Department of Agriculture, ARC, OBP & NAMC Q2 2024/25 Performance

Meeting report

DALRRD Q2 2024/25 Performance

Ms Kgomotso Kgang, acting Deputy Director-General: Corporate Support Services, Department of Agriculture, Land Reform and Rural Development (DALRRD), reported that 76 percent of second quarter targets were achieved. Targets were related to biosecurity and natural resources management; delineation of a grazing-protected area in the Western Cape; plant pest risk surveillance; and animal disease risk surveillance. Four subsistence producers were supported with integrated bioenergy technology. 

In food security and land reform programmes, targets were missed as a result of procurement delays due submission of non-compliant documents. Documents to be submitted by farmers were being assessed to minimise non-compliance.

Training was provided to 42 agricultural cooperatives against an annual target of 117. Support was provided to 12 farmer production support units (FPSUs) against an annual target of 37; 56 enterprises were supported against an annual target of 138; 121 smallholder farmers were assisted in agricultural marketing against an annual target of 300.

Ms Mokete Mokono, Chief Financial Officer (CFO), DALRRD, said the Department had underspent by 17 percent of the second quarter drawings. The reasons included delays in implementing the Presidential Employment Stimulus Initiative (PESI) and outstanding transfers to the Agricultural Research Council, Land Bank and Office of the Valuer General.

There were delays in the procurement of ICT services by the State Information Technology Agency (SITA). The chief information officer had requested permission to use departmental supply chain management (SCM) processes to procure ICT services. Agreements were signed with the provincial departments of agriculture to facilitate the implementation of PESI. More than  R386 million had been transferred for the implementation.

Expenditure was gaining momentum in the current quarter. Funds had been transferred to the Agricultural Research Council and blended finance funds had since been transferred to the Land Bank.

An audit improvement plan was being implemented, with 23 percent of actions fully implemented and 42 percent partially implemented in the second quarter.

(See attached presentation for further details)

Agricultural Research Council Q2 2024/25 Performance

Dr Litha Magingxa, CEO, Agricultural Research Council (ARC) said 74 percent of targets were met in the quarter under review.There was a focus on new crop cultivars and field performance. Sixty field trials were conducted against a target of 29; 55 technical reports were completed against a target of 75.  Forty farmers participated in a programme pertaining to animal improvement services.

Dairy farmers were moving towards in-house milk recording using automated systems and genomic breeding values supplied by semen companies. Engagements were planned with key stakeholders to manage international competition from multinational semen companies.

Concerning natural resources management, 18 technical reports were completed against a target of 26.  Nine field trials were conducted against a target of one; 109 soil and water samples were analysed against a target of 70.

In the programme on broadening the food base, 22 technical reports were completed against a target of 4 targets. In terms of skills development, 729 people participated in the training programmes against the target of 240. Eleven postgraduate programmes were supported.

The laboratory services issued 6 007 animal health test reports against a target of 4 094; 682 food and feed tests were performed against a target of 628. A total of 21 831 heartwater vaccine doses were produced for Onderstepoort Biological Products (OBP) during Quarter 2, but OBP had not yet submitted the quality control report.

Mr Abdul Carim, CFO, said there were ongoing discussions with the Auditor-General (AG) to resolve the 2023/24 audit issues. Implementation of the audit plan had been approved by the council. A finding on personal protective equipment (PPE) had been resolved through an asset tagging exercise. All suspected irregular, fruitless and wasteful expenditure was investigated and consequence management was implemented.

(See attached presentation for further details)

National Agricultural Marketing Council Q2 2024/25 Performance

Ms Lebogang Dire, CFO, National Agricultural Marketing Council, said the  NAMC was still within the allocated budget for the 2024/2025 financial year. A variance of two percent from the planned target was attributed to underspending on capital assets. The variance in employee cost was due to the vacancies which had since been filled.

The NAMC was experiencing myriad challenges linked to constraints on financial resources. It was primarily dependent on a parliamentary grant to execute its mandate. However, this allocation had been consistently cut. The NAMC has recently experienced an exodus of critical employees since it could not offer CPI inflation-linked salary increments. Activities to link smallholder farmers to markets were already affected. The NAMC currently depends on partnerships with stakeholders to coordinate the logistics. It had embarked on a process to raise additional funds through partnerships and collaborations. This was subject to approval by the Minister.

