Impact and response to the current drought: Agricultural Research Council, Land Bank, Industrial Development Corporation & South African Weather Input

Meeting report

Land Bank Presentation

Mr Petrus Nchocho, Chief Executive Officer, Land Bank, informed the Committee that the Land Bank Management continues to participate in various MINMEC meetings to discuss what government and SOEs are doing to mitigate the impact of drought. The Land Bank identified 3 categories of farmers to be considered for relief:

• Commercial farmers whose balance sheets are not strong
• Emerging farmers
• Small scale farmers

Proposals put forward looked at a guarantee to funders for unsecured lending for emerging farmers, insurance product, UIF or subsidy for farm workers in the high drought areas, grain deposit scheme with Land Bank, and food safety reserve. The Land Bank was proposed as the vehicle to channel the funds.

With regard to financial support interventions for farmers, the Land Bank provides Drought Relief Assistance, Concessionary Disaster Relief Fund, and Forced Stock Sale Deposit.

Drought Relief Assistance:

• Carry-over debt facility for production credit
• Restructure and capitalise arrears/instalment due
• Interim relaxation of security cover ratios
• Extend repayment term for the remaining term of the existing plan
• A meeting was convened with the NCR to sought their opinion and it supported the advancement of emergency drought relief funds offered to clients

Concessionary Disaster Relief Fund:

The Land Bank signed a loan agreement with the IDC for R400 million to look at production rehabilitation, re-stocking of livestock, enabling carry-over debt and consolidation of debt, and preparing for future seasons necessary to continue the farmer’s normal sustainable farming operations. The term of the loan would range between one to ten years, depending on the purpose of the loan and the income streams of the customers. The concessionary loans would be limited per customer or related entities, to a maximum of R20 million for a single borrower and R5 million per end customer/borrower in a Wholesale Finance Facility. An estimated loss of approximately R15 million per year is expected for the Land Bank.

Forced Stock Sale Deposit:

This is a programme that grants farmers in disaster declared areas exemption from income tax for livestock sold as a result of drought disasters. If a farmer has to sell livestock due to the drought, the proceeds from the sale could be deposited at the Land Bank for a minimum period of six months. The farmer is required to declare such a deposit to SARS when filing tax returns. The onus of determining whether a farmer qualifies for tax incentive rests with SARS. The Land Bank on its part notifies SARS when the client receives interest or withdraws the capital portion. The Land Bank accepts these deposits against payment of interest determined by the Bank for a minimum period of six months to six years after which period the funds are readily available. No notice period is required and no charges apply to withdrawals. There is no limit on the deposit amounts. The balance as at 31 January 2016 amounts to R375 million.

Two other insurances are provided:

Multi-Peril Crop Insurance

It is the most comprehensive type of cover (against yield losses). It is a systemic risk (low frequency and extremely high severity). Historical losses have reached 400%- 500%.

Hail Crop Insurance

This is a mechanical damage type of insurance. It covers the mechanical structure of the insured crops. It is an idiosyncratic risk (high frequency and love severity). Historical losses have been lower than 100% on average.

The Land Bank has experienced a participation of plus minus 50% in the insurance take up this season and anticipated increased claims volume due to the following factors:

• Severe drought mostly in the central and western regions which has been amplified by the previous season’s drought which has not yet broken
• Most farmers could not plant due to the inadequate level of moisture in the soil
• The planted areas are inevitably going to experience a lower yield due to the extreme heat and dry wind, which have negatively impacted on the initial growth stages and this would evidently result in high claims pay out.

Most markets in developing governments subsidise the farmer paid premiums to reduce the cost to farmers. In addition, this subsidy provides reimbursement to the insurance companies to offset operating and administrative costs that would otherwise be paid by farmers as part of their premium. These Public Private Partnerships (PPP) have proven to be a success by combining the regulatory authority and financial support of the government with the efficiencies of the insurance companies; the crop insurance programmes have succeeded in meeting and even surpassing the goals initially envisaged.

Approvals of drought loan applications were made to emerging black farmers. Declines were due to negative repayment ability and where distress account was not due to drought. Refer-backs were due to insufficient information or clarification in order to make an informed decision. No new applications for drought were received during the month of February 2016 since the planting window has closed. Volumes were very low which could be ascribed to the market related pricing which is not ideal for disaster-affected farmers. Intermediaries of Land Bank have restructured carry-over debt of more than R600m for the 2014/15 seasons.

