The Fiscal and Financial Commission (FFC) briefed the Committee on the role it plays in assisting departments and Parliament, and provided an overview of the Department of Agriculture, Fisheries and Forestry’s (DAFF’s) operations in the context of the broader economy. Onderstepoort Biological Products (OBP), a state-owned entity under the jurisdiction of the DAFF, presented its annual performance plan.
The FCC said its primary role was to ensure there was an equitable share of the revenue amongst the three spheres of government and in this context, briefed the committee on the DAFF’s operations and its recommendations for improvement. It highlighted that agriculture, fisheries and forestry were operating in a difficult economic climate and their contribution to the overall economy of the country was declining. Current agricultural contribution to GDP was about 2.5%, forestry was 0.7%, and fishing only 0.1% of the gross domestic product (GDP).
Two key issues were highlighted by the FFC for the DAFF to improve on its annual performance plans. The first was to place greater emphasis on the quality of expenditure outcomes rather than on the number of individuals supported. Secondly, there were insufficient details regarding the performance of entities reporting to the DAFF, so the Department needed to place greater emphasis on monitoring their performance.
Questions from the Committee focused on ways to increase the relevance and importance of the agricultural sector of the economy. Concerns were also raised that the Department may not have enough resources to carry out its mandate, and that National Treasury (NT) should be approached to assist in this regard.
The main focus of the OBP presentation was to highlight that it was a crucial local player in the manufacture of animal vaccines. It was a government entity, but received no government funding. It was in healthy financial state, however, with a strong balance sheet, and had received clean audits over the last five years. Expected revenue for the 2016/17 year expected to be about R165m, growing to about R186m in 2019/20. Some of the key strategic risks facing the organisation were its inability to generate sufficient revenue from operations, availability of product, market share and competitiveness, and sustainable product development output.
Most questions from Members dealt with the risk of OBP not being able to fund future operations adequately, and they suggested that the Committee could assist it in its approach to National Treasury for assistance. A key concern raised was how OBP was assisting small emerging black farmers. They asked how its new sales order and direct distribution systems were operating. Interest was also expressed in the African Horse Sickness vaccine development programme, which was still in the very early stages.
The Chairperson said that this meeting was a continuation of the meeting held the previous week, where the Department of Agriculture, Forestry and Fishing (DAFF) had briefed the Committee on its strategic plans. At this session, Members would be briefed some of the entities under the jurisdiction of the DAFF.
Financial Fiscal Commission (FFC)
Mr Eddie Rakabe, Programme Manager: FCC, briefed the Committee on the Committee’s main function and how it assisted departments and Parliament to meet their objectives. The presentation focused on the role the FCC plays in assisting departments and Parliament, an overview of the DAFF’s operations in the context of the broader economy, budgetary comments and a review of annual performance plans (APP) and departmental programmes, followed by its conclusions and recommendations.
He said the FCC’s primary role was to ensure there was an equitable share of the revenue amongst the three spheres of government. In this regard, it could make recommendations to Parliament, provincial legislatures or other organs of state, as guided by the FCC Act.
All sectors within the DAFF -- agriculture, forestry and fisheries – had declined as a share of gross domestic product (GDP), where there was a similar trend globally due to adverse economic conditions. Despite the decline in agricultural production – from about 5% of GDP in 1994 to 2.5% of GDP in 2017 -- it was a still a vital sector of the economy in terms of job creation and linkages to other sectors. The Western Cape (WC) and Kwazulu Natal (KZN) contributed significantly to the national agricultural output, with a share of 21.7% and 25.4% respectively. Employment in agriculture had declined from about 14% of the workforce in 2000, to 5.9% in 2011. However, there had been a slight improvement since then, to 6.5% in 2016. The declining agricultural production and increasing input costs had led to food inflation being higher than the consumer price index (CPI). The drought of 2015/16 had also impacted negatively on the high rate of food inflation for 2016.
Fishing contributed about 0.1% to the national GDP, but remained a strategic sector for government as part of the oceans economy. It was particularly strong in the Western Cape, which had 11 of the 13 proclaimed fishing harbours in the country. Fisheries contributed about 5% to the Western Cape’s GDP.
