Black Producers Commercialisation Blended Funding Model; AgriParks

Rural Development and Land Reform

21 November 2018
Chairperson: Mr P Mnguni (ANC)
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Meeting Summary

The Committee was briefed by the Comprehensive Agricultural Support Programme (CASP) on the “tripartite” business model involving the  Department of Agriculture, Forestry and Fisheries (DAFF), the Land Bank and the Department of Rural Development and Land Reform (DRDLR), which had been developed to support the Black Producers Commercialisation Programme (BPCP).

The blended financing (BF) model aimed to address the challenges of black farmers who were unable to gain access to funding, markets, technical support and the skills to compete in domestic and overseas markets. The current producer support for black farmers was not enough and lacked coordination. Black farmers also suffered from poor production levels and a lack of market infrastructure. The BF model was a partnership between the government, commodity organisations and other stakeholders aimed at correcting the mistakes of the past and offering more support to the black producers who formed part of the programme.

The Members asked whether existing applicants for support would be included in the BF programme, and expressed concern for the future of small scale farmers. Suggestions were made that the farmers should be encouraged to increase their skills training and learning during the 10-year financial support programme. They asked at what interest rate black farmers would make repayments, and how viable and credible the business plans submitted to the Land Bank would be. They also wanted to know what would happen to the black producers who failed to reach the minimum target of R500 000 annual turnover. What were criteria for black farmers to join the programme, and was it necessary that they owned the land?

Based on the detailed and number of questions from Members, the Committee took a decision that additional questions be sent to the relevant stakeholders, and a date was set for a meeting on Friday 30 November, at which the questions would be answered.      

Meeting report

Blended Financing (BF) Model

Ms Elder Mtshiza, Chief Director: Comprehensive Agricultural Support Programme (CASP), Department of Agriculture, Forestry and Fisheries (DAFF) briefed the Committee on progress with the development of the blended financing (BF) model which would assist the Black Producers Commercialisation Programme (BPCP).

During September 2018, the DAFF, the Department of Rural Development and Land Restitution (DRDLR) and the Land Bank had signed a Memorandum of Agreement for the creation of the blended finance facility which aimed to speed up land reform.  The BF would be administered by the Land Bank and an intergovernmental Funding Forum (FF), which consisted of the DAFF, DRDLR and other government institutions.

The FF would act between the funders -- commercial banks, development finance institutions (DFIs) such as the Land Bank -- and the fund administrator (Land Bank), with applications by farmers for resources and financial support from the BPCP and BF model. It would be the responsibility of the Land Bank to oversee BPCP BF support, the distribution of funds and to monitor and report on it.

The BF model offered to various categories of farmers aimed to guide and regulate government and other stakeholders’ support offered to the farmers. The funding was based on the Operation Phakisa initiatives, such as:

  • Financial partnerships for accelerated land redistribution and sustainable land reform;
  • Reengineering of agricultural development finance;
  • Dynamic business model for producer support;
  • Black producer commercialisation programme.

Ms Mtshiza said the inequality of access to ownership, land, water, finance, markets and infrastructure remained a challenge for black farmers.  The slow pace of the land reform programme also delayed the development objectives of the National Development Plan (NDP).

The farmers also faced other problems, such low agricultural, forestry and fisheries productivity due to skills shortages and limited resources; inability to sustain agricultural practices which were affected by climate change and extreme weather conditions such as drought, floods and fires; and limited government resources, which affected coordination and non-alignment of producer support at various levels.

 She described the main objectives of the BF model to:

  • Reduce reliance on grants and increase access and affordability of loans by black producers;
  • Expand the agricultural base and inject new black entrepreneurs into the sector; and
  • Shift the demographic composition of South Africa’s commercial agriculture, forestry and fisheries, and transform the sector.

Financing instruments through reengineering agricultural development finance

This initiative, referred to as a “solution design,” was based on a partnership between the government, commodity organisations and other stakeholders. They would develop and provide a commodity-specific comprehensive producer support package to each black producer participating in the programme. 