On some of the challenges mentioned, it was stated that the market related interest rate is not beneficial for a farmer who is under distress due to a disaster. It is proposed that a concessionary interest rate with IDC and Land Bank should be negotiated leading to a blended interest rate of prime less 3%.

The Land Bank gets its funding from the open market and this makes it difficult to price below the cost of funds. It is suggested that of the R400 million concessionary funding, R250 million be priced at prime and the Bank has decided to price it at prime less 3% as it is financial contribution to drought.

Assisted farmers could plant outside the crop-planting window leading to a crop failure. Technical support was provided to farmers in the North West. Rustenburg farmers were advised not to plant and only farmers in certain areas of Lichtenburg were allowed to plant.

Because the current season is in progress and there is no certainty at this stage about farmers requiring assistance, the Land Bank would be marketing the available assistance in partnership with IDC aggressively, and the forced stock sale deposit customer base would be used to contact farmers to ascertain the need for assistance.

Mr Nchocho concluded that the Land Bank has budgeted R5 billion per annum over the next 3 financial years to assist farmers in recovery and recapitalisation under normal lending criteria. The Bank raised funding from the PIC to the amount of R5 billion earmarked for emerging farmers and black entrepreneurs within the agricultural value chain. The Bank is currently in discussion with World Bank (R1.5bn) and African Development Bank (R1bn) to raise further funding earmarked for the entire sector, particularly for long dated funding.

ARC Presentation

Dr Shadrack Moephuli, Chief Executive Officer: ARC, enlightened the Committee that the impact from El Nino varies from event to event. In 1998, the event was very strong but it had no strong influence on SA weather and crop yields. It is because El Nino is only one of several influences on our climate.

Because of normal to below normal rainfall during 2014/15, there are some cumulative deficiencies in water resources. Very high temperatures put further strain on vegetation, even where rainfall was near normal. Heat-wave conditions and lack of rainfall resulted in drought conditions during the current summer over the central parts of the country, including the western maize production region. While the eastern maize production areas received sufficient rain during November-December for planting, the rain over the western parts since January was too late for maize cultivation in most places.

The current El Nino event is expected to weaken during the next few months, to neutral conditions, with little effect on SA’s weather from winter onwards. While much of the negative impacts during the current El Nino were directly related to high temperatures, projections of future climate conditions indicate an increase in the occurrence of such hot conditions, with a concomitant contraction of the suitable area for maize production over the central summer rainfall region.

The ARC continues to develop and transfer appropriate technologies to mitigate the impacts of drought on agriculture, especially on smallholder farmers. In 2014, the ARC delivered drought tolerant maize cultivars to farmers – WE3127 and WE3128. The seed packs were distributed to smallholder farmers in the Eastern Cape, Free State, KwaZulu-Natal, Limpopo, Mpumalanga, and North West through the local extension services to create awareness and product demand. The drought tolerant hybrids were well received by farmers and they requested more seed. Smallholder farmers who planted the first WEMA conventional drought tolerant maize hybrids in SA during the 2014/15 seasons doubled their yields.

The ARC has engaged with two seed companies, Jermat Seeds and Capstone, to discuss lack of WEMA seed availability for 2015/16 summer seasons. The two companies have made commitments to produce certified seed and have signed licenses to market WE3127 and WE3128 hybrids in SA.

Since the beginning of the drought, the ARC Animal Sciences has participated in 16 radio and television interviews to advise farmers on how to cope with the drought in the short, medium and long term. The advice given during the radio and television programmes focused on the animal health risks associated with the drought. The animal sciences programme also developed a brochure with information tips for farmers to cope with the drought. Eight farmer days were held to train farmers on fodder flow planning and veld condition assessment in order to match feed supply with animal numbers.

Key messages communicated to farmers were that drought brings about higher disease risks as the immune systems of animals are compromised; high temperatures associated with the current drought affect bull fertility; poor feed availability associated with current drought affects cow fertility; farmers should reduce stock numbers; and recommended drought-feeding strategies.