Forestry had shown a steady decline over the last few years as hectares under plantation had decreased, resulting in a shortage of saw log timber produced locally. Forestry contributed about 0.7% to the national GDP.
Against these scenarios and a lower than expected government expenditure, the DAFF’s NDP goals would be impacted, especially in the medium term. Among the NDP’s goals for the agricultural sector were one million jobs by 2030, increased investments in new agricultural technologies, realising a food surplus and creating security of tenure for communal farmers, especially women.
Mr Sabelo Mtantato, Senior Researcher: FCC, briefed the Committee on some budgetary items, the FCC’s contribution to DAFF programmes, including performance indicators related to some programmes, provincial allocations and conditional grants, followed by some concluding remarks and recommendations.
The Departmental focus would be informed by the NDP over the medium term. This would include food security, creating decent jobs and improving agriculture’s contribution to the national GDP. The overall budget to achieve this for the 2017/18 period would be around R27bn, shared between the DAFF and the Department of Rural Development and Land Reform (DRDLR). The DAFF allocation would be about R6.8bn of this amount. The majority of this budget would be spent on agricultural production, health and food safety, food security and agrarian reform.
The Departmental programmes in 2015/16 had shown mixed results in some of its performance indicators. For instance, in agriculture, the food and nutrition initiative had supported only 36.2 % of households, whilst the programme to establish and support smallholder producers was at 101.2%. In forestry, the number of trees planted in temporary unplanted (TUP) areas stood at 132.1%, but the number of environmental impact assessments (EIAs) done in the KZN programme had been 0%. In addition, the implementation of the Aquaculture Bill, as per Operation Phakisa, had not been submitted.
The DAFF had 56 performance indicators in its APP, all aligned to long-term strategic objectives. Those that overlapped with the DRDLR were clearly identified. There were some challenges, but these were being addressed by the Department, such as increasing the number of households supported with agricultural food production, revitalising forestry plantations to increase timber production, and improving the linkage of smallholders’ access to markets. Provincial agricultural allocations were consistent with national consolidated spending on agriculture.
For the 2015/16 financial year, spending on all conditional grants had improved to almost 100%, with the Comprehensive Agricultural Support Programme (CASP) at 99%, Ilima/Letsema food production initiative at 100%, and the Land Care programme at 99%. The CASP allocation was particularly important, as the funding of about R5.5bn supported over 435 000 subsistence and smallholder farmers. However, a key concern highlighted by FFC was that the DAFF needed to place greater emphasis on the quality of expenditure outcomes rather than the number of individuals supported.
In terms of the entities reporting to the DAFF, the APP had provided insufficient details regarding their performance, and the Department needed to place greater emphasis on monitoring the performance of entities, such as:
- Agricultural Reseach Council - R974.5m budget.
- Marine Living Resource Fund - R261.9m budget.
- National Agricultural Marketing Council - R419.7m budget.
- Ncera Farms - R2.2m.
- Onderstepoort Biological Products - no state funding.
- Perishable Products Export Control Board - R0,6m budget.
In conclusion, FFC suggested that to improve the overall functioning and performance of the DAFF, more emphasis had to be placed on increasing the effectiveness and sustainability of projects, rather than just assisting individuals. Assistance and support to individuals should be based on the principle of achieving sustainability, rather than promoting entitlement. The DAFF should enhance agricultural productivity by establishing a framework for implementing, evaluating and monitoring key agricultural grants targeted at subsistence and small-scale farmers.
Mr N Capa (ANC) wanted clarity on what the FFC recommendations were on whether the DAFF could negotiate with traditional leaders to plant more trees on land under their control. This could address the shortage of timber currently being experienced. Another option would be to negotiate with other departments, such as the Department of Water and Sanitation to address the water shortage and other aspects negatively impacting on the planting of more trees. He was also concerned that the Department was not doing enough to address land rights for those who had none in the past.
