In a virtual meeting, the Portfolio Committee on Agriculture, Land Reform and Rural Development was briefed by four of the Department of Agriculture, Land Reform and Rural Development’s (DALRRD) entities, namely, the National Agricultural Marketing Council (NAMC), the Agricultural Research Council (ARC), the Onderstepoort Biological Products (OBP) and the Perishable Products Export Control Board (PPECB), on their annual reports for the 2020/2021 financial year. The Minister was in attendance.
Onderstepoort Biological Products managed to exceed its budget by 40%, with sales generating an income of R238 million against a R170 million budget. The Council had agreed to achieve a 70% performance rate with the shareholder but it only achieved a target of 50%, which it attributed to several challenges, mainly relating to ageing infrastructure – which has disrupted production. The entity achieved an unqualified audit opinion.
The Agricultural Research Council reported on the five outcomes that it had set out to achieve. It said that it placed necessary attention on implementing consequence management, which has been an issue in previous reports. The Council also indicated that its overall cash flow increased by more than 100% to R502 million.
The National Agricultural Marketing Council received an unqualified audit with findings for the second year in a row. However, the AG had found that the entity managed to submit a performance report without errors and no findings reported on the reliability and usefulness. The Council managed to submit its annual financial statements without errors.
The Perishable Products Export Control Board managed to achieve a clean audit for this financial year. The entity ended the financial year with a surplus of R23.4 million, which is up on from the shortfall of R4.7 million in the previous year.
The Committee commented that the Marketing Council and the Onderstepoort had stagnated in their audit outcomes. However, Members were pleased that the Export Control Board managed to achieve a clean for the second year running, and they congratulated it for its continued excellence.
Whilst the Onderstepoort managed to improve on its performance from 43% in the prior year to 50%, Members noted that it fell short of its target of 70% performance for the year. Members were concerned by the R13 million fruitless and wasteful expenditure incurred by the entity and suggested that the fight against corruption cannot only be about dismissing and suspending officials: cases must be opened at the South African Police Services (SAPS), arrests must be made and the monies must be retrieved. The Committee requested that, at a later stage, the Onderstepoort Board present the status of each of the cases it has referred to the Police.
Whilst the Committee was disappointed that Marketing Council submitted its annual financial statements (AFS) late, it was pleased to hear that the entity managed. Members asked what measures have been put in place to improve audit findings, particularly in relation to expenditure management.
Members noted the Auditor-General’s findings that the Agricultural Research Council did not have adequate systems to record and maintain proper accounting records for all classes of property, plant and equipment, and that there were differences between the financial statement, fixed asset register and underlying schedules. Members asked how the Council would address these findings.
Officials from the various entities committed to improving their financial performances in the next financial year.
Opening Remarks by the Chairperson
The Chairperson opened the virtual meeting, welcoming the Members and the guest delegations. The Committee was to be briefed by four entities of the Department of Agriculture, Land Reform and Rural Development’s (DALRRD), namely the National Agricultural Marketing Council (NAMC), the Agricultural Research Council (ARC), the Onderstepoort Biological Products (OBP) and the Perishable Products Export Control Board (PPECB).
In paying his respects to the family of the former President, Mr F W De Klerk, the Chairperson indicated that the former President should be acknowledged for his efforts towards the project of reconciliation and nation building. He added that, whilst the former President was a formidable foe, he played an instrumental role in holding together South Africa’s democracy. He sent condolences, on behalf of the Committee, to the De Klerk family and his loved ones, indicating that the country had lost both a father and an elder statesman.
OBP Board: Chairperson’s Remarks
The Chairperson of the OBP Board, Ms Rene Kenosi, informed the Committee that, since the last meeting, they have seconded a board Member, Mr Luvuyo Mabombo, as the Acting Chief Executive Officer (CEO) of the entity, as the current CEO is ill.
Despite all the challenges faced in the last financial year, the OBP managed to exceed its budget by 40%, with sales generating an income of R238 million against a R170 million budget. She indicated that the Council agreed to achieve a 70% performance rate with the shareholder but it only achieved a target of 50%, which it attributed to several challenges, mainly relating to ageing infrastructure – which has disrupted production. Another contributor was the delayed procurement of the freeze dryer, which still has not been procured. However, the entity is in the final stages of the procurement process.