The BF financial instruments included a grant component from public sector, which would be ring-fenced, and allocated only to the development of BPCP, and a loan component from commercial banks, DFIs and other financiers.  The BF financial instruments would be held in an interest-bearing account at a suitable bank and designed to:

  • Cover both long and medium term loans, e.g. for buying a farm, assets, equipment and machinery; and short term loans, e.g. for production.
  • The respective contributions of grant vs loan would be allocated on set criteria, as the grant would decrease over time as beneficiaries became commercialized, and were in a position to afford loans, for example.
  • Small scale farmers could obtain funding of a maximum 65% grant and 35% loan, or own contribution.
  • Medium-scale farmers could obtain funding of a maximum 50% grant and 50% loan or own contribution.
  • Subsistence farmers would require to apply for grant funding of a maximum of 90% and 10% of their own contribution.    

Ms Mtshiza said following an application, pre-financing would start before it was received at the Land Bank. An assessment would be conducted on how to assist the farmer to produce and plant on time, and if the farmer would manage the operation until such time for the sale of products. Applications would also be introduced to an insurance scheme to secure them against climate changes.

Once funds had been disbursed, the farmer would continue to receive support. Monitoring and evaluation of the farming project would be watched closely to ensure good management. Farmers would have to sign a ‘terms and conditions’ form for grants, which granted the state the first right over assets it invested on the farm, should the project fail. Under the grant tenure, the BF would support farmers over a period of 10 years. In the eighth year of farming, they should be able to assess how successful the project was. During the ninth and tenth year of the programme, once a decision had been made to phase out the programme, notification would be received to close the grant tenure. No new applications would be accepted thereafter. 

She said the process for applications would be assessed along technical capability, a solid business plan and market access. It had to be clear as to who would benefit from the BF, as its aims were to assist commercial black producers towards black ownership. The BPCP should be focused not only on markets within South Africa, but globally. The BPCP must produce an annual turnover of R100 000, and those farmers who failed to achieve this turnover would not be ready for commercialisation and would need more  support. The BPCP would be categorized into small, medium and large scale farmers. 

The commodities included in the agricultural policy action plan (APAP) were poultry, red meat, pigs, oil seeds, soya beans, maize, wheat, sugar cane, dairy, vegetable, citrus, deciduous fruit, subtropical fruit, viticulture, fish and aqua-culture, forestry and other.

Financial commitment over the Medium Term Expenditure Framework (MTEF)

Ms Mtshiza summarised the Department’s financial commitment over the MTEF:

Programme 4: Restitution – Sub-Programme: Restitution Grants

  • 2018/19:  135 projects  - R500 000 (grants);
  • 2019/20:  167 projects - R700 000;
  • 2020/21:  175 projects - of R750 000;
  • 2021/22:  175 projects - of R750 000.    

Programme 5: Land Reform – Sub-Programme: Land Reform Grants

2018/19: 8 100 hectares - R150 000 (grants);

2019/20:17 512 hectares  - R210 153;

2020/21:18 523 hectares  – R222 279;

2020/21: 9 531 hectares – R234 380.

Ms Mtshiza said the DRDLF’s contribution to the BF would be R2.682 billion, which would be used as co-funding to de-risk black commercial producers’ loan applications for land acquisitions, production in restitution projects, and the following amounts for insurance:

  • R800 million of grant funding facility to the Land Bank for the 2018/19 financial year, of which R500 million should be ring-fenced for support towards restitution projects;
  • R300 million utilised for land acquisition and development support of other land reform farms. About R150 million would come from the Curatorship Fund already at Land Bank;
  • R910.2 million of the grant funding facility to the Land Bank for the 2019/20 financial year; and
  • R972.3 million of the grant funding facility to the Land Bank for the 2020/21 financial year.

