Agricultural Research Council and Onderstepoort Biological Products Annual Reports: briefing

Meeting report

AGRICULTURE AND LAND AFFAIRS PORTFOLIO COMMITTEE
2 November 2004
AGRICULTURAL RESEARCH COUNCIL AND ONDERSTEPOORT BIOLOGICAL PRODUCTS ANNUAL REPORTS: BRIEFING

Chairperson: Mr N Masithela (ANC)

Documents handed out:
Agricultural Research Council Annual Report 2003-2004 - PowerPoint presentation
Agricultural Research Council Financial Report 2003-2004 - PowerPoint presentation
Onderstepoort Biological Products - PowerPoint presentation

SUMMARY
The Committee was briefed on the Annual and Financial Reports (2003-2004) of the Agricultural Research Council (ARC)and Onderstepoort Biological Products (OBP). The Committee expressed dissatisfaction with various activities and results emanating from the ARC reports, including non-compliance with the law and questions regarding salary policies. The Chair requested a draft programme from the ARC to arrange a meeting with the Committee within the next two weeks. The Committee commended the OBP for effective performance levels and continued growth. Members raised concerns about auditing and marketing strategies.

MINUTES

Agricultural Research Council briefing
Mr Fikile Guma, Group Executive: Horticulture introduced Mr Lazarus Gopane (Chief Financial Officer) and apologised for the absence of their Chief Executive Officer, Dr Tau-Mzamane. Mr Guma briefed the Committee on the ARC's Annual Report for 2003-2004 while Mr Gopane led the briefing on the ARC's Financial Report.

Discussion
The Chairperson commented that it was unacceptable for the ARC to not comply with laws. It was the Committee's responsibility to address policy issues. He requested the Committee to restrict discussion to the contents of the Annual and Financial Reports.

Mr A Nel (DA) referred to total expenditure of R7.8 million on salaries and asked for an explanation for increases of up to 73% in the salaries of executive managers.

Dr R Schoeman (ANC) pointed out a concurrent lack in salary increases for ARC staff. He also requested a reason for the decrease in the number of Farmers' Days. Thirdly, he expressed dissatisfaction at a decrease in research output, including the production of popular and scientific publications.

Dr A van Niekerk (DA) also found the reduced scientific output troubling. He expressed intense dissatisfaction at the lack of performance by the ARC, mentioning failing infrastructure and a current court case involving researchers. He noted the ARC's focus on applied research and asked whether any basic research was still conducted. He also asked whether the ARC was still able to assist basic agriculture in the country.

The Chair replied that some of the questions were adequately dealt with in the reports and reminded the Committee to focus on issues contained within these reports.

Mr Gopane conceded that ARC staff salary increases were lagging behind at 7%. He explained that the base salary of executive managers had not changed over the past two years. The observed increases were due to bonus provisions in their contracts.

Mr Schoeman asked what these bonuses were based on as he did not see adequate performance levels. Mr Gopane replied that there was no system of performance evaluation. It was an ex pro ratia bonus, contained within a two-year work contract with no increases.

In reply to the question of reduced research output, Mr Guma highlighted the demographics of the scientific base. He stated that the impact on productivity was the result of a process of many years, but that the ARC was implementing new programmes in conjunction with the Department of Science and Technology to build workforce capacity.

With regards to Farmers' Days, Mr Guma stated that there had been an increase in participation by farmers and the provisioning of information from the ARC by utilisation of local agricultural departments.

Mr Guma agreed that the ARC required help from the Department of Agriculture in certain areas of concern. He declined to discuss the court case mentioned by Mr van Niekerk, since it had not been settled. Mr Guma further acknowledged under-utilisation of properties, explaining that the ARC had difficulties maintaining infrastructure given their funds.

Mr J Bici (UDM) asked what was happening in the Eastern Cape with regards to irrigation schemes. He also asked how technology transfer activities were benefiting small farmers and where in the Eastern Cape this was taking place.

Mr Guma replied that the irrigation schemes were mostly run in the Limpopo province. Although there were currently no direct activities and project support aimed at existing Eastern Cape schemes, he felt that experience gained in the Limpopo province would be of value in future programmes.