She mentioned that the OBP achieved an unqualified audit opinion, with emphasis on material findings, mainly relating to the annual financial statements (AFS), how it accounted for inventory, how it did not write-off its inventory, an issue relating to deferred tax and supply chain management (SCM) non-compliance. The entity appointed a CEO last year, so transgressions prior to this were deemed as irregular. She assured the Committee that the OBP is taking steps to implement consequence management.
She informed Members that the disciplinary case against the CEO is in its final stages and the Council hopes that this will be finalised in the coming weeks. The entity was pleased that it has made key appointments, including a new Chief Operations Officer (COO), who started on 01 November 2021 and a new Company Secretary, who started work on 01 October 2021.
She admitted that there have been production shortages but the entity has managed to provide the Pasteurella and Lumpy Skin Disease vaccines to distributors in the past few weeks. She added that now it needs to make sure that more animal vaccines are produced in the weeks leading up to December.
OBP 2020/2021 Annual Report
Business Development Officer at the OBP, Dr Jacob Modumo, and the Chief Financial Officer (CFO) of the OBP, Ms Elspeth Govender, briefed the Committee on the OBP’s annual report for 2020-2021.
Dr Modumo informed the Committee that the achieved an overall organisational performance of 50%, which represents an improvement from the 43% achieved in the 2019-2020 financial year.
-An increase in revenue by 35%
-Improved from a net loss position in the prior year to a net profit position this financial year, with the company recording a closing balance of R274 million
-Unqualified audit opinion
-Reduced irregular expenditure from R44 million to R9 million
Dr Modumo indicated that the OBP had five strategic goals for the year under review, these were:
-Sales and marketing
-Operations and production
-Human resource (HR) management and development
Strategic Goal One: Financial Sustainability
She explained that, through this strategic goal, the entity sought to improve its income and profitability. Only one target was achieved, that being the increase in sales revenue, with the entity achieving a R238 million, which was an overachievement of R68 million of its initial target. She attributed this increase to the entity accessing new markets to sell products, and the increased sales of the foot-and-mouth disease (FMD) vaccine. However, due to an increase in operating expenses, the entity failed to increase its profitability (its second target). Operating profit decreased by 10% of gross revenue, which was against a target of constituting 8% gross revenue.
Strategic Goal Two: Product Development
She indicated that the aim of this goal was to expand product portfolio and access to new markets. Out of five targets, the entity managed to achieve two targets, which were: (1) improving the products it offers, which it did by three (against a target of two) and (2) introducing three new technologies against a target of 2. The entity was unable to achieve its goal of building a vector proof facility, and this was due to a delay in the tender process. She added that it was also unable to complete its Good Manufacturing Practice (GMP) facility due to the lockdown restrictions and a dispute with the supplier.
Strategic Goal Three: Sales and Marketing
She informed Members that the intention of this goal was to be the supplier of choice and to ensure that the entity has optimised business practices. Out of four targets the entity managed to achieve one and overachieve in two, whilst failing to meet one target. The entity was able to overachieve – first, in the number of farmers trained on OBP products, with 646 farmers receiving training against a target of 250; secondly, in the number of registered newly registered distributors, with four new distributors having been registered (against a target of two). However, the entity was unable to reach its target of resolving 80% of complaints, as it only achieved 54.7%.
Strategic Goal Four: Operations and Production
She indicated that the aim of this goal was to improve product availability. Of the two targets, the entity overachieved in one and failed to achieve the other. It overachieved in improving efficiency, and obtained 9.7 for its production efficiency index, against a target of 7.9. It was, however, unable to improve production to the target of 85%, with the actual performance standing at 74.8%. This was due to issues around the planning functions.
Strategic Goal Five: Human Resource Management and Development
She said that the aim of this strategic goal was to attract, develop and retain talented individuals at the entity. There are three targets in this goal, none of which were achieved. The main reason for this was the continued instability in the HR division caused by the lack of an HR manager.
Ms Govender indicated that the OBP exceeded its budget by R68 million, with gross sales amounting to R238 million against a budget of R170 million. Due to the increase in gross sales, revenue increased by 35% (the largest contributor towards this was the increase in demand for vaccines from foreign countries). As a result, the entity improved from a net loss position in the prior year to a net profit position. Furthermore, cash generated from operating activities improved from a negative balance to a positive balance.
