Blended Funding Model: joint workshop, with DRDLR Minister & DAFF Deputy Minister

Rural Development and Land Reform

06 March 2019
Chairperson: Ms M Semenya (ANC) Co-Chairperson: Ms P Ngwenya-Mabila (ANC)
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Meeting Summary

The Portfolio Committees of Agriculture, Forestry and Fisheries (DAFF) and the Portfolio Committee of Rural Development and Land Reform (RDLR) held a joint workshop and were briefed by the Department of Agriculture, Forestry and Fisheries, the Department of Rural Development and Land Reform, National Treasury and the Land Bank on the Blended Funding Model. The Blended Funding Model was a new policy initiative aimed at addressing challenges of land reform and development support for land reform beneficiaries and emerging commercial farmers in line with a commercialisation programme for black farmers. The Minister of Rural Development and Land Reform and the Deputy Minister of Agriculture, Forestry and Fisheries were present.

The Committees heard that the Blended Funding Model is the provision of a loan and a grant to improve access and affordability of finance by black producers and reduce reliance on grants. It is the first blended instrument developed in partnership with the DRDLR and the Land Bank. The target was to commercialise at least 450 black producers over a 5-year period. The Blended Funding Model was there to provide black producers with the equity they do not have, but require, in order to sustainably enter the agriculture, forestry and fisheries sectors in South Africa. Through the application of the blended finance programme rules, the black producers would simultaneously access loan funding and grow to such an extent that grant funding would no longer be required over time. The programme was supporting sustainable investment that would unlock and enhance production by black producers through deliberate, targeted and well defined interventions.

The Committees heard that the main challenge was around fragmented and uncoordinated support which has not focused sufficiently on commercialising black producers. The funding bias of development finance institutions was  towards white commercial agriculture. The Committees were informed that  there was a lack of access to land regardless of constitutional provisions for equitable distribution; unaffordability of funding; and lack of access to markets. The  agricultural sector was untransformed and commercial banks were unwilling to transform and this has resulted in risk aversion towards black producers.

DAFF and DRDLR would be providing the Grant Funding Facility to the Land Bank in the amount of R370 000 000 and R2 682 432 000 respectively which would be used as co-funding to de-risk Black Commercial Producers loan applications, provide technical support, insurance and related products. The DRDLR informed the Committees that  R800 million could not be transferred to the Land Bank because the model was not yet complete, and some farmers were not ready.

The  National Treasury as part of this meeting and a partner to the approach of the Blended Funding Model briefed the Committees as to  the emerging farmers who were in need of access to financial resources/assets; needed solid and relevant  mentorship and skills; technology advancement; capacity to meet product volume and standards required by purchasers; rural infrastructure and land tenure systems; and market access. The Committee heard further from the National Treasury  that blended finance was the way to go because grants have not been effective. Reviews from the Department of Planning, Monitoring and Evaluation indicated that grants have failed to improve farmers’ lot; created a dependency syndrome against the objective of achieving sustainability; and promoted entitlement mentality and limited commitment on the part of beneficiaries. The Committee was concerned to hear that  there was duplication of support between the DRDRL and the DAFF, and the focus was on the number of people assisted instead of the viability of projects.

Members asked what the status quo was regarding the 450 farmers to be commercialised, and they were concerned that the loan/grant process of the Blended Funding Model appeared cumbersome, was only for farmers with an annual turnover of R30 million, and more concerning was that it did not have the interest of the 250 000 emerging farmers at heart.  The Committee felt that the many funding fora proposed were going to delay the approval of applications and asked what role the CFOs would play in these funding fora;  where the Extension Officers were going to be found because the funding model was talking about the role to be played by the Extension Officers which were not even visible to the farmers; how the model was going to guard against land repossessions by the Land Bank from those farmers who were unable to pay the loans; clarity about smallholders from whom it was hard to find those making an annual turnover of R500 000 in rural areas; and how the Departments were expecting rural farmers to produce business plans when they were not literate or hardly had Grade 12.

The Minister said that the DRDLR had set aside  money to be given to the Land Bank when the funding model has been finalised as not all people in rural areas were farmers, but they could not be allowed to die because of lack of food. She said further that the Land Bank should show the way for what needed to be done as this Blended Funding Model has been a resuscitation of the stimulus package that came after Operation Phakisa. She said finally that it was not a wise move to give people tractors and seed and then not follow the money. The government needed to ensure things it gave to communities stayed in the communities.