(See attached presentation for further details)

Onderstepoort Biological Products Q2 2024/25 Performance

Dr Bethuel Nthangeni, CEO, OBP, said OBP had over-achieved in increasing its annual sales revenue. It would continue with the promotion and sale of vaccines and with the development of vaccines.

OBP has over-achieved its targets for improving production efficiency. A seven-day production cycle resulted in an increased number of vaccine batches produced. OBP had not achieved its targets on good manufacturing practices (GMP) specifications.

OBP would collaborate with more farmer associations and state veterinary offices to organise more farmers’ days for the next quarter and sponsor more events.

No achievements were recorded on the targets for conducting a culture survey and developing an employee engagement plan. A reviewed ethics framework and training would be approved in the next quarter.

Ms Elspeth Govender, acting CFO, said that there was a profit before tax of R27.9 million in the quarter under review against a budgeted profit of R11.2 million. Funding required for the GMP project was R381  million. An audit improvement plan that covered external audit findings was being updated. After OBP received two consecutive qualified audits, the CFO was put on precautionary suspension. The CFO subsequently resigned. The finance manager resigned after being charged with financial misconduct.

(See attached presentation for further details)

Discussion

Mr W Aucamp (DA) said he was worried about discrepancies about what was happening at OBP. During an oversight visit, the Committee asked for the costs of completing the GMP facility. OBP indicated an amount of R2 billion, but now they told the Committee they needed R81 million. It would not complete the project with the latest figures, and it did not have a plan or timeframe in place. It was clear something was wrong and there was no principal agent for the GMP process. How much of the increased sales revenue was from exports? What capacity did OBP have to produce vaccines using a small freeze-dryer? Would that not compromise the quality of products?

Dr Nthangeni said they were in dispute with the appointed principal agent and the matter was before the high court. OBP had to discontinue the GMP process and find a new service provider. It had followed all the Public Finance Management Act (PFMA) processes. They did not have internal capacity to develop specifications for the new principal agent. It was a complicated area that was beyond the capacity of OBP. A specialist advisor would be sought to help OBP appoint a principal agent, and this would include timelines. The timeframe set for the GMP certification was three years.

Ms Govender stated the R2 billion figure came from the annual and corporate services plans which specified total capital expenditure over the medium term of R2 billion. For the GMP project, the presentation quoted R873 million with a funding requirement of R387 million. This was still subject to change. The estimates were done in 2022 and the appointment of the principal agent would assist in testing the reality of the numbers.

Mr C Smit (DA) warned the CEO that misrepresentation was a serious matter. He wanted to know whether or not the African horse sickness vaccine presented to the Committee during the oversight visit was a compromised vaccine. Could he confirm that certain vaccines could not be produced due to compromised water? What processes are currently used to process water to be used for vaccines? What were the chances that toxins in that water would compromise the vaccines and make animals ill?

Dr Nthangeni stated that he took issues of misrepresentation very seriously. OBP was not releasing anything to the market that was compromised, including the African Horse Sickness vaccine. OBP was proud of its quality management system. A product would be quarantined until it had passed all the quality assurance tests. The African horse sickness vaccine the Committee saw was not compromised at all. Vaccines were produced separately from the water that accompanied the vaccines. There were instances when their water plant was not working, but it was incorrect to say it had not been working since January, because they had been able to produce vaccines. The vaccines were not compromised, but the challenge was around distribution. OBP performed reverse osmosis to get the quality of the water they required. If tests revealed toxins, the water was not released.

Mr A Trollip (Action SA) noted there were under-achievements on the production of new vaccines at OBP. Despite underperformance, customer service targets were met and OBP made a profit. This meant that OBP had extraordinary potential, but things were not done right. He was pleased to hear about the deadlines for the delivery of the freeze drier.

What was the Department doing about the departure of the CFO and finance manager of OBP? Would there be consequences for financial mismanagement? What were the consequences for not meeting the targets in the first and second quarters? This was a matter of life and death for people trying to make a living off the land.

