Agricultural Business Chamber and COSATU on Co-operatives Bill: hearings

Meeting report

TRADE AND INDUSTRY PORTFOLIO COMMITTEE
16 March 2005
AGRICULTURAL BUSINESS CHAMBER AND COSATU ON CO-OPERATIVES BILL: HEARINGS
 

Agricultural Business Chamber submission
Cosatu submission

SUMMARY
The Committee heard a submission on the Co-operatives Bill by the Agricultural Business Chamber (ABC) and spent much of the meeting discussing the two distinctive management modules of proportional voting and one-member-one-vote for co-operatives. The ABC supported the former. Certain Members felt that support for proportional voting was the result of underlying racist views held by some in the co-operatives field. Cosatu presented a preliminary submission towards the end of the meeting, promising to submit a detailed submission within two days. They advocated the one-member-one-vote management system.

MINUTES

Agricultural Business Chamber briefing
The Agricultural Business Chamber advocated that clause 14(e) be amended to allow co-operatives to use their own discretion regarding which management module to use. They advocated proportional voting, which allowed more extensive users of the co-operatives services to have a weighted vote based on the volume of trade they conducted within the co-operatives, over the alternative of employing the one-member-one-vote management paradigm as recommended by the International Labour Organisation (ILO).

Discussion
Mr Martins said that Cosatu’s written submission had not yet been forwarded to the Committee clerk and he was therefore unsure whether they would hear Cosatu’s presentation on that day. There were many similarities between the Agricultural Business Chamber’s presentation and the NCT Forestry Co-operative on the previous day.

Ms F Mohammed (ANC) asked how Mr Doyer viewed the role of the Bill in alleviating poverty, especially with regard to women and children.

Mr Doyer, CEO, said co-operatives were an ideal vehicle for the delivery of social services. A pertinent example was the establishment of co-operative crèches in communities to ensure adequate day care facilities for working parents. Co-operatives were ideal conduits for the poor and marginalised to pool their resources and benefit from bigger economies of scale. In South Africa, 50% of farmers had an annual turn over of less than R300 000. He cautioned government not to take such empowering mechanisms out of the hands of ordinary people.

Mr K Durr (ACDP) asked whether these principles were limited to the agricultural sector or whether they were equally applicable to co-operatives in other sectors.

Mr Doyer agreed that a wide range of co-operatives in various sectors existed throughout world, but that his expertise was primarily within the agricultural sector. Whenever there was differential utilisation of services, questions of proportionality in management soon arose in all sectors.

He said international experience indicated that co-operatives faired best when different government departments championed the co-operatives within their respective sectors. He suggested this model could be followed in South Africa. Co-operatives generated income through their ongoing business transactions. A small proportion of the surplus funds accrued from transactions was generally diverted to sustain the management of the co-operative. In this manner the more successful farmers subsidised the farmers who produced smaller crops.

Mr L Labuschagne (DA) asked whether co-operatives had the right to reserve membership to their organisations, and could thereby exclude certain communities.

Mr Doyer said any person who complied with the statutes of a co-operative, i.e. could utilise the offered services was welcome to join such an organisation. It was important though that the registrar of co-operatives ensured that the constitutions and management policies of co-operatives were not designed to exclude anyone on an unfair basis.

Mr Doyer said the ABC endeavoured to ensure the participation of all segments of the South African population in co-operatives. He admitted though that the situation was still bleak, despite the transformative progress experienced in the previous three years. It was difficult to ensure transformation in co-operatives, in part because of their rural location. It was often challenging to retain highly qualified black co-operative personnel against the lure of better opportunities in the cities.

He said small-scale farmers could participate in the First Economy through pooling their resources and capitalising on their improved negotiating power. The ABC’s co-operative development unit was actively involved in establishing linkages between previously disadvantaged communities and more established large-scale farmers.

Mr S Rasmeni (ANC) asked why more prolific producers and users of co-operatives would not want to have equal votes with members who made less extensive use of co-operative facilities.

Mr Doyer said co-operatives were established as joint communal exercises to gain access to services and markets. An example of this was where farmers pooled their financial resources to buy a processing plant. However in time some farmers inevitably produced and processed more than others and often wished to have a proportional say in the management and marketing strategies of the co-operative. There was no financial gain per se in establishing a co-operative, but members gained access to important services and markets.

Co-operatives enabled small farmers to benefit from economies of scale and gain greater access to valuable business services. Therefore, all members had a personal interest in the well being of a co-operative.
Generally, small businesses were not always as cost efficient as bigger enterprises and therefore the debate between protecting small businesses and promoting efficiency through big enterprises was an ongoing discussion within the developmental field.

Mr Durr asked why so many former co-operatives had opted to become traditional companies in recent years.

Mr Doyer said many reasons could be advanced including that some co-operatives closed shop in order to gain more control over their business strategies by becoming traditional companies. He said providing more frequent users of the co-operative’s services a proportional vote in the management of its affairs served as an incentive for those members to remain within the co-operative. The administration of the proportional voting system was in any case so complex that it was very seldom practised. It was procedurally very difficult to constantly monitor the usage levels and convert that figure into a voting proportion for each member.

Mr Doyer said a former Minister of Agriculture, Mr Derek Hanekom, previously suggested that co-operatives might be nationalised, with the result that many co-operatives converted into companies to avoid nationalisation. He said the real reason, in his view, was an existential crisis within the co-operative movement precipitated by government’s termination of marketing boards in 1991. Co-operatives were compelled to redefine their roles and adjust to new circumstances, prompting many to convert into companies.