Meeting report

The Co-Chairperson stated that the decision for the joint meeting was taken on 21 November 2018 because it was felt that people were in need of land for residential, agricultural and business purposes. After land was given to the people, both Departments had problems with regard to post settlement support. Both Committees were informed of the cancellation of RECAP from the DRDLR (Department of Rural Development and Land Reform) to the DAFF Department of Agriculture, Forestry and Fisheries), but later the Committees were informed that there was post settlement support from the Land Bank and the National Treasury. She indicated that the DRDLR had set aside 25% of support for restitution and funds would be transferred to Land Reform Development for post settlement support. The intention of the workshop was to share information on the Blended Funding  Model.

The Chairperson added that the government had a programme of the commercialisation of 450 black farmers. She said programmes that were being developed by the departments should be in line with the development of these 450 black farmers. The workshop wanted to understand how these black farmers were going to be reached with this Blended Funding Model.

Mr Sfiso Buthelezi, Deputy Minister of Agriculture Forestry and Fisheries, enlightened the Committee that the workshop was there to address the main particular problem: market failure to support black farmers. The work of 450 black farmers needed to be commercialised. The Blended Funding Model was a new product that was experiencing teething problems, hence the staging of the workshop in order to look at it from different angles.

He pointed out that it would be a fallacy to think that with the Blended Funding Model all challenges facing farmers would be solved. Contributions from the DAFF and the DRDLR in terms of finance were making it easier for the Land Bank because it has got no developmental funding for the project of commercialising black farmers. But if the Land Bank had the developmental mandate, then it would have been very important to approach the National Treasury for appropriation.

Briefing by the Department of Agriculture, Forestry and Fisheries (DAFF) on the Blended Funding Model

Mr Mike Mlengana, Director-General, DAFF said that the aim of the workshop was to create a platform for Parliamentary discussion on new policy initiatives to address challenges of land reform and development support for land reform beneficiaries and emerging commercial farmers in line with the Black Producers Commercialisation Programme under DAFF. The Blended Funding Model is the provision of a loan and a grant to improve access and affordability of finance by black producers, and reduce reliance on grants. It is the first blended instrument developed in partnership with the DRDLR and the Land Bank. The target was to commercialise at least 450 black producers over a 5-year period. The categorisation of these producers has been done, and the commercial producers would either be small, medium or large scale commercial producers along the agriculture, forestry and fisheries value chains.

Targeted beneficiaries were black-owned and managed farming enterprises that are commercially viable (100% or minimum 60% black-owned); youth, women and people with disability; and restitution farms or projects. The blended finance facility would be used by the parties to provide funding facilitation and grant financing to Black Commercial Producers for:

  • The acquisition of primary agricultural land parcels and/or commercially viable agricultural sector value chain operating entities;
  • Support existing operations for expansion in production on privately owned or land reform farms;
  • Support of land development for restitution projects;
  • The purchasing of Capital Equipment and Infrastructure (“CAPEX”);
  • Working capital and/or production loan (“Production Facility”); and
  • Insurance pool provision for subsidisation of insurance cover for the applicable farmers (capped at6% (six percent) of each total Grant Funding Facility amount)

Mr Mlengana stated that the Blended Finance Model was there to provide black producers with the equity they do not have, but required in order to sustainably enter the agriculture, forestry and fisheries sectors in South Africa. Through the application of the blended finance programme rules, the black producers would simultaneously access loan funding and grow to such an extent that grant funding would no longer be required over time. The programme was supporting sustainable investment that would unlock and enhance production by black producers through deliberate, targeted and well defined interventions.

DAFF would be providing the Grant Funding Facility to the Land Bank in the amount of R370 000 000 (R370 million) which would be used as co-funding to de-risk the Black Commercial Producer’s loan applications, provide technical support, insurance and related products. The Department would provide agricultural extension services or specialised technical support to the Black Commercial Producers as and when required, and would provide funding to the Grant Funding Facility beyond 2020/21 as would be determined with the National Treasury to cover the remaining contractual period of 10 years.