Irregular expenditure during this financial year amounted to R9 million, which was a reduction from R44 million in the prior year.
The Chairperson opened the floor for discussion.
Ms A Steyn (DA) asked whether the OBP was categorised as providing essential services in support of the Department. She also asked if all the entities were able to provide support to the Department during the pandemic.
Referring to the load shedding, she asked if the entity has plans in place to mitigate against the power cuts, particularly as Eskom provides short notices. Furthermore, what extra costs are incurred on a monthly basis?
She asked whether it was true that the OBP has refused to publish a list of the vacancies it does not currently have. Additionally, of the vaccines that are unavailable, how long have they been unavailable?
As it was mentioned that the freeze dryer was not functioning properly, she asked which vaccines will be affected by this. She raised her concern regarding the silo working mentality adopted by the entities. She also asked what working relationship the entity has with the South African Veterinary Council (SAVC), and whether it communicates to the SAVC when vaccines are unable.
Touching on the Covid-19 regulations, she asked whether the entity was able to function properly during the hard lockdown.
Ms N Mahlo (ANC) asked what plan the entity has to correct the findings raised by the AG.
Referring to strategic risk management, she asked if there is a plan in place to ensure that some of the risks are looked into and the steps it intends to take to remedy them.
Regarding the management structure, she asked how it intends to address having only one permanent individual in top management and two in the executive management.
She added that it was unacceptable for the entity to state that its underperformance was due to the Covid-19 regulations. She asked how it planned to adapt to the new working conditions caused by the pandemic.
Ms T Breedt (FF+) indicated that, whilst she acknowledged the improvement in performance, it cannot be seen as being enough. She asked if the entity could provide feedback on how it fared in implementing its audit action plan (AAP) in the first quarter. Does the entity believe that it will be able to achieve its targets in the following year?
Inkosi R Cebekhulu (IFP) asked whose responsibility it is to see to it that infrastructure is being developed. He added that it is critical for the OBP to distribute vaccines in rural areas and to ensure that people living in the rural areas have access to cheaper vaccines of the same quality.
The Chairperson asked for the OBP to provide a report on the outcomes of the investigation into the fruitless and wasteful expenditure it incurred in the previous financial year, which amounted to R7.4 million. He recounted that the AG had identified that this expenditure related to the entity not receiving inventory it ordered. A similar instance occurred this year, with fruitless and wasteful expenditure amounting to R5 million. He commented that this is a grave transgression and officials must be held accountable.
He asked whether the entity has expanded its footprint to all provinces, particularly rural provinces.
Ms Kenosi agreed that a 50% achievement of performance targets is not a good result, but she added that various corrective actions have been placed. Such actions include the filling of strategic vacancies as well as the tightening and updating of the entity’s archaic processes and policies by management, to ensure the strengthening of controls.
On the fruitless and wasteful expenditure, she said that the entity has tightened controls in SCM. It has also been in talks with the National Treasury to assist it with the procurement of infrastructure. Plans have been put in place to repair and maintain infrastructure.
She mentioned that the entity will submit all reports requested by the Committee.
The Chairperson reminded the Committee that, in the previous year, the Department reported to the Committee that it will be assisting the OBP to be a preferred supplier of vaccines to provinces, as part of the Covid-19 disaster intervention. He asked for an update on the matter, and for the entity to indicate whether a contract has been provided by the Department.
Dr Modumo confirmed that the OBP was classified as an essential service during the Covid-19 lockdown. However, as it had limited clients seeking out their services, the entity instituted staff rotations. In 2019, the entity managed to overproduce product, whilst it prioritised testing in 2020 to ensure compliance of its products.
Regarding the question on load shedding, he responded that load shedding impacts the entity’s testing and transfer functions. Whilst the entity does have generators in place, it has noted that the cost implication is high. He clarified that in 2020 load shedding had minimal impact on the entity.
