Agricultural Research Council and National Agricultural Marketing Council: Budgets and Strategic Plans

Meeting report

AGRICULTURE AND LAND AFFAIRS PORTFOLIO COMMITTEE
4 March 2005
AGRICULTURAL RESEARCH COUNCIL AND NATIONAL AGRICULTURAL MARKETING COUNCIL: BUDGETS AND STRATEGIC PLANS

Chairperson:

Agricultural Research Council Business Plan 2005/06
National Agricultural Marketing Council Budget for 2005/06

SUMMMARY
The Agricultural Research Council (ARC) presented its Business Plan and budget for 2005/06. Five programmes were identified: Core Strategic Research, Maintenance of National Assets, National Services to the Agricultural Sector, Ring Fence Programmes and Administrative Support. Members expressed some concern over lack of bases for comparison for targets set and questioned apportionment of funds as well as strength of accounting systems. Concerns were raised about loss of clients. The Chairperson raised the issue of documents not being issued to members in good time as unacceptable and unproductive.

The National Agricultural Marketing Council (NAMC) presented its budget to the Committee. Members questioned some of the work the Council was doing and whether it was meaningful, especially with regard to making a difference in improving market access for small farmers. The relevance of the Food Price Monitoring Commission was also questioned. The Council would provide further documentation by the following week.

Agricultural Research Council briefing
Mr Fikile Guma, Group Executive for Horticulture Research and Acting CEO of the ARC, presented the Business Plan of the ARC for the year 2005/06.

The core strategic mandate of the ARC was to conduct national priority driven research and to develop and transfer technology that promoted agriculture and industry. The parastatal also performed other activities: maintenance of national public goods on behalf of the Department of Agriculture and Science and Technology, provision of national services to the agricultural sector, meeting obligations created through ring fence programmes determined by the shareholder and undertaking specified projects.

The strategic overview driving business for the year 2005/06 was the acceleration of delivery of services to previous disadvantaged groups, entailing constant review of investment into research while contending with new models for science councils. Business drivers of the ARC were national legislation and policies and national priorities to grow and maintain competitiveness of the first economy and to grow and modernise the second economy.

Major obstacles were funding pressure and Independent Institutional Reviews. The ARC functioned through five programmes:
Programme 1- Core Strategic Research aimed at conducting applied and adaptive research for developing technologies in cereals and grain crops, fruits and vegetables, livestock production and sustainable use of natural resources. It aimed at improving existing products, developing new products and responding to needs of resource poor farmers through the sustainable livelihoods programme.
Programme 2- Maintenance of National Assets constituted developing the collection and preservation of sources of reference and genetic material.
Programme 3-National Services provided diagnostic, pest and disease surveillance and climate monitoring services to the agricultural sector.
Programme 4-Ring fenced programmes included capacity building and transfer of expertise to SADC and NEPAD countries.
Programme 5-Administration aimed to provide value added support services at a cost, which ensured optimal investment into core operations.

Mr L Gopane, ARC Chief Financial Officer covered funding. Percentage target increases had been set for all programmes. Core strategic funding was R313 million, transfer receipts were R53.5 million, totalling R366 million for the current year. External funds generated were R315 million, adding up to R581.6 million. The budget for this year would be R333.3 million, transfer receipts would be R61.8 million and external funds would approximate R234 million, totalling R629.7 million.

Discussion
Dr A van Niekerk (ANC) said it was difficult for him to evaluate the presentation, as he did not have any documentation to assess it. Based on the 2003-2004 Annual Report he considered this Business Plan mediocre and disappointing. He questioned why the CEO was absent once again this year and whether she was trying to avoid direct questioning. In the previous year’s Annual report the Auditor General had raised concerns about the bookkeeping procedures of the ARC. There had been questions around the ARC not fulfilling requirements in terms of the Finance Act and control deficiencies in terms of rollovers, which had not been approved. He questioned to what extent the Council was performing any meaningful research since the Grain Trust had requested the return of funds to the amount of R5 million and Potato research had terminated its investment and had transferred to Pretoria. The cotton industry had embarked on its own research programme, as it had not been satisfied by the research performed by the Council.

