful examples were the PPP canning initiative and the major successes in China. The Emerging Farmers Tree Planting Scheme had a multiplier effect and there were massive opportunities for vegetables although a practical model for the Preferential Procurement Policy Framework Act (PPPFA) was needed. The industry continued to have growth potential and an enabling environment was critical to overcome challenges.

Discussion

Mr Koornhof said this was what the wine industry should be doing and it constituted real progress.

Ms Atwood-Palm said obviously the industry focused primarily on the processing of fruit and vegetables but there were certain mechanisms that could be used in order to cluster with related industries. There were certain similarities for wine, fruit, processed fruit and the abalone industry. These industries faced the same challenges in terms of marketing, promotions and getting messages across to consumers.  The good news that the new Integrated National Export Strategy (INES) was looking at the concept of clustering and that projects be approached on a more collaborative basis.

Adv Alberts referred to the trade barriers and the challenges in terms of accessing government incentive schemes. He asked whether DTI had been approached on how to deal with those trade barriers and accessing the incentives, and if the Committee could assist in any way.

Ms Atwood-Palm replied that DTI supported the industry and because SAFVCA was part of the export council movement and the PPP canning initiative which was being administered by SAFVCA, was being chaired by the DTI, it created equal accountability across all stakeholders to ensure delivery. 

Mr Mkongi referred to the PPPFA and said it would be difficult to include the private sector if government compliance was not ensured first. He asked for suggestions to deal with the red tape, because there was an Intergovernmental Relations Framework Act, and it should be assessed if it did not talk to procurement and tendering processes at national, provincial and local government levels. He wanted to know where the industry got the cans from, because the youth could be involved and developed to assist. He referred to pillars of the PPP canning initiative and asked if transformation was a challenge to competitiveness.

Ms Atwood-Palm replied that the challenges around the PPPFA were around the process rather than content. The achievement of the inclusion of processed vegetables was a major achievement, as well as the fact that it was the first agricultural product to be part of the PPPFA. There was work to be done around making sure that the Act also provided for service providers to procure local goods to government departments. Different companies procured cans in different ways. Some bought directly from South African manufacturers and others were buying imported tinplates. Transformation was not an inhibitor to competitiveness if it made commercial sense. The Emerging Farmer Tree Planting Scheme was directly linked to industry increasing its volumes and everybody in the process benefited from it.

Mr M Kalako referred to MCEP and the challenges with respect to the processing of grants. He asked Ms Atwood-Palm to elaborate on that point. He asked if there had been engagements with the Department on the challenges experienced when exporting to China and India.

Ms Atwood-Palm said the challenges experienced were focused on the process rather than the content of MCEP. The application process and the delays were challenging. Some of the delays had been up to 16 months and in other instances companies received only 50% of the funding. The DTI sector desk had been a very good entry point for the industry to be able to table issues and link with other departments within the DTI. SAFVCA had taken a structured approach on market access matters and had put together an advocacy programme on issues ranging from the WTO to emerging and established blocks. DAFF still had the technical mandate around agricultural products and SAFVCA belonged to the Agricultural Trade Forum which was the mechanism used to get the challenges on the table. The actual negotiating mandate was with the DTI and engagements with the International Trade Administration Commission of South Africa (ITAC) could be done directly at the negotiations.

The Chairperson thanked everyone for their presentations and said the Committee understood the importance of agro-processing. Food security was a major issue, because it addressed other challenges such as poverty and unemployment.

The meeting was adjourned.