He indicated that, during the lockdown, the entity did not have much product activity regarding its vaccines. For the 2020/21 financial year, the OBP has made all its blood vaccines available, and it has managed to supply them on time, although it was an issue during the hard lockdown, mainly due to the low supply of nitrogen from its supplier – which compromised some of the blood vaccines (Heartwater). He added that the entity had discussion with the Equine Research Centre (ERC), as it usually procures from them in bulk. Some vaccines were lost. As a consequence, the entity had to procure others, but it managed to retest some blood vaccines that it nearly lost.
He confirmed that the entity has communicated all its challenges to stakeholders and farmers.
Responding to the question on the freeze dryer, he indicated that it had limited disruptions in 2020. However, this year it did have an effect on the distribution of the Brucella, African Horse Sickness and Lumpy Skin Disease vaccines, which require it.
He confirmed that the OBP has been in partnership with several stakeholders. Additionally, it meets with the SAVC at least once or twice a year, and in their previous engagement they discussed the various products in the market and the key stakeholders involved in servicing clients.
Ms Govender said that the entity has worked closely with the board (as it has expertise in the area) to reduce irregular expenditure. In this financial year, there was only one instance of irregular expenditure, which amounted to R24 000.
Regarding the fruitless and wasteful expenditure, she mentioned that one investigation revealed fruitless and wasteful expenditure amounting to R13 million. She indicated that the entity has implemented consequence management, which has led to some dismissals, whilst some cases are still ongoing. The entity has also referred cases to the SAPS (South African Police Services), and it is currently undertaking investigations, which includes companies involved in the collusion. She added that OBP is taking a new tolerance to any elements of corruption, and it has recently updated policies on corruption.
On the question of rectifying the AG’s findings, she mentioned that the OBP has improved in areas such as the quality of its AFS. This has been improved due to the guidance of the board ‒ who review the quarterly submissions ‒ and the partnership with internal audit and the risk department. She added that this is done to ensure that the entity achieves its goal of obtaining a clean audit.
She clarified that the entity has made an application to the National Treasury on the infrastructure programme that was advertised, and it is awaiting their response. The board has decided to escalate the matter to the DALRRD as well, to ensure that the entity aligns its infrastructure maintenance programme.
Dr Modumo mentioned that the entity does not have vaccine distributors in Mpumalanga, Free State and Limpopo. However, it will be appointing distributors in the latter soon. He expressed hope that it will rectify these challenges at the end of the financial year.
Referring to the cost of supply, he indicated that the entity has a strategy linked to operational policies, which provides incentives to farmers and distributors, who obtain a large share of the discounts. He added that the OBP usually supplies vaccines to local associations who donate vaccines for free.
He clarified that the OBP does not have an official supplier contract with the Department, to be a preferred supplier of vaccine, However, it has been appointed by the Department as a sole distributor of foot-and-mouth disease (FMD) vaccines. The OBP has had constant engagement with provinces affected by disease, and it has provided vaccines to them on time.
The Chairperson said that the fight against corruption cannot only be about dismissing and suspending officials. Cases must be opened at the SAPS, arrests must be made, and the monies must be retrieved. He requested that, at a later stage, the OBP present the status of each of the cases it has referred to the SAPS.
Remarks by the Minister of the DALRRD
The Minister of the DALRRD, Ms Thoko Didiza, indicated that the Department has encouraged provinces to make OBP the choice company to procure services, as it recognises that they can procure from whomever they want. Marketing of the OBP to be a preferred supplier is made difficult when products are unavailable.
She also mentioned that the Department is trying to ensure that the entities become a part of its portfolio, through narrowing the gap between communication and collaboration. This will ensure that there is an appreciation of the intention to service the clients of the agricultural sector.
The Chairperson requested that officials focus only on the reports put forth by the entities.
Ms Steyn agreed with the Chairperson.
She asked that the OBP provide a list of the vaccines that are available, and those that are unavailable.
Remarks by the Chairperson of the ARC
The Chairperson of the ARC, Ms Joyene Isaacs, mentioned that the ARC is in the process of appointing a new CEO. Attention is also being placed on implementing consequence management, which has been an issue in previous reports. She added that the entity also realises that both Covid-19 and stakeholder engagements have had an impact on its income.
She indicated that the entity has raised fast tracking progress at the FMD facility to Council, as the disease remains a risk for agriculture production in the country.
She informed Members that the entity has improved its AAP, which it believes will solve the issues surrounding plant, property and equipment.