Ms A Steyn (DA) asked what the overall contribution of agriculture to the economy was if the linkages to other sectors were factored in. Although agriculture’s impact on the GDP was declining, she felt that it was still one of the highest employers in the economy. She expressed concern about the lack of information to enable a proper assessment of the grant system in provinces, and asked if it was the DAFF’s policy to just spend the budget -- tick boxes -- while outcomes and achievements were not important.
Mr S Mncwabe (ANC) felt that the FFC should not focus just on the quality of outcomes being important, but on ensuring that individual needs were addressed. Land for farming for individuals was just as important, and perhaps a balance of both needs should be targeted.
Mr N Paulsen (EFF) expressed his concern that the DAFF programmes, and hence the government, were failing the country and that not enough was being done to redress past imbalances. He cited examples from the FFC presentation, such as the lack of timber (“we cannot even make our own toothpicks!”), and fewer agricultural products being produced. This led to land becoming unproductive, and he wanted to know what government’s plan to address this was.
His other concern was that the FFC presentation did not include intermediate job targets, merely one million by 2030. It was far better to show the intermediate targets to build up to the one million. He raised the issue of the South African Forestry Company Limited (SAFCOL) that had been privatized, and wanted to know the DAFF was doing to address lack of timber plantations on forestry land previously in government hands.
Lastly, he indicated that he was not happy with the CASP programme, as it had done nothing to redress ownership in agriculture – for example, less than 1% of the Breede River agricultural land (grape farming) was owned by black farmers. He felt that the recommendations in the FFC report were inadequate as they did not address any of the problems, such as the dismal performance by the Department, and that the money spent to fund the FFC was a “waste of time.”
Mr P Maloyi (ANC) addressed his questions to the FFC itself, indicating that the issues raised in their report were for the DAFF to resolve. He wanted to get their views on the equitable division of revenue within government departments, especially in the agricultural, fisheries and forestry sphere. Had the FFC engaged and studied the Departmental budget to see if it was adequate to enable the DAFF to deliver on its mandate?
The Chairperson commented that she wanted the FFC to focus its oversight role to ensure that poorer areas, rather than the wealthy ones, were adequately funded. She wanted clarity on the nature of conditional grants in provinces. She was concerned that the focus on richer provinces, like the Western Cape and KwaZulu-Natal, was not fair as they already had adequate infrastructure in place and so received more favourable treatment. The focus had to be on the poorer areas, where emerging farmers were struggling. She also raised a concern about plans to transfer the Recapitalisation and Development Programme (RECAP) from the DRDLR to the DAFF with no budget adjustments. Why had the FFC not commented on this?
Mr Rakabe responded on the conditional grants programme and the equitability of the split amongst provinces, and pointed out that there had to be alignment between the objectives of the grants that should inform the issuing of grants.
Regarding the transfer of RECAP from the DRDLR to the DAFF, he said that the FCC had made a presentation on this last year. Regarding the departmental budget, the FFC’s role in the budgetary process was advising on technical issues - the allocation was made by government.
Employment in the agricultural sector was at about 890 000 jobs, and was declining. Stats SA measured direct employment, and not the multiplier effects with other sectors. Agriculture was declining, and in the allocation of the national budget it trailed far behind education, health and social services.
The FCC agreed that both the quality of programme outcomes and the number of individuals supported could be accommodated in performance indicators, as suggested by Mr Mnwcabe.
The Chairperson said that the FFC should have mentioned the RECAP transfer report between the DAFF and the DRDLR in its presentation, and asked that this report be forwarded to the Committee.
Mr Maloyi (ANC) wanted the FFC to assist the Committee in the delivery of government programmes to improve the lives of people. He wanted the next engagement with the FFC to be on what could be done to speed up the wheels of change -- was it that more money was required, did the DAFF have insufficient funding, did it need more resources?
Ms Steyn wanted more clarity and information on provincial budgets, specifically on spending.
Mr Mncwabe wanted to see better alignment of budgets within the Department.