He asked for clarity on the apportionment of salaries. He questioned whether the head office component was not steadily becoming larger than salaries for researchers on the ground. In the Annual Report ex gratia bonuses of up to R150 000 were paid out last year. He asked if these bonuses were budgeted for and whether they were performance based. He asked where the new customers were coming from, since it seemed that existing customers were dissatisfied.

Mr Masithela expressed his own disappointment in the opinions voiced by Dr van Niekerk. He said the Annual Report had been discussed at length in November last year and that there was no need to bring it up in the present forum, except to link up with any specific points in the presentation.

Dr van Niekerk said that the Auditor General had issued direct instructions from which flowed certain requirements, which needed implementation. He wanted to know whether these requirements had been fulfilled.

Ms B Ntuli (ANC) asked for more clarity on the sustainable livelihoods programmes and whether the brochures referred to in the presentation had been issued in the various official languages and to what extent did these programmes reach out to communities in need.

Mr J Bici (UDP) asked what was meant by ring-fenced projects. He commented on the lack of comprehensiveness of the presentation. It did not explain certain significant increases in the budget, specifically the need for significant increases in the budget for infrastructure, nor did it provide a basis of comparison for the targets set by the Council or how these were arrived at. He said that on the whole the presentation did not prove very useful in informing the Committee.

Mr Guma said that such funding was earmarked for specific projects like crop estimation or climate monitoring.

Mr L Gopane said the maintenance and upgrading of infrastructure was ongoing and costly, since competitiveness was accelerating all the time.

Mr Guma added that part of the budget for infrastructure would go towards building a purpose designed building at Roodeplaat for collections of insects presently being held at the Vredehuis building. This building could no longer house these collections.

Mr Guma said brochures had been printed in a limited number of languages like isiZulu and seSotho. These would be expanded upon as soon as resources were available. A guaranteed budget of R20 million was available for the sustainable livelihoods programme. Mr Guma said the ARC was committed to spending 20% of its funding on improving the lot of resource poor farmers in all manners possible. This percentage would be increased incrementally over the years.

Mr Gopane said that the ratio of spending on head office out of the total budget was 6.7% and the ratio of support staff to scientific staff was currently 14.7%. The ARC intended decreasing this down to 12.5%.

Mr Guma said the purpose of this presentation had been to show the way forward and not to comment on the previous year’s performance. The ARC had undergone fundamental changes, which included a basic score card performance monitoring system, which required the achievement of 68% to 71% of specific targets in five key areas. The Auditor General would be measuring the performance of the ARC against these predetermined targets. It was a misconception that the ARC was losing clients. The Maize Trust had recently visited the Grains Institute in Potchefstroom and had declared itself satisfied with the work being done there.

Industries supporting capacity at other research institutes was a normal occurrence since the Council could not satisfy all needs. The ARC had to focus on its niche of expertise and work in conjunction with other universities and research organisations to best serve the agricultural system of South Africa. Mr Guma said the CEO was not trying to avoid anyone, but had returned early from leave for pressing concerns and now had gone back on leave.

He noted that the morale at the ARC had seen a positive shift and that the institute had turned a corner in the last two and a half years. There was a new sense of direction and new projects had had a positive effect on confidence. The accounting system had been greatly improved as well.

Mr Gopane said that all funds received, especially parliamentary grants were supported by specific projects. External funding came with predetermined requirements and because they involved commercial activity certain margins had to be built into the budget. Previously the Council had experienced insufficient funds for the adequate maintenance of infrastructure. This explained the surplus of R6.3 million in the previous report. This had been a buffer. The Council was in continuous engagement with the Auditor General in order to ensure that systems met with his approval. The performance management system contributed towards meeting these requirements.

Mr Ngema (ANC) asked whether the implementation of sustainable staff retention strategies referred to in the presentation was an ongoing measure, as he had seen it mentioned two years ago as well. Since the allocation of resources currently meant that 54.69% of the budget went towards salaries, other strategies to augment funding would have to be found.