The DRDLR would also be providing the Grant Funding Facility to the Land Bank in the amount of R2 682 432 000 which would be used as co-funding to de-risk the Black Commercial Producer’s loan applications for land acquisitions, production in restitution projects, and insurance. The DRDLR indicated it could not transfer R800 million to the Land Bank because the model was not yet complete and some farmers were not ready.

On the other hand, the Land Bank would focus on funding and the structuring of funding. It would create a separate interest bearing account for the Grant Funding Facility, provided that any interest accrued shall remain in the Grant Funding Facility and be used in the programme to benefit black producers to be commercialised. It would also receive the Grant Funding Facility funds paid by the DAFF and the DRDLR into the interest bearing account, and disburse the approved grant to the participating bank or a Development Funding Institution only upon receipt of the grant approval form and the instruction to disburse from the Funding Forum. Furthermore, it would, amongst other things, provide the Funding Forum with monthly fund facility reports; receive applications for support directly from applicants and/or from DRDLR; conduct pre-screening assessments in order to determine if the black commercial producers meet the qualifying criteria as contemplated in the BPCP (Black Producers Commercialisation Programme potential business case, and test viability and affordability including soft issues such as verify land availability of farmers, farm workers, and farm dwellers currently occupying it.

Mr Mlengana further reported that the DAFF, the DRDLR and Provincial Departments of Agriculture have entered into partnerships with commodity organisations, SOEs (state-owned enterprises) [Agricultural Research Council (ARC), National Agricultural Marketing Council (NAMC), Perishable Products Export Control Board (PPECB)] and academic institutions to support producers by:

  • Conducting farm and farmer needs assessments of identified producers;
  • Providing skills and capacity building including record keeping;
  • Assist in farm planning i.e. primary and secondary commodities;
  • Providing assistance with business plan development; and
  • Providing infrastructural and input support to enable achievement of at least a R500 000 turnover per annum.

He said his concern was the time it was going to take the farmer to get the grant due to bureaucracy. He would like to see the farmer getting the grant at least after a week or a month. The DAFF Comprehensive Agricultural Support Programme (CASP) conditional grants to provinces would ring-fence at least 20% of project allocation for the development of identified potential commercial producers in partnership with the ARC, the NAMC, and the PPECB and commodity organisations. Provinces have identified 50 potential producers to be commercialised, of which 10 would be supported annually. The development includes infrastructure, inputs, skilling and capacity building, record keeping, accreditation, market access, financial management, and development of a bankable business plan and registration of a legal entity. The bankable business plan would be presented to the financial institution to access comprehensive blended funding.

Criteria used for selecting 50 farmers per province:

  • The farmer must have demonstrated practical knowledge and focused on a specific commodity in line with the APAP (Agricultural Policy Action Plan) value chains and the Provincial Growth Development Plans (PGDP);
  • The farming enterprise has the potential to achieve R500 000 annual turn-over depending on the commodity under production;
  • Enterprise should preferably be within 100km radius from the identified Agri-Parks Farmer Production Support Unit (FPSU) or have access to markets;
  • The business enterprise must have been in operation for at least 2 years;
  • The grower/ producer should be in their second rotation if they are in a timber production enterprise; and
  • The grower/producer should have demonstrated practical knowledge and focused on a commodity in line with the Agricultural Policy Action Plan/Forest sector transformation Charter Codes.

(Graphs and tables were shown to illustrate categories of producers; targeted commodities in line with Agriculture Policy Action Plan; blended finance economic benefits criteria; blended finance value chain; blended finance context diagram; and Land Bank internal processes)

Briefing by the National Treasury on the Blended Funding Model

Mr Bothwell Deka, Director for Economic Policy: National Treasury, said agriculture was important for poverty reduction and it was better at reducing poverty than the non-agriculture sector. 1% in GDP was due to agriculture and the agriculture sector was increasing income of the poorest by more than 6%. The sector has got substantial multiplier effects. The top 10 multipliers for South Africa (SA) include the agriculture and the services sub-sectors only. Other 6 multipliers like bakery, wood, leather, and etcetera have got links with agriculture.