The ARC is also making use of the monthly Umlindi newsletter to communicate with various stakeholders in the agriculture sector. The newsletter provides simplified information about climate and vegetation conditions. It is available on the ARS website. Other dissemination channels are the National Agro Meteorological and Crop Estimate Committees. The former meets quarterly to share information relevant to all types of farming. It focuses on the drought occurrence, vegetation, rainfall monitoring, and identifies potential drought stricken areas. Its advice is based on potential risks of climate to agriculture. The latter meets every month to share information on relevant crops, vegetation, temperature, and rainfall monitoring throughout the season. It focuses on the output of crop growth models and NDVI/Yield statistical forecasts.

On options for managing crop production, the focus is on drought tolerant crops or species with relatively low water requirement per kilogram of dry matter produced. The production and distribution of drought tolerant cultivars at mass scale is going to be accelerated. The ARC and DAFF are going to make sure Jermat Seeds and Capstone produce lots of Drought TegoTm maize hybrids for the 2016/17 maize season, especially for the emerging sector. Other technologies such as Hydroponics would be used in periods of drought to produce vegetables and fodder, and crops that are both heat and drought resistant.

Medium term interventions for livestock development include the engineering of cattle genomes to introduce stress tolerance genes into breeds that currently have heat and water stress problems; increasing focus on genetics and breeding for stress resistance and reduced greenhouse gas emissions; and breeding for increased productivity to allow reduction in animal numbers.

The ARC made the following recommendations:

• Investments in water management and water saving technologies are essential
• Effective soil management and appropriate land use with conservation agriculture and precision agriculture must be implemented and incentivised
• Utilisation and integration of climate science into planning and decision-making
• Increase focus on drought and heat tolerant crops
• Immediate effective measures for livestock management and investment in new scientific technologies for vaccine development and animal improvement

IDC Presentation

Ms Khumo Morolo, Chief Executive Officer, IDC, told the Committee that climatic risk is one of the key challenges within the Agri-sector. South African agriculture has been hard-hit by a drought in the largest food producing provinces and this has left various provinces without beneficial early-season rains, partially offsetting the dry spells that have had a negative effect to the sector. September 2016 would be the critical moisture stress phase with critical impact. Further work (research) needs to be done after the drought to respond to floods as well as other climatic back lashes (inclusive of hail damage).

To date, the IDC has provided the following disaster relief facilities that have saved a considerable amount of jobs in total:

• Land Bank (R100 million) – 1 582 jobs saved (including seasonal jobs)
• GWK Ltd (R150 million) – 2 500 jobs saved (including seasonal jobs)
• Gledhow (R22 million) – 2 300 jobs saved (including seasonal jobs)

The above facilities have been fully drawn, and the account status is considered good.

The IDC has approved a facility for R400 million. It is anticipated it would lend support to 437 clients; and 2 185 jobs would be saved. The facility would assist farmers to respond positively to the drought and help companies involved in primary agriculture. It would provide emergency working capital to prevent further losses to current farming operations, help in the guarantee to commercial banks.

The conditions for the facility are that a minimum of 50% should go to black farmers, and the IDC would track women and youth who are supported. In order to support the agricultural value chain and the sustainability of the agro-processing industry, at least 50% should be earmarked for suppliers to agro-processors.

Provisions for bad debts would be made given the high-risk profile of the transaction. Discussions with the private sector for additional support have been entered into. The IDC is a member of the Drought Task Team, an initiative spearheaded by Agri SA.

Southern Africa is assessing its food security situation. Preliminary indications are that the region is experiencing a drought, and predictions are that we would have to import white maize by September 2016 from countries such as Mexico and the US. Yellow maize would be coming from Argentina, Brazil and the countries in the Black Sea. The main issue would be the price. The importing of maize would hit consumers the hardest. The National Agricultural Marketing Council forecasts that family spending would increase by at least 25%.

The 19th Southern African Regional Climate Outlook Forum (SARCOF-19) predicted that the region is expected to receive insufficient rainfall during the forthcoming agricultural season that runs from October 2015 to March 2016. This climate outlook for the Southern African Development Community (SADC) is not a favourable one as the region is coming from a recent challenging situation that it has not fully recovered from. The El Niño effect has been associated with previous drought periods in Southern Africa. The phenomenon causes the sea temperature to rise significantly in the Pacific Ocean off South America, and the air becomes dry, affecting the rain-formation process.