Briefing on the ARC Annual Report 2020/21
The Acting CEO of the ARC, Dr Hilton Vergotine, briefed the Committee on the ARC’s annual report for the 2020/2021 financial year.
-A total of 4 800 farmers received scientific support from the Kaonafatso ya Dikgomo (KyD);
-KyD held a record-breaking auction involving 121 farmers in May 2020, where 295 head of cattle was sold to the tune of R2.3 million;
-A vacancy of 9.72%
-Net assets of R2 billion
He indicated that the overall cash flow of the entity increased by more than 100% to R502 million. He added that the leading payments are to employees (R779 million), followed by suppliers’ payments (R393 million). He was pleased to inform Members that the entity has a strong balance sheet, with a net asset of R2 billion.
Dr Vergotine indicated that the ARC had five outcomes that it sought to achieve for the year under review. These were:
-Increased agricultural production and productivity;
-Sustainable ecosystems and natural resources;
-Improved nutritional value, quality and safety of agricultural products;
-A skilled and capable agricultural sector;
-Enhanced resilience of agriculture;
Outcome One: Increased agricultural production and productivity
He explained that in this outcome the ARC sought to generate knowledge and technologies, to enhance productivity towards increased food security, commercial exports and income for the agricultural sector, amongst other things. Referring to its achievements in this programme he mentioned that the ARC managed to release two new irrigation wheat cultivars, Umgeni and Selons. Umgeni has a short growth period and exceptional yield, averaging 12.5 t/ha.
Outcome Two: Sustainable ecosystems and natural resources
He mentioned that in this outcome the ARC sought to generate knowledge and technologies that will conserve natural resources and sustain agriculture; and to improve the productivity, competitiveness and sustainability of commercial and small-holder based agriculture. One of the achievements is the ARC’s progress in the development and delivery of integrated soil health solutions to commercial and small-holder farmers in South Africa.
Outcome Three: Improved nutritional value, quality and safety of agricultural products
He explained that in this outcome the ARC to generate knowledge and technologies for food safety and cross-cutting across different areas of the agricultural value chain. The ARC instituted the Postharvest Processing of Macadamia Nuts for farmers in the Vhembe District, Limpopo. In this project, farmers were provided facilities for on-farming drying and storage, which included one dehusking machine and 50 crates, which served 11 farmers.
Outcome Four: A skilled and capable agriculture sector
Some of the objectives of this outcome was to ensure skills development, technology transfer and farmer support. The ARC managed to provide much-needed technical support to 4 800 smallholder farmers through the KyD project. In addition, the KyD managed to host a record-breaking auction involving 121 farmers on May 29, 2020. The 121 farmers, comprising 45% women, sold 295 cattle to the tune of R2.3 million.
Outcome Five: Enhanced resilience of agriculture
The objectives of this outcome include creating climate resilient solutions, vaccine production and the development of laboratory services. One of the achievements was the Innova Project. He explained that the objective of this four-year project was to improve the food and nutritional security of smallholders across six African countries. The farmer-led trials were established in five villages in Maluti-a-Phofung for three planting seasons.
Ms Steyn mentioned that the ARC has adapted well to the new working environment created by the current Covid-19 regulations. She recommended that, going forward, both government and Parliament should intensify efforts to work digitally, which will assist in cutting down costs.
She asked how far the entity is in restructuring its assets. Furthermore, when will it have a plan for how it intends to deal with its asset management?
She was pleased that the ARC has worked hard to provide assistance to small-scale farmers.
Ms Mahlo asked where the 4 800 farmers receiving assistance are based, so that the Committee can be able to conduct oversight visits to track progress.
Ms Breedt asked if the entity could provide an update on the FMD facility project and the FMD vaccine production. She requested that, at a later stage, the entity should brief the Committee on FMD, the facility project and the costs.
Inkosi Cebekhulu asked when the restrictions (due to an FMD outbreak) on livestock movement in northern KwaZulu-Natal will be relaxed.
The Chairperson asked what led to the deficiencies in the internal controls, as this has allowed for the continued irregular, fruitless and wasteful expenditure incurred in the entity.
Ms Isaacs stated that the entity needs to look into the investment required to support IT infrastructure.