Mr Rakabe responded that National Treasury and the departments negotiated and agreed on budgets. Budgets would always be insufficient due to the current poor economic climate. The FFC was in agreement that the DAFF did not have enough resources to meet its mandate fully. If the economic growth rate improved, there would be more funds. In the current situation, the DAFF would need to adjust its requirements to the lower budget.
The Chairperson felt that National Treasury (NT) was abdicating its responsibility to allocate funds between the DAFF and the DRDLR. The two departments should not be left to negotiate the split by themselves. She expected the FFC to take the lead and tell the NT to allocate the funds between the two departments.
Onderstepoort Biological Products (OBP)
Dr JH Adams: Chairman: OBP Board informed the Committee that he current chief executive officer’s (CEO’s) term had expired and that a new CEO would be appointed in due course. An Acting CEO was currently in place.
Dr Jacob Madumo, Business Development Officer: OBP, briefed the committee on OBP operations in the country. It was the leading local manufacturer of animal vaccines and invested heavily in product development. OBP was a government entity but received no government funding, yet it was commercially viable and had received a clean audit for the 2015/16 period and for the past five years. On the operations front, it was upgrading manufacturing facilities and implementing a new distribution network, cutting out the middle man to improve efficiencies. Its key products were bacterial, viral and blood vaccines. The OBP’s strategic objectives were aligned to government priorities.
Mr Matsobane Gololo, Chief Financial Officer (CFO): OBP gave the committee an overview of the company’s financials, which were in a healthy state with a strong balance sheet. Estimated net revenue for the 2016/17 year was expected to be about R165m, growing to about R186m in 2019/20. Some of the key strategic risks facing the organisation forward were its inability to generate sufficient revenue from operations, availability of product, market share and competitiveness -- good manufacturing practice (GMP) -- and sustainable product development output. OBP was pleased that its new distribution strategy of cutting out the middle man was bearing fruit and that production output had increased. This would result in increased revenue growth for 2017 due to increased exports.
Ms Steyn said that she had no negatives to report on OBP, but she wanted to know how the strategy of changing the distribution channel had impacted on costs and employee numbers.
Mr Maloyi commended OBP on its sterling performance despite receiving no government funding, but felt that the lack of adequate funds would become a problem for it going forward and perhaps the NT should be approached for assistance.
Mr Paulsen wanted to know what percentage of the SA market OBP had. He also wanted to know how its system of ordering vaccines worked, and how small scale farmers were served.
Mr W Maphanga (ANC) was concerned that only two small-scale farms were supported. He also wanted to know what the feedback from farms after training was -- did it result in improved farming?
Mr Capa requested clarity on the issues of customer care satisfaction and customer care support.
The Chairperson wanted to know if there was any possibility of creating extra jobs in the distribution supply chain.
Dr Madumo said that with the new distribution system, the OBP offered a lower discount to control costs. Regarding support from NT, he said that OBP had approached NT for support for vaccine development to support emerging small farms. R100m had been requested. On the market share information requested, he revealed that OBP had about an 18% overall market share, and that its growth target was to get to 30%. He further explained that their vaccine ordering system used to be via e-mail, but that current orders were being executed with new software on their clients’ computers. Small-scale farmers were able to access OBP via small black-owned co-operatives. He added that seven small-scale farmers were being supported and that the problem in supporting this customer base was access to funding. OBP was giving support by providing refrigerators to preserve the cold-chain necessary for its products.
In follow-up questioning, Ms Steyn asked what the progress was on African Horse Sickness (AHS) vaccine.
Mr Maloyi requested copies of the submission for extra funding made to NT, so that the Committee could help to progress the issue.
Mr Madumo responded that AHS was proving to be a challenge for OBP. The vaccine development was in an early stage and a final outcome was still far away. OBP would need help from other partners in this field to make progress. It would supply copies of its submission to NT for extra funding.
Mr Senzeni Zokwana, Minister of Agriculture, Fisheries and Forestry, added that if OBP could develop the AHS vaccine it would open the market for both horses from South Africa, and of course the vaccine. Currently overseas customers were reluctant to buy South African horses because of the threat of AHS.
The meeting was adjourned.