SA agriculture was globally competitive. Labour productivity in agriculture is higher than most emerging market peers like Brazil, Chile, China, India, Mexico, Turkey, etcetera, but it was less employment intensive. Agriculture is the leading exporter of many labour intensive products like macadamia nuts, citrus, table grapes, wool, avocadoes, and etcetera. The sector is employing more than 870 000 semi- and unskilled workers compared to 607,788 in manufacturing and 383,542 in mining. It offers low wages, manual and elementary employment in rural areas.

Mr Deka said emerging farmers were in need of access to financial resources/assets; correct mentorship and skills; technology advancement; capacity to meet product volume and standards required by purchasers; rural infrastructure and land tenure systems; and market access. He stated that blended finance was the way to go because grants have not been effective. Reviews from the Department of Planning, Monitoring and Evaluation indicated that grants have failed to improve farmers; created dependency syndrome against the objective of achieving sustainability; and promoted an entitlement mentality and limited commitment on the part of beneficiaries. It also indicated there was a duplication of support between the DRDRL and the DAFF, and the focus was on the number of people assisted instead of the viability of projects. RECAP farmers got cash transfers and funds ended being used differently from the intended purposes. As a result, effectiveness and efficiency of funding became compromised.

Where subsidised interest rate loans were offered to smallholder farmers, the financial intermediaries should provide a programme of technical assistance to ensure maximum success to ensure sustainability of the sector. The ratio of Extension Officers was appalling. Blended finance would ensure better targeting and timely supply of support and improved efficiency. The state grant should be returned at no interest for sustainability.

Mr Deka added  that Parliamentary oversight was needed for accountability. There were no limits to what could be allocated to an enterprise or person because there were instances where one person got more than R50 million.  This has got potential for elite capture because the model seems to be designed for big players. Lessons should be taken from the mistakes of RECAP and Agri-BEE. He said the programme should be targeted at those farmers who want to be uplifted. Fronting was a critical issue that needed to be looked at because some of these agreements were not benefiting the real intended beneficiaries. Lastly, he stated there was a lack of publicity for the successful projects and projects to still to be done. It was important for the Committees to get the list of projects funded and visit them to see if they have been implemented.

 

Discussion

 

Mr A Madella (ANC) asked what the status quo was regarding the 450 farmers to be commercialised in terms of support given to them and their involvement in the process because the bureaucrats would be the ones making decisions even though they were not aware of the material conditions of the farmers on the ground.  This meant more Extension Officers and mentors were needed on the ground for the emerging farmers. T application process for the loan/grant appeared to be cumbersome. The departments must find ways to cut short the process but avoid throwing money down the drain at the same time. He stated he did not understand why the focus for the loan/grant was on those farmers with an annual turnover of R30 million. This was a clear indication that the Blended Funding Model did not have at heart the interests of the 250 000 emerging farmers.

Ms E Mtshiza, CASP Director, DAFF, indicated that the identification of the 450 farmers did not mean that the Department has done nothing. The Department has worked with provinces in identifying these farmers. The identification of the farmers was a target that could be achieved. Each farm was visited for a comprehensive assessment for blended funding. She pointed out that they had done the work with limited resources. As a result,  the demand for the Eastern Cape which usually receives the most funding would only cover for 20% of its proposed budget for support.

Deputy Minister Buthelezi said that the point on the bureaucratic structure was well taken and it was suggesting that the Department should not be imposing unnecessary structures to impede progress.

The Co-Chairperson remarked that the many funding fora proposed on this model were going to delay the approval of applications and suggested that it was better to have an integrated funding forum which would fast-track the approval of applications. She did not understand the role that would be played by the CFOs in these funding forums. First, she wanted to know where the Extension Officers were going to be found because the funding model was talking about the role to be played by the Extension Officers which were not even visible to the farmers. Second, she wanted to establish how the model was going to guard against land repossessions by the Land Bank from those farmers who were unable to pay the loans. Third, she wanted to find out about the smallholders the model was talking about because it was hard to find smallholders who had an annual turnover of R500 000 in rural areas, and she wondered if these rural smallholders were really the main beneficiaries of this model. Fourth, she asked how the Departments were expecting rural farmers to produce business plans when they were not literate or hardly had Grade 12.