The DAFF’s contribution would be R370 million used as co-funding to de-risk black commercial producers’ loan applications, provide technical support, insurance and related products; in the following amounts:

  • R100 million of the grant funding facility to the Land Bank for 2018/19; 
  • R120 million grant funding facility to the Land Bank for 2018/19; and a further allocation after the mid-term budget , as would be determined by National Treasury; and
  • R150 million of the Grant Funding to the Land Bank for 2019/20.

Utilisation of disbursed funds

Ms Mshiza said the grant funding facility would provide funding to the BPCP to buy agricultural land or commercially viable agricultural chain operating entities, and would support land development for restitution projects and other land reform projects and purchasing of capital equipment and infrastructure. The government, through the DAFF and DRDLR, would advance to the Land Bank an amount of 2.5% for project management and administration of the grant facility on the total funds disbursed, as grants under the Agreement.

After a 1% deduction of the remaining amount disbursed to the Land Bank by the DRDLR and DAFF grants, it would be set aside and ring-fenced by the Land Bank for structuring and planning purposes. Commodity organisations would receive 2% for the support work, such as business plans, facilitation for development of infrastructure, procurement of operational inputs, machinery and equipment and market access.

Blended Fund and Land Bank

Mr Tshokolo Nchocho, CEO: Land Bank, gave a detailed explanation on how the Blended Fund (BF) would work through the Land Bank. The Land Bank made a commitment of R300 million, the Deciduous Producers’ Trust gave a repayable grant of R100 million and the National Treasury made available R200 million in the form of a grant. The total amount of R600 million funds were set aside to apply the principles of the BF in the horticultural industry to achieve transformation.

During 2009-10, the Land Bank had received an amount of R3.5 billion from National Treasury which was drawn over a three-year period. Thereafter, the Land Bank embraced a borrowing programme from two souces:

  • South African open markets, institutional investors, bond investors and general banking facilities. These commercial sources, mainly farmers who gave money in the form of bonds, gave a repayment period of four to five years.
  • International multi-lateral institutions, such as the African Development Bank, the World Bank, European investment banks and others, who granted long-dated repayments of 15 to 20 years.

Mr Nchocho added that the base cost of funding to the Land Bank had changed over the past five years to just over 8.7%. He said the Bank borrowed money which proved helpful to blend with grant money to benefit black farmers.

Discussion

Ms T Mbabama (DA) asked what intervention there was to mitigate the reasons for failure of the land reform tabled in the High Level report led by former president, Kgalema Motlanthe. She said black farmers always lamented the high interest rates, and she questioned the figure of 8.72% stated in the document. She asked whether ownership included the land which the financed project was on. As the key objectives of the BF were to inject new black entrepreneurs into the agricultural sector for transformation, how would this take place? What criteria would be used to grant finance to an applicant: On the issue of applications, she said the funding process took too long.

Ms C Matsimbi (ANC) asked if the Land Bank had the capacity to undertake such a programme. She also wanted to know the breakdown of blacks in the categories of small, medium and large scale farmers.

Mr M Filtane (UDM) asked if the Land Bank carried out any diligence and performance reviews with its partners, and whether training for beneficiaries was also funded by the Bank. He wanted to know if it was necessary for the farmers to own the land.

Ms N Magadla (ANC) said that the programme had to be implemented and assurance given that the grant funding from DRLD and DAFF must go to the Land Bank and should not be diverted to somewhere else.

Mr E Nchabeleng (ANC) asked if the Land Bank applied the credit law of South Africa. For example, if loans were not repaid the bank would repossess one’s property and assets. What would happen in in the case of beneficiaries who failed to reach the annual takeover of R500 000?

Mr A Madella (ANC) asked why the Department of Trade and Industry were not part of the “Tripartite” Blended Fund. He said there were existing applications from those who had applied for funding from the Land Bank, and were still waiting. He also wanted to know what had happened to the 200 000 farmers who had never succeeded with their projects.

The Committee decided to have a workshop on 30 November 2018 to allow the various stakeholders to reply to questions raised by Members.

The meeting adjourned.

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