Was the NAMC advising the Minister on the optimisation of agricultural exports? Was the NAMC advising the Department to market agricultural products to China and Russia if taking them to Europe was inconvenient and expensive? That’s what the Committee had been told previously.

 Mr Mooketsa Ramasodi, Director-General, DALRRD, said the Department had a way to resolve trade disputes. Currently, there are consultations at the World Trade Organisation (WTO). The Committee would be updated about the outcome.

Mr Dipepeneneng Serage, Deputy Director General: Agricultural Production, Biosecurity and Disaster Management, said he had not suggested that South Africa did not want to meet the requirements of importing countries nor had he said the Department would do nothing to assist exports. The Department had an obligation to meet the requirements of an importing country. This was part of the WTO requirements. The importing country set the requirements and the exporting country had to meet them. The phytosanitary requirements had to be based on science. If the Department was of the view that the requirements were not based on science, it would challenge them and send specialists to Geneva. He asked the Committee for guidance on this matter. If European and other markets were being strict, it would be advisable for South Africa to diversify. There were other markets like China whose requirements were not the same as those of the European Union. He did not know whether the matters at play were political or not. He placed options before the Committee. The European Union was changing requirements. The technical people in the Department would never dictate to farmers the markets they had to export to. The job of the Department was to assist farmers to comply with the requirements of the importing country.

Dr Ngqangweni said the NAMC was dealing extensively with the matter of export markets.

Dr Nthangeni said most of OBP’s export income was from sales of Red Valley Fever vaccine. The small freeze-dryer had a capacity of 1 400 per batch and was operating seven days a week. The new freeze-dryer from China would arrive in January 2025 and start working during February 2025. He acknowledged that OBP had not done well on the targets for the GMP and IT Systems.

Ms S Davids (ANC) asked what the Department was doing about the targets it had not met. She sought clarity on the validated reports on the food security programme where 25 producers were supported through the blended finance scheme. She asked why the ARC did not say anything about tightening internal controls and compliance with treasury regulations.

Mr Ramasodi stated the Department's targets for the Land Bank and Industrial Development Corporation had been over-achieved. There had been an issue about providing information without breaching the Protection of Personal Information Act (POPIA), but it had now found a way around that. The reports would be provided to the Committee. There was a need to improve on the targets for the land development support programme. Other areas where targets had to be bettered were food security and agrarian reform. There was a concept document about the Land Bank being the centre for assisting farmers and giving them access to land owned by the bank.

Mr Carim said the audit finding on internal control deficiencies at the ARC was not material enough to be a qualification. Controls on the use of petrol cards had been tightened. Irregular expenditure of R77 million did not lead to any loss. The consequence management that followed was a workshop for the bid evaluation committee members to ensure there were no repeat findings.

Mr M Montwedi (EFF) asked whether the Department had thought about linking all the beneficiaries of the land development support programme to the Land Bank to ensure all leased farms were productive. He asked that the Committee be provided with updated lists of litigation and approved transactions with blended finance and whether they could be located through the IDC or Land Bank. In the blended finance programme, the strategic partners were exploiting farmers because they did not have the capacity to draw up business plans and manage cash flows. These strategic partners were getting into long-term agreements with farmers so that they could get 10 to 15 percent of the farmers’ profits from the Land Bank.

He asked the ARC about the status of projects like the KYD scheme it had implemented for the Department. Had the ARC considered taking up extension advisory services the Department could not provide to farmers? What programme was undertaken to improve genetics on smallholder farms? He said to the NAMC that the country should explore new markets if export requirements were affecting the farmers and if the West was pushing South Africa out of markets.

Mr Ramasodi said the matter of strategic partners requesting a retainer or 10 percent of the profit of the farmer was something the Department would look at. The Department was trying to build capacity within the Land Bank so that it would be easy for the farmers to apply. The Department assisted with pre-applications so that people knew how to apply for what they wanted. The applications had been made easy to understand. The Department might also assist farmers with extension services and innovation. It was engaging the National Treasury to provide money for extension services. The ARC had to find new technologies and innovations. The Department would spread that information through extension practitioners. The Department was trying to diversify access to markets. 