Dr Hilton said that the blood vaccine doses also pertain to doses made by the OBP. Much of the laboratory services available are to ensure that there is laboratory testing of outbreaks. Therefore, if there are no outbreaks requests for services are reduced.
Regarding the FMD vaccine doses, he said that Council indicated that Management should streamline the process, to get vaccines online faster. Council has assigned a task team to track progress on vaccine development.
He added that the entity will be available to present on FMD, as requested.
The ARC Chairperson said that the ARC has not met the targets for vaccine production, which is concerning considering that there are outbreaks such as FMD. He requested that they explain whether the four vaccines that were supposed to be produced were FMD vaccines. Have the procurement delays been resolved? What is the current status of vaccines, including the FMD vaccine?
He advised that the entity make better use of its scientific capacity in order to intensify and raise initiatives that will improve revenue. He asked how much external revenue the entity can generate through its specialist scientists.
Dr Andrew Magadlela, Group Executive of Animal Sciences, said that the KyD programme is currently being rolled out throughout the country. The entity has the names and contact details of all the farmers that are benefitting from the programme. He indicated that the KZN cohort of farmers are doing better than the other service providers under the programme, mainly because they have better cooperation with the entity.
On the vaccines, he said they are dependent on the procurement of equipment and infrastructure of mid-scale production. All issues preventing mid-scale production have been resolved, and the production will be functional in a year’s time because the entity will have to assemble the infrastructure once it receives it, which takes time. He added that through the mid-scale facilities the ARC plans to scale up production of vaccines to 200 litres.
Referring to the question on the FMD vaccine, he indicated that the vaccine manufactured is producing the intended results. He added that the entity is now left with replicating what occurs in its transboundary animal diseases facility out in the field soon, and this is to begin in Limpopo. However, before it does this it needs to obtain a Section 21 from the South African Health Products Regulatory Authority (SAHPRA) so that it is allowed to classify the FMD as an unregistered vaccine that can be used, as it is considered something produced under experimental conditions.
He insisted that the ARC has turned the corner, and it will produce what it has promised to produce once the infrastructure is sorted.
The CFO of the ARC, Ms Maureen Manyama, indicated that issues relating to irregular expenditure emanate from the interpretation of the delegations at the level of authority. There were two instances where there was an internal approval to advertise a tender for a shorter period. He added that the policy is not clear on who should approve that. To date, the entity has decided who the SCM delegates are and who will be delegated to approve the various decisions in SCM.
On consequence management, she mentioned that all disciplinary cases in the past five years have been concluded. So far, two people have been dismissed. Of the disciplinary cases finalised this year, consequence management measures are being implemented.
She informed the Committee that the difference in opinion of the internal and external audit was omitted at year end. As part of the interim audit, the AG is focusing on the investigations into irregular expenditure, so that any issues emanating from unauthorised, irregular, fruitless and wasteful (UIFW) expenditure is certain.
Group Executive of Information Systems and Infrastructure, Dr Tebogo Sethibe, indicated that the entity does have aging infrastructure but it does have a plan in place whereby it will implement a cloud strategy in the long term. But one of the challenges will be where the data fits, as there are several data centres in the country. He added that short-term infrastructure services have been procured earlier this year, which will assist. High-speed connectivity services have been provided by the South African National Research Network (SANReN).
Regarding its asset management, he admitted that it has had challenges managing its assets, particularly its ageing infrastructure. In an attempt to improve its ageing infrastructure, the entity has completed an assessment on the key and underlying issues, and it has found that both the facilities management and the operating model are a problem. He added that the ARC requires investment to modernise its facilities.
Dr Hilton said that the ARC is set to receive R250 million worth of research services. In addition, it is looking at how it can improve its external revenue.
Ms Isaacs mentioned that some of the issues raised by Members already form part of the AAP.
She said that the ARC has taken note that it must accelerate its efforts to complete its FMD facility and produce vaccines. Council has set up a task team to look into FMD, and it has sought support from other stakeholders to ensure that all issues are sorted as speedily as possible.
She assured Members that the ARC is addressing all the issues raised by the Committee.
The Chairperson asked what type of vaccines the ARC has tried to develop and whether they were FMD-related.
He also requested that the ARC submit a list of the areas where services are being provided under the KyD programme.