With the impending extreme weather conditions, the SADC region should prepare for such natural phenomena. For example, farmers could plant crops that do not take long to mature, and the region should invest more in infrastructure development, including roads, irrigation and silos. Improving the transport network and storage facilities would allow agricultural produce to be moved smoothly from one place with surplus to another needing additional food. We should invest more in irrigation, conserve dam water, and plant short season varieties. Most economies in SADC are largely dependent on climate conditions, and any reduction or increase in rainfall often has a negative effect on socio-economic development. T

In her conclusion, she said there is no indication of relief of the current drought conditions. The below normal rain is expected to continue for the rest of the summer. Almost the entire country has a high likelihood for warmer than normal temperatures. Short periods of showers would occur, but that is not expected to bring any drought relief.

SAWS Presentation

Dr Linda Makuleni, Chief Executive Officer, SAWS, informed the Committee that climate change affects rainfall, temperature and water availability for agriculture in vulnerable areas. Weather and climate are critical for agriculture in risk assessment and agricultural production management system. Degradation of arable soils and loss of fertility are due to high exposure to climatic stress and human pressure on forests. Other vegetations cower under a changing climate and this would lead to a 50% drop in agricultural production in Africa by 2030.

Increasing temperatures, in combination with changes in rainfall and humidity, might have significant impact on wildlife, domestic animals, and human diseases. Persistent drought is due to increase in temperature and unreliable rainfall patterns. This also has a detrimental effect on the physiology of marine organisms.

In South Africa, the worst affected regions are KwaZulu-Natal, Free State, Limpopo, North West, and Northern Cape where farmers grow yellow and white maize, soya beans, and sunflower. They have already incurred major losses.

In responding to the climate changes and drought, for forecasts and predictions, the SAWS is using the Heat and Fire Index. Forecasts are provided ahead of time to enable careful planning of resources around severe weather events. This product assists farmers to put their safety measures in place. Then for real-time data, the SAWS use Instrumentation and Storm-tracking. These enable visual monitoring of weather conditions as they occur. Tracking of lightning and storm activity increase the capability to react quickly to address pertinent issues. The Historical data has more than 150 years of data for various positions across the country. All meteorological data could be processed in format to suit user requirements. It provides long-term climate trend analysis to determine the impacts of climate change on the severe weather phenomena.

When looking at the national temperature scenarios, in the business-as-usual case, warming is continuing throughout the 21st century. The inland areas are projected to warm by more than 4 degrees above the 1986-2005 reference period by 2071-2100. For example, findings about the Eastern Cape indicate that the average 21st century warming is about 0.7 degrees Celsius in all seasons. With business-as-usual scenario, warming increases progressively in the 21st century from about 0.9 degrees Celsius between 2016-2045 to 2.2 degrees Celsius during 2046-2075 and 3.3 degrees Celsius towards the end of the century. Winter precipitation is projected to decrease by up to 15% towards the end of the century (2071-2100) under the business-as-usual scenario. The range is very wide during other seasons, with some models projecting an increase in precipitation and some projecting a decrease.

On capacity building and product development research projects, the NEPAD project has trained farmers and agricultural extension officers on the use and application of agro-meteorological information towards climate change adaptation. This has enhanced agricultural production and improved food supply and security. The Temperature Humidity Index informs farmers of increases in humidity and temperatures that might impact production. The Enthalpy Heat Index (Poultry) informs intensive system farmers of heat stress conditions.

With regard to products and services for the agricultural sector, the SAWS has the expertise to develop platforms for the dissemination of weather and climate information with inherent scientific and societal applications. The application and products that have been developed for climate change and variability adaptation include, amongst others:

• Hydronet: for use by the catchment management authorities, farmers, etc. It provides data via the Internet to support weather sensitive industries to reduce water related challenges.
• Community Rainfall Station: self-configured monitoring tool that can be used by communities and individuals working with local disaster management authorities.
• Heat Index: forecasting of heat waves based on temperature and relative humidity from model data.
• Hybrid Automatic Weather Stations: monitoring tool for weather information and for security. Currently, used by municipalities and could be used by other government departments, emergency services, etc.
• Establishment of Wind Atlas: to provide information for the potential of wind energy in the country.