Dr Magingxa said the KYD programme was designed to facilitate access to livestock markets for smallholder farmers. Twenty-three livestock auctions were conducted in 11 municipalities in the Eastern Cape, Northern Cape, KZN, and North West. A total of 1 400 communal farmers participated and more than 2 600 head of cattle and more than 1 000 sheep and goats were sold. The farmers made more than R7 million. The programme provided training on livestock and plant diseases. It played a role in improving genetics of indigenous goat breeds and other breeds in rural areas to cope with climate change. A lot of knowledge has been generated through this project.

Mr A Mngxitama (MK) wanted to know if targets were benchmarked to determine the real impact on the ground. He asked about farmers excluded from interventions, because 80 percent of the rural population was poor. Was the ARC part of the GMO maise ruling by the appeals court? What was the attitude of the ARC  towards GMO maise, because South Africa was one of the few countries feeding her people with GMO maise?

Mr Ramasodi said the Department categorised farmers. Interventions had to address different needs. They should be broad-based. Funding was limited.

The GMO Act had been passed by Parliament, and the Department was dealing with its confines. GMOs were not a panacea for food security challenges, but they were an option. The bottom line was that the product should be safe to consume.

Mr Magingxa said the ARC’s role was to generate knowledge of technologies and innovations so that the country was clear on the policy decisions it should take. The country should be clear on its decisions on food security.

Ms S Lucas (ANC) said the inability to pay service providers within the required 30 days appeared to be a recurring issue. How was the Department addressing vacancies and lack of scarce skills across its entities? She asked whether the NAMC had made any progress in its resource mobilisation strategy. She suggested there was a need to develop new markets. She could not understand why there were always problems with products from SA.

Mr Ramasodi stated section 36 of the PFMA was clear on the reporting structures of the Department and its entities. The Department took full responsibility for what happened in the sector. Section 46 of the PFMA was clear on the roles and responsibilities of the boards of the entities. The Department noted the concerns raised by Members.

Dr Ngqangweni said the resource mobilisation strategy had been approved by the council and was now at the implementation stage. The NAMC was ready to partner with other entities on projects to diversify revenue streams.

The Chairperson asked about the imposition of consequences for public servants who did business with the state. She asked which programme PESI grant had been transferred to. She sought clarity on double-dipping. What was being done in the absence of a register of farmers?

She asked OBP why the ARC could not meet the targets for heartwater vaccines because of delays in their production. The Committee was really not clear about what OBP needed to complete the GMP facility. It kept saying different things at different times. That was going to confuse the ministers of agriculture and finance. The Committee had requested an amount of R2 billion from the Minister of Finance while OBP asked for R378 million from the same Minister. This was not going to go down well and would be a bad reflection on both the Department and Portfolio Committee. The Minister of Finance would go for the lowest amount. It was better for OBP to thoroughly explain to the Committee the right amount it needed.

She asked the NAMC to explain how it would address the AG's findings.

Mr Ramasodi said there had been engagements with the audit committee on how to deal with consequence management issues. There were backlogs, because some of these cases dated to before the time of the sixth Parliament. The Department had a strategy to deal with these cases. If it did not, it would receive a qualified audit opinion.

There were service level agreements between the Department and provincial agriculture departments on how to deal with PESI. The strategy was to address food security challenges through provincial structures. The spending on PESI stood at 83 percent. The Department and the provinces had to monitor PESI, but there had not been enough capacity to rectify the challenges. Double-dipping showed innate problems in the system.The Department had to be vigilant. Amounts given to farmers sometimes were not enough to carry them through the season.

Dr Ngqangweni said the NAMC was focusing on the root causes of the audit findings. Vacancies had been filled to strengthen the capacity of the finance staff. Internal controls were tightened and a document management system was implemented. The NAMC engaged with the AG on a regular basis.

Mr Aucamp stated that the Committee was told about R2 billion that was required to complete the GMP facility during its oversight visit. Now, the entity was presenting to the Committee figures that were developed in 2022. The Committee wanted to know the exact amounts.

The Chairperson said the Committee needed to meet the entire board of OBP before going any further with this matter. OBP should give the Committee the information it needs. Members were asked to forward their concerns or further questions on OBP through the committee secretary.

The meeting was adjourned.