Dr E Schoeman (ANC) said it was difficult to make an informed decision about the presentation. He felt the ARC was either trying to convince members that it had received sufficient budget and that it was capable of spending it efficiently or that it required more budget. The members were entitled to know the actual performance of the ARC, rather than merely being fed intended percentage increases in performance areas. He asked that the Committee be furnished with the full Independent Institutional Review. He said that despite the stated intention by the ARC to ensure that the bulk of the budget went towards delivery of services, it nevertheless spent most of its budget on compensation of employees. He said this did not mean that the research component of staff should not be remunerated adequately, but that it disturbed the Committee that top management at the ARC were giving itself unrealistic salary increases, while the research component had to be satisfied with the minimum. He asked why it was that compensation was increasing by 6.5% while goods and services were only increasing by 3.5%. He asked for clarification on the building which was going to house the insect collection at Roodeplaat and whether this was a new or existing building.

Mr Masithela asked what percentage of the Council’s funding went towards remuneration.

Mr D Dlali (ANC) expressed his support for the views of the previous speakers. He referred to the aim by the Council to narrow the gap between the first and second economy of South Africa. Yet at the same time modernisation and increased competitiveness in the first economy was actually widening the gap. He asked how the percentage increases in performance measures had been arrived at and to what extent would the Department go to retain its staff, especially in monetary terms. In other words, would the Department sacrifice funding for infrastructure in order to pay higher salaries.

Mr S Holomisa (ANC) asked if the climate monitoring by the Department was used to warn residents of impending extreme weather conditions. He was aware of a weather station close to an ARC Landcare project, where homesteads had been destroyed by a tornado and the residents had been given no warning.

Mr T Ramphele (ANC) asked what percentage of research was dedicated to benefiting established farmers and what percentage benefited the second economy that was working towards food security. He asked whether any research had been done in the area of hybrid seeds versus traditional seeds, as well as other projects like Fowls for Africa. He referred to the President’s phrase "a confluence of exciting possibilities" indicating a change in focus. He asked to what extent did the Council support this change in focus by supporting small farmers. He asked if the ARC was involved in developing more labour intensive and cheaper alternatives through agricultural engineering or by assisting them with micro-financing. He asked if the Planning of the Budget spoke to emerging and small farmers.

Mr Guma said that issues of job retention did not only revolve around remuneration but were also about job satisfaction. The Department had focused on establishing career paths for certain core staff, in order to build quality capacity in terms of the council’s goals in research and development of technology. It was clear that some scientists could never make good managers and this previously meant that once they had reached a certain level their remuneration potential had reached its limit. This system had been reviewed. He said the allocation of 50% of resources for remuneration was normal and acceptable according to international standards for such councils. The Council had to pay salaries within market norms.

Mr Guma said the Institutional Review Process was one undertaken voluntarily by an institution every three to five years. The Council had gone through such a process and the report would go to the Chairman of the Council at the end of March.

The goods and services referred to in the presentation related to goods and services procured. The increased investment in to services to public and agricultural sector did not necessarily constitute salary increases. The Council intended its core staff not to be outnumbered or outweighed by administrative and finance staff. Increases in management salaries granted by the Council constituted fourteen to twenty percent.

The new building referred to during the presentation was indeed an existing building at Roodeplaat, which would be altered to house the collections presently housed in Pretoria.

Mr Guma admitted that with the acceleration of the first economy together with that of the second economy the gap between the two might not decrease, but without sufficient resources the Council could do only so much towards developing the second economy.

Mr Guma said that the basis on which goals had been selected and percentages ascribed to them would be elaborated upon in future documentation and that the lack of bases for comparison had been noted. Previously comment had been made regarding a surfeit of information provided by the ARC and perhaps as a consequence the Council had gone too far in rectifying that.

The functions of agricultural climate monitoring stations were different to those of weather stations. They measured rainfall, monitored draught conditions and factors like fruit temperature, heat and chilling days, which were all of relevance to the agricultural sector, rather than extreme weather phenomenon. They were responsible for making long- term weather predictions that directly affected farmers in anticipating yield and quality of product. They thus provided a different service.

Regarding the question of hybrid seeds, the Council had been researching open pollinating seeds; the term for traditional seeds, of maize varieties and looking at ways of promoting and propagating them. Certain co-operatives had been involved in producing these seeds from traditional stock, but the process still posed certain challenges.