Pertaining to human capacity development, the SAWS developed the National Education Plan in order to address the shortage of skills in weather. SAWS is a SAQA accredited training entity charged with the development of expertise in meteorology, climatology, and related fields. Additionally, SAWS has continued to be a Regional Training Centre for the Southern Africa region. Its focus is on agro-meteorology.

Regarding the drought monitoring plan, SAWS provides technical advisory service to the National Joint Drought Coordinating Committee as well as the Ministerial Committee on Drought. SAWS has contributed to the National Drought Monitoring Plan and is contributing to the National Disaster Management Centres/National Agricultural Centre by filing weekly reports on drought regarding rainfall and temperatures, dam and water levels, and communicate the likelihood and probability of events.

SAWS utilises observational infrastructure to monitor weather and climate phenomenon. The network of observation stations is under constant threat and is decreasing as a result of lacking resources. Remote sensing platforms such as radar and satellites are utilised but ground truth measurements are critical to verify remote sensing platforms.

Discussion

Mr N Paulsen (EFF), wanted to know what the Land Bank had done before the drought came to the fore. He asked if the funding assistance correlated with the severe weather patterns in provinces in terms of the different types of farming. He also asked how much money was made from profit savings, and wanted to know why the assistance has only been on grain farming. He asked the IDC if the maize imports were going to be in the form of finished products or raw material.

Mr Nchocho, on what happened before the drought interventions, explained that the portfolio was standing at R14 billion and today it is at R38 billion. When conditions were conducive it provided money to the agriculture sector. For the next three years, the provision would be R5 billion. On the correlation of funding assistance, he agreed in the affirmation that it does correlate because most applications come from the drought-affected provinces. Concerning profit savings, the process is cyclical. When farmers are in distress, they sell and use the money later when conditions are favourable. The focus has not been on grain farming only. Livestock farmers have applied for funds to dig boreholes, buying feed, and re-stocking their animals.

Ms Morolo, regarding maize imports, replied that it is anticipated that maize would be exported from Brazil and US. She added that some SADC countries are dependent on SA white maize, so there might be curtailment of exports. The IDC does not have a fund for bad times. What it only tries to do is to anticipate what is going to happen to clients. Evaluations are done for insurance.

Mr N Capa (ANC) asked the Land Bank which category of farmers benefits the most from the relief fund; and if the ARC is making use of universities in disseminating its information.

Mr Nchocho stated that an amount of R35 million has been approved. A loan of up to R1m is given to a smallholder farmer.

Dr Moephuli explained that the ARC is collaborating with universities and it distributes the Umlindi Newsletter to DAFF provincial offices, farmers’ association, and the newsletter carries information from the SAWS.

Mr H Kruger (DA) wanted to know from the IDC and Land Bank if they had strategies in place to procure goods or services from cooperatives focusing on agribusiness.

Mr Nchocho said the Land Bank is mandated to support those who are in the agriculture sector. It does not support butcheries or supermarkets.

Ms Morolo stated that the IDC deals mostly with agro-processing and not much with the agriculture industry. The IDC has a subsidiary called SEFA that deals with small businesses.

Mr P Mabe (ANC) commended the SAWS for improving its products like Hydronet in order to be able to disseminate information on its web portal, and for talking about setting up rainfall stations in rural areas. He asked SAWS if it had a programme to develop young meteorologists. He further remarked that the Umlindi Newsletter of the ARC had fewer subscribers compared to the number of people dependent on agriculture and that it cannot only disseminate information on El Nino. The newsletter needs to communicate with the broader community dependent on agriculture to make sure the information filters down to the masses. Lastly, he asked both SAWS and ARC if they have considered making use of indigenous knowledge systems although there would be a challenge of science there.

