Agri-Business: briefing by ABSA

Meeting report

AGRICULTURE AND LAND AFFAIRS PORTFOLIO COMMITTEE
20 March 2001
AGRI BUSINESS: BRIEFING BY ABSA

Chairperson: Adv Holomisa

Documents handed out:
A Commercial Bank's Perspective on the Agricultural Economy in the RSA (Appendix)

SUMMARY
A commercial bank's presented its perspective on the agricultural economy in South Africa. Worldwide the number of commercial farmers is declining due to new technology and so is the land value per hectare in South Africa. Farming debt stood at R29 billion and the debt ratio per asset was more than 30 percent. More players were entering agricultural farming but the environment was not friendly. The balance between social equity and economic efficiency has to be taken into account when it comes to land reforms and government was urged to get the "right people" in order for the programme to succeed. Crime and AIDS were some of the variables mentioned that needed managing if South Africa was to be an investor destination. Global challenges will force the country to focus on specialization.

MINUTES
Mr Hans Lombard of Hans Lombard Public Relations Consultants, Chair of Absa Bank's Parliamentary Farmers' Day, told Members of the Committee and Agriculture and Land Affairs Minister Didiza that this special occasion was started thirty years ago. He jokingly referred to it as bringing both Agriculture and Parliament under one roof.

Mr Lombard introduced Dr Andre Louw, the presenter. Dr Louw said agriculture was affected by many role-players either directly or indirectly and that South African agriculture plays a significant role in the economy although this is not apparent statistically.

The country's credit rating, when considered as part of SADC, is close to zero but rises a little higher when considered independently, although still not to a desirable level.

South Africa's contribution to the world economy, in GDP terms, is 0,5 percent and requires improving through stabilising macroeconomic policies. The other problem is the 'dualistic society' with both commercial farmers and emerging farmers. Crime and AIDS are other variables that need to be managed in order for South Africa to be an attractive investor destination.

Worldwide the number of commercial farmers is declining due to new means of technological farming. In addition the land value per hectare especially in South Africa is also declining.

The age group that will be most affected by AIDS is between 20 and 45. AIDS-related deaths at workplaces will affect semi-skilled and unskilled workers mostly, but the highly skilled and semi-skilled will not escape.

Dr Louw said South Africa's total farming debt stands at R29 billion and when debt ratio assets exceed 30 percent, as is the case with South Africa, "there's a feeling of what the financial health of this country is."

There are more players entering agricultural farming but the environment is not friendly financially. There are farmers with no debts, and farmers with debts. Dr Louw said if the debt ratio assets exceed 50 percent the country will be in serious trouble.

Dr Louw said the Land Bank has the largest market share in agriculture and noted the fact that it does not subscribe to the Banker's Act of 1990 giving it a privilege over other commercial banks. He felt the Land Bank should play a significant role in assisting emerging farmers.

He appealed for serious cognizance to be taken of the balance between social equity and economic efficiency when it comes to land reform. He said experience has shown that land reform does not succeed and the reason for that could be "levels of dedication to farming or lack of support from government." He urged government to get the "right people in the land" and predicted that is where success would come from.

The fall in land prices is a sign that things are not good in agriculture. Global challenges will sweep across agriculture forcing one to focus on specialization. There is a need to take a wider perspective on AIDS especially in the SADC region in order to manage beyond 2001.

Absa is developing a blue print on agriculture in a document and has 120 people involved in support services in agriculture. The Bank has an equity stake in Khula and is involved in Community Private Partnership whose aim is to assist "different people at different levels."

In his closing remarks, Dr Louw said agricultural business is operating in a hostile and changing environment and that South Africa's challenge is to create an investor-friendly environment that will boost the country's credit rating. He said there is a need for constructive land reform and not land invasion and offered government services of Absa's intellectual capacity and experience.

Discussion
General Viljoen (FF) asked to what extent is Absa involved in land reforms.

In terms of economic efficiency, Dr Louw mentioned fifteen agricultural empowerment projects Absa in which is involved. They will be run by people with experienced managerial skills who are credit worthy with a track record of financial management and knowledge of cash flow. He said these projects are focused on deciduous fruit, dried fruit, olives and so on and will require careful training in a hostile environment is required. The selected candidates will have to be aware of all the variables such as interest rates and loan repayment schedules. In terms social equity, he said the European Union is looking at this problem. He conceded his reply was broad.

Ms Ntuli (ANC) inquired whether Absa is helping small-scale farmers in agricultural financing. Second, she asked what Dr Louw meant by a 'dualistic society'? Third, she requested Absa's role in addressing the AIDS epidemic.