On the issue of technology transfer activities, Mr Guma outlined the mechanism used to reach farmers. He explained that the agricultural extension services were responsible for the bulk of transfer activities. The ARC thus strengthened the formal engagement of information transfer. The ARC was also creating a "virtual academy" of information that could be accessed by provincial extension officers for transfer to farmers. Lastly, agricultural manuals were currently being translated from English and Afrikaans to, amongst other languages, IsiZulu, SeSotho and SePedi for easier access.

Mr B Radebe (ANC) wanted to know where the R90 million was obtained from that was listed as "other activities" under external funding sources. He also inquired how the ARC interacted with an organisation like the National African Farmer's Union (NAFU) in training and development programmes.

Mr Gopane conceded that a better break-down of figures should be provided in future reports. To the second question, Mr Guma replied that advisory panels met twice a year and then interacted with the group executives responsible for programmes. He recognised that more grass root level participation was needed to voice the concerns of farmers. He stated that the ARC was currently hosting NAFU, and that this was a work in progress.

Mr T Ramphele (ANC) asked what structures and strategies were in place to disseminate skills in the country. He also asked whether research was done on crops, livestock and drought-resistant products for rural communities for potential commercialisation. The Chair mentioned that commercialisation was not a function of the ARC.

Mr Guma noted that the first question had already been addressed, but added that the ARC was looking at disseminating information at community centres equipped with computers and the Internet.

On the issue of research, Mr Guma noted their programme on "orphan crops" that focussed on indigenous crops that were neglected in earlier research. The aim of the programme was to diversify the country's food base to ensure food availability to all. He also mentioned that the ARC supported the use of indigenous livestock breeds, but needed more funding in this regard.

The following questions were also raised: How ARC achievements affected the "lower" persons in the industry? Had the ARC's occupational grouping improved? Was the ARC mindful that standards were not compromised in the process of attaining targets?

Mr Guma replied that the ARC was on target with regards to equity employment and representing the country's diversity. The Chair requested an exact break-down of these figures as they currently stood.

Mr Schoeman referred to the importance of securing contract research to generate external income, and a drop in this income ascribed to loss of research capacity in the previous year. He noted that the ARC only budgeted for R14 million this year, yet received R112 million, and asked whether this represented a shift in focus or whether it was simply a printing error. Mr Gopane replied that it was simply a printing error.

The Chair ended the session and requested submission of a draft programme within two weeks for the Committee to visit the ARC and engage them on pressing issues. He expressed a need to meet with the Board of Directors to discuss bonus and salary policies and stated that ensuring adequate salaries to retain the workforce had been mentioned to the ARC before and that it was unacceptable to have to address this again. The Chair also voiced his dissatisfaction with instances of non-compliance with the law, warning against the setting of precedents. He lastly cautioned that the ARC had to maintain high standards while extending their services to previously disadvantaged communities.

Onderstepoort Biological Products briefing
Dr Linda Makuleni, Managing Director, introduced Mr S Makama (Board Chairperson), Ms S Bokwe (Human Resources) and Mr P van Jaarsveld (General Manager: Finance) and led the briefing on the Annual and Financial Reports. It was shown that, despite being condemned as a "loss to the State" before 2000, the OBP had grown considerably and had acquired specialised skills to grow into a successful, self-funded organisation.

Discussion
The Chairperson noted that OBP's employment equity breakdown looked good, but that information was missing on the status of differently-abled people.

Ms B Ntuli (ANC) wanted clarity on why an internal auditor had not been appointed for the full financial year. She also asked for clarity on the process of price depreciation and asked what had happened to old equipment.

Dr Makuleni replied that the person appointed as auditor faced the challenge of a managerial position in a new department with not all people reporting back directly. The board was also reviewing salaries and KPMG was appointed to ensure compliance with the Public Finance Management Act (PFMA). At this point OBP had appointed an internal auditor.

On the issue of price depreciation, Mr van Jaarsveld stated that it was company policy to start price depreciation of acquired assets upon purchase. "Used up" equipment could not depreciate further and was rated as zero in the balance sheet.