Mr Mlengana stated that there was training that was prioritised by the Department for Extension Officers. He emphasised that the presentation was focused mainly on blended finance. The problem of Extension Officers has been raised and it was not that it has not been given attention. He further explained that the R500 000 was referring to the money that belonged to the fund. It was targeted to farmers who have been developed from CASP. This also applied to medium farmers with 50 cattle who were ready for the commercialisation process, but who have been producing at substantial level. He said this was not a panacea for solving poverty, but to assist those farmers who were producing at subsistence levels. He also indicated that if a farmer was not able to service the loan, the Land Bank would have to look at the credit points of the farmer and find a new approach for this process. The marketing of the programme could not happen unless the Departments were ready at a transactional level. The programme was real and that was why the Departments were involved in it and it also includes the presence of the farmers and mentors. He pointed out that the model was informed by the Agricultural Comprehensive Producer Development Support Plan in terms of mechanisation and other things. The model was a product of various stakeholder views.

 

Mr Moloto, Land Bank Chairperson, acknowledged the criticism that the Land Bank was behaving like commercial banks, but he enlightened the Committee that for the Land Bank to remain viable there should be government guarantees; it should not pay taxes; and it should not declare dividends. He informed the Committee that their corporate plan has divided the bank into two parts:  a commercial bank and a developmental bank. The commercial bank has got a mandate to capitalise the development bank, while the developmental bank would look at the developmental side. The grant component has to come to the bank to ensure that the farmers serviced the loan. He stated that there was no bank that wanted to repossess a farm. All possible solutions are explored. If there’s drought, things could be rescheduled. But if the bank was dealing with a cellphone farmer in Sandton while the farm or operation is in Limpopo, then that was a different story. Repossessing the farm was the last resort. With regard to timeframes for loan applications, he stated that the Land Bank would have to look at processes to ensure that they were responsive to the programme.

Deputy Minister Buthelezi added that if things are to be done, there should be a carrot and a stick. Cellphone farmers should know what the stick is when work is not done and understand why the Land Bank is repossessing.  He went on to say that the Department wants to work with farmers who want to be in business in terms of market access, production, and etcetera. Access to funding was not the only solution. The Department was assisting emerging farmers who had  to compete with other business people and business principles have to be followed or applied. What Members were suggesting in their inputs, was that the Department had to simplify things in business plans so that people were able to interact and take part in the process. The inputs from Members would be incorporated into this new project because it was work in progress and indicated further that the valid inputs from the National Treasury was recognised as something the executive should consider when it engaged with them in going forward.

Mr N Capa (ANC) remarked that there was nothing that could be done if there was unwillingness from the commercial banks and sector to transform. He asked for the breakdown of the levels the 450 farmers were currently in because it was impossible for them to be at the same level or be started at the same level. He wondered if most farmers would be able to understand this funding model especially when one looks at their low level of education all the world over. Here he was excluding farmers who were retired professionals, however he maintained that the majority of farmers did not understand what the Members were discussing in Parliament. He, therefore, asked that the funding model be simplified. He wanted to know if the Departments have got information about farmers who did not need to be assessed but just needed assistance. Lastly, he asked for clarity on the comprehensive Blended Funding.

 

Ms Mtshiza explained that this comprehensive Blended Finance was a loan and grant given to a farmer. Loan approvals come after the assessment of the viability of the loan has been made. There has been criticism about the R12 million spent on CASP yet the impact was not seen. Now the approach in terms of commercialising the producers was to have a pool that could transform the sector. The role of the Department was to explain the bureaucratic processes the Department has been warned to avoid. A lot of work and thinking has happened.

Mr E Nchabeleng (ANC) commented that these funding models were not talking to his life experiences and the people in his village who were not making R500 000 per annum, including those working for the government. said it  was only he who was qualified in terms of income. This meant that many people in rural areas were not going to be able to participate in the programme, especially women and the disabled.  He wondered how the Departments and Members of Parliament were going to ensure that this programme touched the lives of those who were earning less than R500 000 in rural areas.

Mr P Mnguni (ANC) asked that the model be clarified if it was multi-pronged because if Members did not get it, it was clear people on the ground would never grasp it. The  commercial banks were trying to maintain international standards and please the dictates of the markets. At a developmental level these commercial banks did not exist, but would only respond to you when you are a star. The dictates of the funders would not make space for development and transformation on the ground because the top was still very ‘white’. He asked further  if the programme has been piloted by the two Departments across the country over a certain period in order to test it because when you unfold a new concept, you need to pilot it.