Dr Makuleni, on skills development, reported that over the last 8 years the SAWS realised that previously disadvantaged individuals have not been exposed to the weather industry. Bursaries were awarded to those doing maths and physics from this designated group. Many have been absorbed into the system. There is an internship programme in place. The SAWS has been working with the University of Pretoria for the training of meteorologists and climatologists. Now MOUs have been signed with universities like Zululand, Venda, Free State, and Fort Hare, especially those located in rural areas. Concerning indigenous knowledge, she pointed out that information has been collected and a book has been published. It is called Rainbows In The Mist. The work is continuous and scientists have reviewed the book. About infrastructure rainfall stations in rural areas, she said the spread has been constrained due to lack of funds. The rollout would be done once funding is secured. She also added that the community rain gauge is a new product. Presently, they are looking for partners to help in the rollout but it needs to be piloted first. They have portals to distribute information that is on their website. Some information could be uploaded on smart phones. Those without smart phones rely on media and could call SAWS for more information. All their applications could be accessed from the SAWS website.

Ms A Steyn (DA) was concerned about predictions about the drought. It looks like people were caught unaware. People need to be warned the way they have been warned about the energy crisis. First, she asked which provinces have declared drought, and she also asked for information on where the WEMA maize was planted and the number of farmers that benefited. Second, she wanted to know what happens when a farmer could no longer afford to pay back the loans, and asked for clarity on the closure of Land Bank offices. Third, she asked what else the Land Bank looked at when doing its predictions. Lastly, she wanted to know how the ARC gathers or gets its data.

Mr Mnikeli Ndabambi, General Manager for Operations: SAWS, agreed with Ms Steyn on being caught unaware but mentioned that the SAWS has established a strong collaboration with COGTA in terms of disaster management. The plans are working well. The only thing that needs to be enhanced is integration. Challenges are at district levels. The SAWS could predict up to 2090 even at district level about the weather patterns. They have the information that could be sent to the provinces. Since 1900, 2015 is the worst drought period. The SABC and ETV are going to give viewers regular weather updates on what is going to happen in the next three months.

He further told the Committee that welcome rains are expected over the next few weeks and months. This as the effects of the El Nino phenomenon, which is blamed for the drought, has started to subside. Over the eastern parts there are some patches of areas predicting above average rainfall.

Dr Moephuli, concerning WEMA, said the information has been submitted to DAFF. On how the ARC gathers its data, he explained they source data for planning purposes from the Crop Estimate Committee and National Agrometeorological Committee.

Mr Nchocho, with regard to when a farmer is not able to pay back the loan, explained that the Land Bank hat a recovery unit. It does everything possible to work with the farmer to make sure the farmer survives. Liquidation is the last resort. Concerning predictions, he said the Land Bank has specialists who make financial and marketing assessments. They make evaluations of whether the farm is ready to operate and this is combined with the experience of the farmer. On the closure of offices, he said very few have closed. The focus is on consolidating in order to improve the service and to strengthen the bank.

The Chairperson said six provinces have declared drought. The Gauteng, Western Cape, and Eastern Cape provinces have not declared drought. In the Eastern Cape there is only one municipality affected by drought.

Mr Z Mandela (ANC) remarked that the drought is becoming a political toolbox to attack the government. He wanted to know from the ARC if it were true that stakeholders knew about the drought 10 years ago, and asked how the ARC is sharing its information with stakeholders.

Dr Moephuli stated they first heard about the drought during COP 17. During January 2016, the mid and eastern parts of the country received good rains and it is hoped that would reduce the costs of exports. He further said they share their information with communities where they operate and universities.

Ms Z Jongbloed (DA) wanted to find out what the long-term consequences of this drought would be and what was the percentage of people affected by drought in SA.

Dr Moephuli stated that drought is affecting Southern Africa as well, not SA only. South Africa is the biggest producer of agriculture products. There is food insecurity in SA but it is not as widespread as the rest of the Southern Africa.

The Chairperson remarked that the country is doing better. The only weakness is the poor coordination, planning and integration of the programmes. This drought is calling all South Africans to converge and work together in dealing with it in terms of giving out information. The stakeholders should collaborate in giving each other the correct information. This means we have the capacity as a country but we do not want to use it to deliver services to the people.

The Deputy Minister commented that the presentation has focused on drought and climate conditions. He said the Minister has said a lot about working with the ARC, Land Bank, and IDC. As a result, these entities attend all the MINMEC meetings. There is no disintegration but there is not much interaction with SAWS.

The meeting was adjourned.