The Chair asked what had been done with outdated and replaced equipment, for instance computers. Mr Van Jaarsveld responded that the equipment had been donated to institutions like schools to fulfil social policies. Dr Makuleni added that OBP had a clear disposal policy: the Board and, depending on the asset value, shareholders decided to whom equipment would be donated

Mr Bici asked for examples of capital expenditure. Mr van Jaarsveld mentioned the acquisition of computers and a centrifuge, and construction of the small animal holding facility.

Mr M Ngema (IFP) asked why net profit for this financial year was R2 million less than the previous year, considering the OBP's overall success. Both Dr Makuleni and Mr van Jaarsveld referred to placing a "lot of money" in new investments, most notably for a large export order from Italy.

Mr Schoeman congratulated OBP on its performance, expressing his gratitude for and recognition of a company that was successful. He was curious about the remuneration comparison and asked why the top executives appeared to be receiving less.

Dr van Niekerk endorsed Mr Schoeman's words of congratulation, stating that OBP was beneficial to agriculture. He asked whether OBP had any interaction with Botswanean facilities to develop vaccines. He also enquired whether the drop in local sales could be attributed to climate or competition levels. Mr van Niekerk asked whether there were signs of rinderpest re-emerging in the country or whether the development of treatment was a precautionary measure.

Dr Makuleni stated that there was no current threat of rinderpest, but that it would be irresponsible not to recognise the threat of a disease still prevalent in East Africa. OBP also utilised expertise in a precautionary manner and simultaneously created export opportunities within the continent.

On the question of a drop in local sales, Dr Makuleni replied that it was reflective of an aggressive budget instead of representing a real decline as OBP had only reached 96% of its projected budget.

Mr Nel further questioned the increase in export sales and asked whether it was the result of positive marketing. He also enquired where the goods were going.

Dr Makuleni confirmed meeting with key international institutions, especially in Europe, that specialised in exotic diseases. These initiatives were embarked on to advertise the quality products and expertise at OBP. She noted that it was necessary for OBP's survival to get a foothold in the international market. Dr Makuleni added that significant experience was gained via interaction with various government departments.

Mr D Dlali (ANC) quoted sections in the annual report that suggested it was not possible to judge whether OBP resources were used effectively and efficiently due to the absence of an internal auditor and asked whether the results did not speak for themselves. Secondly, Mr Dlali referred to a description of OBP as "self-funded" and questioned whether this meant that OBP disregarded a R9 million allocation from government. Thirdly, he asked for clarification of the heading "trade payables" under "Liabilities". Lastly, Mr Dlali asked why leave pay provision had decreased this year, but bonuses and salaries had increased from zero to R4 million.

Mr van Jaarsveld replied that OBP was self-funding and that the government grant was a specific grant used for construction of the animal facility. The Committee debated the point that a grant was given nevertheless and that this could not be disregarded and should be acknowledged.

Mr van Jaarsveld explained that "trade payables" referred to creditors as different suppliers to the company paid different amounts on a monthly basis.

On the issue of bonuses, Dr Makuleni stated that OBP had put severe pressure on people in the organisation to achieve results. She said that employees were awarded for performance as had happened when a large export order was delivered successfully.

Mr Radebe asked why people had not been appointed in marketing and export positions since OBP had successfully penetrated the international market. He pointed out that they dealt with a niche market and could protect the company and enhance their performance with such appointments. Secondly, he asked whether it was possible to outsource auditing to a historically disadvantaged company instead of using KPMG.

Dr Makuleni responded that OBP had appointed two people in Marketing, including a Marketing Manager, but he had resigned and OBP was looking at recruiting someone new from the Sales Division. She expressed the need to build in-house capacity since they were selling highly specialised products and the appointed person had to be able to handle technical questions.

On the issue of auditors, Mr van Jaarsveld replied that KPMG were compliant with OBP policies, showing a track record of efficiency and effectiveness. OBP required more marketing in the broad society, since black organisations did not always respond to tenders.

Mr Makana made a quick closing statement emphasising OBP's responsibility to maintaining quality and ensuring the continuance of growth and development, noting the particular importance of the export market.