Dr Louw responded that Absa is involved with the National African Farmers' Union (NAFU), a Nafcoc (National African Federated Chamber of Commerce) association, but conceded Absa is focused on profitable clients. "If I lend you R10," he said, "I'd like to get back that R10 with interest." Sound business practice is essential. He mentioned that Absa is financing last year's Woman of the Year. One makes responsible loans that the bank will get back.

On 'dualistic society' he said he meant commercial farmers doing well in a hostile internationally global competitive market and emerging farmers not exposed to this environment.

On AIDS he said the Absa Foundation has three focus areas, one of which is on AIDS.

Prof Ngubane (IFP) noted that in his presentation Dr Louw had left out women, especially those with small holdings in the rural areas, and wondered if the Bank is assisting them with a "little bit of capital?"

Dr Louw conceded that women are "extremely important" in the South African economy. He said there have been efforts to finance more and more women and repeated that the Bank is financing last year's Woman of the Year competition. He said the other way of financing women would be for them to get involved in the Bank's CPP.

In rural areas the Bank is financing a group of women in the former Transkei in growing herbs and organic food. A similar project in KwaZulu-Natal is in its initial stages. There are other means of financing women in rural areas: through the Industrial Development Corporation (IDC), Khula, the Development Bank of Southern Africa (DBSA) and direct foreign investments (DFI).

Adv S Holomisa (ANC) agreed there is a need to balance issues of social equity and economic efficiency when it comes to land reform and also welcomed Absa's request to get involved in the formulation of agricultural policies. He said the Portfolio Committee is always inviting stakeholders to get involved in the arena of policy formulation and wondered if Absa, as a well-resourced stakeholder, could assist in transporting people who are not well resourced to attend these meetings. Second, he asked what caused the value of land to fall by half over the last two years. Third, he asked whether Dr Louw could break down the R29 billion debts per province.

Dr Louw agreed the issue of social equity and economic efficiency when it comes to land reform is complex and difficult to strike a balance. He said Absa has looked into this and decided to sponsor people on a case by case basis.

The decline in the value of land is due to several variables such as labour costs, international costs and crime, which impacts on liquidity. He said investor confidence is down and people are less interested in buying land.

On the R29 billion debt he said statistics per province were not available at this stage but could be eventually. The only breakdown he could give is what the farmers owe lending institutions in percentage terms. For example, 32 percent was owed to Land Bank, commercial banks 37 percent, co-ops 15 percent, and so on.

The Minister's address
The Minister Didiza observed that what was missing in Mr Louw's presentation was information that parliamentarians need to know when interacting with their constituencies, such as what package the bank offers to new entrants.

Minister Didiza said Mr Louw's micro and macro analyses were correct but on the question of social equity and economic efficiency, both factors are an issue. She said the elements involved in land reform are restitution, secure tenure and land settlement. She said some of the people who reclaimed their ancestral lands did so not for agricultural production but for other purposes.

The Minister however said there is a need to help those who want to go into agricultural production. The Khula guaranteed scheme was one such instrument that needed to be examined to see how it can help those new farmers. Agricultural training colleges need also to be challenged to see how they can support those farmers. She mentioned increasing the budget for research purposes whose focus could be on risk management in agriculture.

Minister Didiza said these issues take time and what is needed is dedication from both the government and the public sector. She said there is a trade off in that one has to be prudent and expand the base by bringing in new entrants under secure conditions while allowing others to exit due to other opportunities or age. She conceded that those who are coming in are doing so under tough environmental conditions since the State is also withdrawing its support. The issue is how to deal with new entrants while encouraging competitiveness.

The Minister said the Land Bank is a parastatal, relying on the private sector for financial support. She said if the Bank says the role of the Land Bank is to develop emerging farmers what preferences should this institution employ? Commercial banks' challenge is that the Land Bank has privileges that they do not have and because of that the question is what should the Land Bank's role be? Government is engaged with these issues and how to deal with them.

Conclusion
Adv Holomisa thanked Absa for its presentation and said that recently he had a meeting with the Regional Manager of the Land Bank and a representative from IDC. To him it seemed there was overlap in the products they offered and Land Bank and the IDC would be invited to the Portfolio Committee to elaborate more on the issue.

He also thanked the Bank for offering to transport the "intended beneficiaries who were under resourced" to Parliament to attend some of the Portfolio Committee meetings that concerned them, saying this was the kind of assistance expected under private-public partnership.

The meeting was adjourned.

Appendix