The Integrated Technical College of Agriculture was engaged in agricultural support. It provided scientific information to farmers. Development of infrastructure occurred at the Institute of Agricultural Engineering in Silverton. Here manually operated labour intensive machinery was being designed, like peanut shelling machines. Development in this area was often a process of reinventing the wheel, because much of South East Asia had already developed suitable machinery, which simply needed to be imported. Another obstacle in this regard was the expectations by small farmers for expensive machinery, rather than more labour intensive and cheaper alternatives.

Mr Masithela said the new board of the National Agricultural Marketing Council (NAMC) had been appointed on 1 March. Mr Mohammad Karaan was the new chairman. Ms Dora Naabe was acting CEO and would be presenting the budget.

National Agricultural Marketing Council briefing
Ms Dora Naaba, Acting CEO, took the Committee through the Council budget. Income had increased from R11.9 million to R13.09 million. Operational expenses had increased substantially due to information management costs. Most costs were in the form of salaries, in order to pay for the Council’s research function in accessing information.

Discussion
Dr E Schoeman questioned the use of monitoring food prices and whether this had any impact on prices. He suggested that monitoring price structures in the milling or fertiliser industries would be more enlightening and that the brief of the Food Price monitoring Commission might be expanded for this purpose.

Mr Bici asked why operational expenses had doubled. He commented that if members had a business plan in front of them they would have a better idea of how funds had been allocated. He asked that the pages of hard copies of presentations be numbered.

Dr A van Niekerk questioned whether the NAMC had any real relevance and whether its functions were not already being carried out by other departments equally well if not better. He said that marketing councils were a legacy of the last dispensation and that most of these councils had been phased out. He asked which of these were in fact still in existence. He asked if the monitoring of food prices had any impact on prices. In which way was the Council assisting small farmers to get their produce to market and had the Council investigated the effect of cheap subsidised and sub quality imports on these farmers and the commercial sector.

Mr Ramphele asked what role the NAMC played in ensuring small farmers fair access to markets and in what way did it aid subsistence farmers in selling surplus stock. He asked if the NAMC provided any infrastructure for this purpose. It seemed that co-operatives were suitable recipients of such assistance.

Mr Masithela asked how the Council intended achieving it objectives and by when. He asked for a strategic business plan by the following week Wednesday. He questioned the value of the outcomes stated in the presentation. Raising levels of awareness and knowledge were not ends in themselves. Farmers needed market access and access to marketing in order to sell their products. Members did not have access to the Food Price Monitoring Report. The Minister had appointed the Price Monitoring Commission. Its parameters would have to be expanded in order to monitor other price structures by the Minister.

Mr Holomisa asked on what basis the NAMC had chosen to report on certain crops or industries above others.

Ms Naaba said there were very few black sorghum or pig farmers. Similarly aquaculture was found in only a few provinces with few black participants.

Mr Dall said that the Council was in the process of investigating the small milling industry and that a report would be due shortly. This study would also look at the impact of cheap imports into the industry. He said the large increase in operational expenses for the coming year was mostly due to information transfer costs. He was not in a position to comment on the relevance of the Council. The Council had improved the opportunities for the developing sector by enforcing and monitoring the implementation of the statutory levy. This levy had been used for transformation by improving market access for developing farmers by halting discriminatory practises. There had been improvement in this regard especially in the deciduous fruit and cattle farming markets. He agreed that food price monitoring probably had very little impact on the price. The Council was still going through a learning curve in this regard. Various boards were still in the process of being wound down, largely because their financial officers were no longer present to sign off the final accounts. They had put forward a proposal to set up a super liquidating board in order to facilitate this process. These boards were no longer functioning.

Ms Naaba said the Council was launching workshops in fresh produce marketing in Limpopo, Eastern Cape, North West and KwaZulu-Natal in the coming week. The number of black agents had increased in this market.

Mr Masithela pointed out that neither Mpumalanga nor the Free State had been included in the NAMC marketing campaigns. He said the Acting CEO and the chair were accountable for ensuring the deliverance of documents as discussed. He asked whether Mr Karaan concurred. Mr Karaan agreed.

Mr Masithela reiterated that as per rulings by the Minister and MECs, budget documents had to be delivered to members at least five days before the hearing, in order to be able to fulfil their oversight responsibility adequately.

The meeting was adjourned.