The meeting was adjourned.

AGRICULTURE AND LAND AFFAIRS PORTFOLIO COMMITTEE
2 November 2004
AGRICULTURAL RESEARCH COUNCIL AND ONDERSTEPOORT BIOLOGICAL PRODUCTS ANNUAL REPORTS: BRIEFING

Chairperson: Mr N Masithela (ANC)

Documents handed out:
Agricultural Research Council Annual Report 2003-2004 - PowerPoint presentation
Agricultural Research Council Financial Report 2003-2004 - PowerPoint presentation
Onderstepoort Biological Products - PowerPoint presentation

SUMMARY
The Committee was briefed on the Annual and Financial Reports (2003-2004) of the Agricultural Research Council (ARC)and Onderstepoort Biological Products (OBP). The Committee expressed dissatisfaction with various activities and results emanating from the ARC reports, including non-compliance with the law and questions regarding salary policies. The Chair requested a draft programme from the ARC to arrange a meeting with the Committee within the next two weeks. The Committee commended the OBP for effective performance levels and continued growth. Members raised concerns about auditing and marketing strategies.

MINUTES

Agricultural Research Council briefing
Mr Fikile Guma, Group Executive: Horticulture introduced Mr Lazarus Gopane (Chief Financial Officer) and apologised for the absence of their Chief Executive Officer, Dr Tau-Mzamane. Mr Guma briefed the Committee on the ARC's Annual Report for 2003-2004 while Mr Gopane led the briefing on the ARC's Financial Report.

Discussion
The Chairperson commented that it was unacceptable for the ARC to not comply with laws. It was the Committee's responsibility to address policy issues. He requested the Committee to restrict discussion to the contents of the Annual and Financial Reports.

Mr A Nel (DA) referred to total expenditure of R7.8 million on salaries and asked for an explanation for increases of up to 73% in the salaries of executive managers.

Dr R Schoeman (ANC) pointed out a concurrent lack in salary increases for ARC staff. He also requested a reason for the decrease in the number of Farmers' Days. Thirdly, he expressed dissatisfaction at a decrease in research output, including the production of popular and scientific publications.

Dr A van Niekerk (DA) also found the reduced scientific output troubling. He expressed intense dissatisfaction at the lack of performance by the ARC, mentioning failing infrastructure and a current court case involving researchers. He noted the ARC's focus on applied research and asked whether any basic research was still conducted. He also asked whether the ARC was still able to assist basic agriculture in the country.

The Chair replied that some of the questions were adequately dealt with in the reports and reminded the Committee to focus on issues contained within these reports.

Mr Gopane conceded that ARC staff salary increases were lagging behind at 7%. He explained that the base salary of executive managers had not changed over the past two years. The observed increases were due to bonus provisions in their contracts.

Mr Schoeman asked what these bonuses were based on as he did not see adequate performance levels. Mr Gopane replied that there was no system of performance evaluation. It was an ex pro ratia bonus, contained within a two-year work contract with no increases.

In reply to the question of reduced research output, Mr Guma highlighted the demographics of the scientific base. He stated that the impact on productivity was the result of a process of many years, but that the ARC was implementing new programmes in conjunction with the Department of Science and Technology to build workforce capacity.

With regards to Farmers' Days, Mr Guma stated that there had been an increase in participation by farmers and the provisioning of information from the ARC by utilisation of local agricultural departments.

Mr Guma agreed that the ARC required help from the Department of Agriculture in certain areas of concern. He declined to discuss the court case mentioned by Mr van Niekerk, since it had not been settled. Mr Guma further acknowledged under-utilisation of properties, explaining that the ARC had difficulties maintaining infrastructure given their funds.

Mr J Bici (UDM) asked what was happening in the Eastern Cape with regards to irrigation schemes. He also asked how technology transfer activities were benefiting small farmers and where in the Eastern Cape this was taking place.

Mr Guma replied that the irrigation schemes were mostly run in the Limpopo province. Although there were currently no direct activities and project support aimed at existing Eastern Cape schemes, he felt that experience gained in the Limpopo province would be of value in future programmes.