Ms Isaacs indicated that the entity will submit this list.
Dr Magadlela confirmed that the vaccines are FMD-related.
The Acting Chairperson of NAMC, Ms Thandeka Ntshangase, said that the report paints a much-improved picture at the NAMC. The entity managed to achieve an unqualified audit in both its performance and financial performance information. She extended thanks to the Minister and her team for assisting it in improving its processes.
Briefing on NAMC’s annual report 2020/2021
The CEO, Dr Simphiwe Ngqangweni, and the Acting CFO of NAMC, Ms Funanani Mudau, briefed the Committee on NAMC’s annual report for the 2020-2021 financial year. The two speakers reported that NAMC received an unqualified audit with findings for the second year in a row. However, the AG had found that the entity managed to submit a performance report without errors and no findings reported on the reliability and usefulness. NAMC managed to submit its AFS without errors.
Referring to the financials of the NAMC, Ms Mudau indicated that it received a grant of R47.4 million, which comprised most of its budget. The majority of expenses went towards personnel expenditure (R34.95 million). However, UIFW expenditure amounted to R30.2 million.
Dr Ngqangweni indicated that the flagship programme for this financial year was the National Red Meat Development Programme (NRDMP), which was funded by the DALRDD. He reported that 1 624 cattle and 823 sheep were sold through the programme over a period of six months (April-September 2020).
Ms Steyn, regarding the input costs of the agricultural sector at the moment, asked whether the NAMC has factored in the input costs of the agricultural sector the effect it has on food security.
She asked what role NAMC plays in marketing and the development of export research, as the Department does not develop export markets well.
She also asked if the National Red Meat Programme (NRMDP) project is still functioning, as it was stopped by the Department, and if so, which Department is currently funding it.
Ms Breedt asked where graduates are placed in the entity. She asked if there are mechanisms to recover funds from a sponsored employee of NAMC, if he or she does not complete their studies.
The Chairperson asked that NAMC provide reasons for the late submissions of its AFS. He also asked what measures are in place to improve audit findings, particularly in relation to expenditure management. He also cited irregular, fruitless and wasteful expenditure as a concern.
Dr Ngqangweni indicated that NAMC has an input costs monitor that it utilises every quarter. A detailed analysis of it can be provided through a written response or a presentation to the Committee.
Referring to the question on export markets, he mentioned that the development of an export market falls under the Department and the Department of Trade and Industry (DTI). He proposed that the Committee allow for the entity to obtain data from the DTI on recently established markets and some of the protocols that have led to their establishment. He explained that NAMC's role is to analyse data on the opportunities of potential markets, and to then provide this information to the two departments. He indicated that there are encouraging developments in the Lucerne sector, with the protocols having been developed. For instance, some small-holder farmers have been assisted with trading Lucerne with China.
Touching on the NRMPD, he clarified that the contract expired in September 2020, and the Department, as the sponsor of this project, has identified the ARC as the potential new coordinator of the project, with NAMC playing a collaborating role. The Department has scheduled a briefing for 30 November 2021 on this contract. There has been progress in signing off the project to the ARC but there have been delays, as NAMC still has to complete the remaining work of the project. He explained that NAMC is not involved in the RAM programme, and that all questions regarding it should be addressed to the Department.
The NAMC’s Executive Manager: Human Capital, Ms Nolwazi Simelane, said that the graduates are absorbed by the entity but not in large numbers, as the staff complement is less than 50. Students not absorbed by NAMC are directed to available opportunities in the sector. She indicated that, over the years, the pass rate has been very good, and the entity has only found that in some cases a student will fail a course. However, the student will usually pay out of their pockets to redo a course but in some situations NAMC does assist them. She clarified that due to the contract they have with AgriSeta (bursary and graduate programme), NAMC does not retrieve funds from a student who fails to continue his/her studies.
Ms Mudau explained that the entity submitted its AFS late due to staff members in the finance department falling ill. She expressed hope that with the appointment of the CFO and other SCM employees, pressure will be eased on the staff. Controls have also been implemented around the preparation of monthly financials, to make sure that AFS are completed in time.