Ms Mtshiza explained that after they spent five weeks with farmers during the conceptualisation phase of the programme, they developed steps for moving forward. Part of the approach was to pilot the programme. The  Department was advised to launch the ‘Book of Concept’ phase as the first phase of the programme. The agreement with the Land Bank on this was signed and the operational model before implementing the concept was outlined. This process involved provinces and Directors-General of the Department in 2018. The manuals for the implementation were signed by relevant Director-General’s. A task team within the DAFF has been formed to be explicit to the Land Bank about the beneficiaries of the programme. Farmers  have been part of the programme since it was started in 2016 during Operation Phakisa. The Department spent five weeks with the sector and stakeholders to try to understand the challenges and how to come up with solutions, advancing expansion of producers’ land, and access to finances. The structure of the model has got farmer representatives. Feedback has been given to farmers, and there was a feeling from the Land Bank that if this could be given a chance, it would open opportunities in terms of market access and funding.

The Chairperson commented that Operation Phakisa was established to grow the sector, but wondered how human efforts and capital would be balanced in order to fight poverty and fulfill the objectives of the NDP. The  Blended Finance Model was meant for people who were ready to go, but not for people in rural villages. Unfortunately, there has been no report on the Comprehensive Producer Support Policy that would provide information about the number of emerging farmers from small to medium scale that would need to be financed or supported. She then asked if the Blended Funding Model was targeting small to medium scale farmers. She remarked that the government was grooming commercial farmers who would adhere to the labour relations law to assist in uplifting farm workers to be farm owners one day. She did not think the government was interested in supporting farmers who oppressed farm workers. The  annual budget for the 450 farmers has not been presented so that both Committees could engage with the National Treasury for appropriation. The Departments did not mention how they were going to deal with fronting where it has been seen in areas like Limpopo were there were projects for locals, but when one visits those projects one discovers that they were being run by foreign pastors. Finally, she suggested that the funding model should reduce bureaucracy so that the approval of applications does not take 150 days. The DGs should monitor the Land Bank instead of sitting in the funding forum because they would not have time to attend the meetings because of their work commitments.

 

Ms Rendani Sadiki, Acting Director-General: DRDLR, explained that when the Department conceptualised the funding model, the Agricultural Research Council (ARC) assessed all the identified farms with regard to soil type, water access, weather conditions in the regions, farmer-training, etcetera so that the Department could commercialise the farmers. This assessment, as a result, gave birth to the Comprehensive Producer Development Support Plan. The National Agricultural Marketing Council (NAMC) was asked to help with implementation and identification of commodity organisations which helped with business plans based on the assessments that came with the Comprehensive Producer Development Support Plan. They  provide funding to a farmer once until the farm is fully commercialised. The intention was to send the farmers to the Land Bank as they graduated.

Ms Maite Nkoana-Mashabane, Minister of Rural Development and Land Reform, informed the Committee that Operation Phakisa was started during the mid-term of former President Zuma. President Ramaphosa came and asked that it be speeded up after he visited a number of countries. The DRDLR has set aside money to be given to the Land Bank when the funding model has been finalised. Not  all people in rural areas were farmers, but they could not be allowed to die because of lack of food. Not all of them could be commercial farmers because most of them practice susbsistence farming.

The Land Bank should have a branch in every locality where it wanted to because SA was a developing country, and it was not clear if the people who would be in the funding forum would be able to do the work. The Land Bank should show the way for what needed to be done. This Blended Funding Model has been a resuscitation of the stimulus package that came after Operation Phakisa. It  was not a wise move to give people tractors and seed and then not follow the money. The government needed to ensure things it gave to communities stayed in the communities. The  country could not afford to have a Land Bank that was not responsive to the challenges facing people because not all people in rural and urban areas could be commercial farmers. People need to be loved and not just deliver services as if they were passengers. There was a lot that needed to be done.

Minister Nkoana-Mashabane further pointed out that the diagrams that were presented did not talk to the people on the ground. People could never relate to the diagrams. There were things the Departments needed to fix and, at the same time, highlight achievements because there have been people who chose money instead of the land, but after three years the money was gone and the very same people were left with nothing.

The meeting was adjourned.

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