On the issue of technology transfer activities, Mr Guma outlined the mechanism used to reach farmers. He explained that the agricultural extension services were responsible for the bulk of transfer activities. The ARC thus strengthened the formal engagement of information transfer. The ARC was also creating a "virtual academy" of information that could be accessed by provincial extension officers for transfer to farmers. Lastly, agricultural manuals were currently being translated from English and Afrikaans to, amongst other languages, IsiZulu, SeSotho and SePedi for easier access.

Mr B Radebe (ANC) wanted to know where the R90 million was obtained from that was listed as "other activities" under external funding sources. He also inquired how the ARC interacted with an organisation like the National African Farmer's Union (NAFU) in training and development programmes.

Mr Gopane conceded that a better break-down of figures should be provided in future reports. To the second question, Mr Guma replied that advisory panels met twice a year and then interacted with the group executives responsible for programmes. He recognised that more grass root level participation was needed to voice the concerns of farmers. He stated that the ARC was currently hosting NAFU, and that this was a work in progress.

Mr T Ramphele (ANC) asked what structures and strategies were in place to disseminate skills in the country. He also asked whether research was done on crops, livestock and drought-resistant products for rural communities for potential commercialisation. The Chair mentioned that commercialisation was not a function of the ARC.

Mr Guma noted that the first question had already been addressed, but added that the ARC was looking at disseminating information at community centres equipped with computers and the Internet.

On the issue of research, Mr Guma noted their programme on "orphan crops" that focussed on indigenous crops that were neglected in earlier research. The aim of the programme was to diversify the country's food base to ensure food availability to all. He also mentioned that the ARC supported the use of indigenous livestock breeds, but needed more funding in this regard.

The following questions were also raised: How ARC achievements affected the "lower" persons in the industry? Had the ARC's occupational grouping improved? Was the ARC mindful that standards were not compromised in the process of attaining targets?

Mr Guma replied that the ARC was on target with regards to equity employment and representing the country's diversity. The Chair requested an exact break-down of these figures as they currently stood.

Mr Schoeman referred to the importance of securing contract research to generate external income, and a drop in this income ascribed to loss of research capacity in the previous year. He noted that the ARC only budgeted for R14 million this year, yet received R112 million, and asked whether this represented a shift in focus or whether it was simply a printing error. Mr Gopane replied that it was simply a printing error.

The Chair ended the session and requested submission of a draft programme within two weeks for the Committee to visit the ARC and engage them on pressing issues. He expressed a need to meet with the Board of Directors to discuss bonus and salary policies and stated that ensuring adequate salaries to retain the workforce had been mentioned to the ARC before and that it was unacceptable to have to address this again. The Chair also voiced his dissatisfaction with instances of non-compliance with the law, warning against the setting of precedents. He lastly cautioned that the ARC had to maintain high standards while extending their services to previously disadvantaged communities.

Onderstepoort Biological Products briefing
Dr Linda Makuleni, Managing Director, introduced Mr S Makama (Board Chairperson), Ms S Bokwe (Human Resources) and Mr P van Jaarsveld (General Manager: Finance) and led the briefing on the Annual and Financial Reports. It was shown that, despite being condemned as a "loss to the State" before 2000, the OBP had grown considerably and had acquired specialised skills to grow into a successful, self-funded organisation.

Discussion
The Chairperson noted that OBP's employment equity breakdown looked good, but that information was missing on the status of differently-abled people.

Ms B Ntuli (ANC) wanted clarity on why an internal auditor had not been appointed for the full financial year. She also asked for clarity on the process of price depreciation and asked what had happened to old equipment.

Dr Makuleni replied that the person appointed as auditor faced the challenge of a managerial position in a new department with not all people reporting back directly. The board was also reviewing salaries and KPMG was appointed to ensure compliance with the Public Finance Management Act (PFMA). At this point OBP had appointed an internal auditor.

On the issue of price depreciation, Mr van Jaarsveld stated that it was company policy to start price depreciation of acquired assets upon purchase. "Used up" equipment could not depreciate further and was rated as zero in the balance sheet.