On irregular expenditure, she said that the appointment of the SCM members will assist with the delegation of authority, as there will be a segregation of duties around who authorises procurement process and who appoints service providers. Controls relating to the SCM checklist have also been implemented and a review of contract registers is underway. She added that the CFO is currently reviewing the irregular expenditure identified by internal and external auditors. NAMC is also in contact with Treasury to assist with the clearing of irregular expenditure, which was in relation to the NRMDP.
Dr Ngqangweni indicated that management has been in contact with the new board, who have assessed the situation in internal controls and have committed to assisting them, specifically on the filling of capacity constraints in the finance division. He assured Members that the audit committee is monitoring the audit finding metrics and informs them on the developments on a quarterly basis, to ensure that there is progress.
Ms Ntshangase said that the irregular expenditure is due to past transgressions that will remain in the books until the conclusion of contracts. With the assistance of the audit committee, management is monitoring the situation and coming up with ideas to prevent these matters from recurring, going forward.
Referring to the two instances of irregular, fruitless and wasteful expenditure, she said that Council is to be intentional on not only evaluating these transgressions but also that consequence management will be implemented. There is capacity to improve and ensure that it achieves a clean audit. She added that NAMC’s role and mandate is limited to support and advisory services but the Council is open to exploring areas of promotion. She was pleased that NAMC is moving in the right direction and was confident that in the following year it will show improvement.
Briefing on the PPECB annual report 2020/21
The CEO of the PPECB, Mr Lucien Jansen, and the CFO of PPECB, Mr Johan Schwiebus, briefed the Committee on the PPECB’s annual report for the 2020/2021 financial year. Mr Jansen indicated that the board has remained unchanged, with no resignations recorded. The entity has overseen the export of 3.2 million pallets of fresh produce representing a 12.5% increase. Significant growth was seen in citrus fruit, and the growth is expected to grow. The majority of the fruit went to the EU at 37%, 13% to the UK and Asia at 18%, which was a reduction from 21% in the prior year.
Mr Schwiebus indicated that the PPECB was the only entity under the DALRRD that managed to achieve a clean audit for this financial year. The AG also found that the entity submitted a performance report without errors and had no findings on the reliability and usefulness. Further, its AFS did not contain material misstatements. He was also pleased to report that the entity ended the financial year with a surplus of R23.4 million, which is up on from the shortfall of R4.7 million in the previous year.
Ms Steyn recommended that the Committee visit the PPECB to see how it is able to achieve positive results but also to look at the challenges faced by new and emerging farms to the market, to ensure that they take part in the export market.
Referring to the letter sent by the PPECB regarding the Black Economic Empowerment (BEE) certificate, she said that more initiative should be taken to ensure the increased participation of black farmers in the market. She was pleased that the PPECB has provided support to them.
Ms Breedt supported the suggestion of an oversight visit, so as to verify the claims of the entity.
She asked for more details on the letter sent.
She also asked how it foresees the recent KZN riots, specifically the vandalisation at the ports, impacting its targets for the following year.
The Chairperson congratulated the entity for its continued excellence, which includes achieving a clean audit. He added that there is a lot to be learned here by the Department and its other entities, particularly in respect of improving the audit opinions. He agreed that the Committee should conduct an oversight visit, so that it is able to understand what methods the entity has in place that ensure it achieves positive results.
The Chairperson of the PPECB, Clive Garrett, thanked the Committee for its words, and he welcomed an oversight visit.
Mr Jansen explained that, during discussions with the AgriBEE Council, the PPECB was informed that the AgriBEE enforcement guidelines required that it needs to determine the level of compliance amongst its client base. The letter requested that all clients submit their BEE certificates to the PPECB’s offices. He noted that there were concerns of the entity stopping services of those who did not have their certificate, but clarified that the entity will not do so. He mentioned that the entity will submit a report on the number of clients it has and the number of BEE certificates it has received.
He welcomed a visit by the Committee to assess how the entity trains small-holder farmers involved in the small-farmer development programme.
He admitted that both the Covid-19 regulations and the July riots have prevented the entity from providing its services properly. The PPECB was concerned by the reduction in volumes of fruit exports. He indicated that the entity has had discussions with the Department to ensure that the food complies to export standards. He was pleased that the entity has learned how to better respond to this issue.
The Chairperson thanked the Minister, officials from the Department and its entities for attending the meeting and for their input.
The meeting was adjourned.
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