The Chair asked what had been done with outdated and replaced equipment, for instance computers. Mr Van Jaarsveld responded that the equipment had been donated to institutions like schools to fulfil social policies. Dr Makuleni added that OBP had a clear disposal policy: the Board and, depending on the asset value, shareholders decided to whom equipment would be donated

Mr Bici asked for examples of capital expenditure. Mr van Jaarsveld mentioned the acquisition of computers and a centrifuge, and construction of the small animal holding facility.

Mr M Ngema (IFP) asked why net profit for this financial year was R2 million less than the previous year, considering the OBP's overall success. Both Dr Makuleni and Mr van Jaarsveld referred to placing a "lot of money" in new investments, most notably for a large export order from Italy.

Mr Schoeman congratulated OBP on its performance, expressing his gratitude for and recognition of a company that was successful. He was curious about the remuneration comparison and asked why the top executives appeared to be receiving less.

Dr van Niekerk endorsed Mr Schoeman's words of congratulation, stating that OBP was beneficial to agriculture. He asked whether OBP had any interaction with Botswanean facilities to develop vaccines. He also enquired whether the drop in local sales could be attributed to climate or competition levels. Mr van Niekerk asked whether there were signs of rinderpest re-emerging in the country or whether the development of treatment was a precautionary measure.

Dr Makuleni stated that there was no current threat of rinderpest, but that it would be irresponsible not to recognise the threat of a disease still prevalent in East Africa. OBP also utilised expertise in a precautionary manner and simultaneously created export opportunities within the continent.

On the question of a drop in local sales, Dr Makuleni replied that it was reflective of an aggressive budget instead of representing a real decline as OBP had only reached 96% of its projected budget.

Mr Nel further questioned the increase in export sales and asked whether it was the result of positive marketing. He also enquired where the goods were going.

Dr Makuleni confirmed meeting with key international institutions, especially in Europe, that specialised in exotic diseases. These initiatives were embarked on to advertise the quality products and expertise at OBP. She noted that it was necessary for OBP's survival to get a foothold in the international market. Dr Makuleni added that significant experience was gained via interaction with various government departments.

Mr D Dlali (ANC) quoted sections in the annual report that suggested it was not possible to judge whether OBP resources were used effectively and efficiently due to the absence of an internal auditor and asked whether the results did not speak for themselves. Secondly, Mr Dlali referred to a description of OBP as "self-funded" and questioned whether this meant that OBP disregarded a R9 million allocation from government. Thirdly, he asked for clarification of the heading "trade payables" under "Liabilities". Lastly, Mr Dlali asked why leave pay provision had decreased this year, but bonuses and salaries had increased from zero to R4 million.

Mr van Jaarsveld replied that OBP was self-funding and that the government grant was a specific grant used for construction of the animal facility. The Committee debated the point that a grant was given nevertheless and that this could not be disregarded and should be acknowledged.

Mr van Jaarsveld explained that "trade payables" referred to creditors as different suppliers to the company paid different amounts on a monthly basis.

On the issue of bonuses, Dr Makuleni stated that OBP had put severe pressure on people in the organisation to achieve results. She said that employees were awarded for performance as had happened when a large export order was delivered successfully.

Mr Radebe asked why people had not been appointed in marketing and export positions since OBP had successfully penetrated the international market. He pointed out that they dealt with a niche market and could protect the company and enhance their performance with such appointments. Secondly, he asked whether it was possible to outsource auditing to a historically disadvantaged company instead of using KPMG.

Dr Makuleni responded that OBP had appointed two people in Marketing, including a Marketing Manager, but he had resigned and OBP was looking at recruiting someone new from the Sales Division. She expressed the need to build in-house capacity since they were selling highly specialised products and the appointed person had to be able to handle technical questions.

On the issue of auditors, Mr van Jaarsveld replied that KPMG were compliant with OBP policies, showing a track record of efficiency and effectiveness. OBP required more marketing in the broad society, since black organisations did not always respond to tenders.

Mr Makana made a quick closing statement emphasising OBP's responsibility to maintaining quality and ensuring the continuance of growth and development, noting the particular importance of the export market.

The meeting was adjourned.