Mr M Ngema (IFP) said the presenter seemed to be confusing or oscillating between two distinct principles of co-operatives i.e. the equitable self-determination of members, which distinguished co-operatives from other business modules and catering for capital and thereby rewarding members proportional to their contribution to the co-operative. He asked whether it was economically advantageous for co-operatives and large-scale producers if the latter became independent entities.

Mr Doyer agreed that there was an apparent conflict of principles and therefore the business reality of maximum efficiency needed to be weighed against the desire to have a one-member one-vote management style. He believed the primary objective of co-operative modules was economic empowerment.

Mr Ngema said that co-operatives were established to serve the needs of its members and therefore he felt the decision for or against proportional voting was best left to the co-operative movement itself.

Mr Rasmeni said co-operatives were businesses, not charities, and therefore the DTI was requested to ensure that Black Economic Empowerment (BEE) was achieved in the sector. Initially only a small segment of the community benefited from co-operatives. Now those benefits should be extended to those previously disadvantaged by the previous regime. The Committee was aware that Mr Doyer had the support of a specific constituency whose interest he represented. However, Mr Doyer had failed to convince the Committee of the benefit of proportional voting. The threat that larger producers would leave the co-operative was merely a veil for racist tendencies.

Mr Doyer said the discussion on proportional voting was not a case of racism. Proportional voting in co-operatives had been debated since 1939 when there was no question of black representation. Because proportional voting was a business principle, many countries like Italy, Japan and Germany, which developed very successful co-operatives, employed the proportional voting system.

Mr Doyer agreed that there were advantages and disadvantages to both management modules. There were therefore very few unambiguous answers to many questions raised by the Committee.

Internationally the trend was to establish hybrid co-operatives, which no longer fitted the traditional paradigm of co-operatives. He encouraged the Committee to be pragmatic and apply the best business solution.

Mr Durr said co-operatives appeared to provide access to economies of scale to those who would otherwise not benefit from such market access, such as rural communal farmers. He asked whether wealth creation happened in or outside of the co-operative structure. Over the years of its existence, the co-operatives must have developed some market recognition. He asked what specific amendments the ABC wanted to the Bill.

Mr Doyer said they felt that clause 14(e) should leave the choice of management style to the discretion of individual co-operatives.

Mr L October, DTI Deputy Director-General, said the Department agreed with the need to be pragmatic and not ideological. The DTI wanted to maintain existing co-operative members, but added that those established in any market often felt the tendency to limit new entrants into the market. Perhaps one-member-one-vote could apply in certain areas of management and proportional voting in others.

Cosatu briefing
Mr E Paulus said Cosatu’s submission was not yet ready but promised that a full written submission would be forwarded to the Committee within two days. He said the ‘turnaround time’ for this version of the Bill was not ideal. The first draft of the Bill was discussed in 2001 at the NEDLAC level, where there was broad support for the Bill, although some concerns remained unresolved. The purpose of a co-operative was to promote economic growth and self-reliance as well as to promote equity. Cosatu therefore supported the one-member-one-vote management paradigm.

He quoted George Orwell saying, "one could not have a system where some animals were more equal than others". This he said was in opposition to the principle of equity in co-operatives, which he believed should be as broad-based as possible. He added that a balance was required between state support and not stifling the self-reliance of communities. Cosatu also argued for differentiation between the various forms of co-operatives in different economic sectors.

Discussion
Mr Rasmeni disagreed that the ‘turn around time’ for this version of the Bill was too short and said the public hearings were advertised in sufficient time for all stakeholders to prepare their submissions.

Ms Mohammed said the preliminary document distributed to Members appeared to contain mostly problem statements and few constructive proposals.

Mr Paulus agreed that many issues still required some elaboration but noted that there were some concrete proposals in the document. The recent Cosatu fact-finding tour to Kenya clearly illustrated the need to create a supportive environment for lower-level co-operatives, especially in the start up phase. Cosatu also saw how lower-level co-operatives in Kenya often needed very basic support such as farming equipment and seeds.

Mr Durr said Cosatu appeared to argue for flexibility in their presentation, yet at the same time appear to be quite rigid on the one-member-one-vote management paradigm.

Mr Paulus said according to the ILO standards established on the international best practice for co-operatives, one-member-one-vote was the recommended management module. He saw no reason why this could not apply to SA in an environment where many were actively prevented from engaging in the economy

Mr Labuschagne asked whether the preliminary document distributed to Members was open for discussion or not. The document was labelled ‘not for distribution.’

Mr Martin explained that this was only a draft document and that Cosatu would forward a complete submission within a few days. However, given that this preliminary document was forwarded to the Committee, Members should address the issues raised therein.

Mr Paulus said a separate guide could be developed to explain the requirements for establishing lower-level co-operatives as the Bill was not clear enough on this point for laypersons to readily understand it.

Ms N Maluleke, DTI, said the Department had given much thought to the need for a supportive environment for especially lower-level co-operatives. She said support measures would be implemented during the implementation of the Bill.

Mr Labuschagne referred to the question of insolvent members not being allowed to serve on the Board of Directors as indicated in the Bill and opposed by Cosatu. Insolvency was a status allocated after a judicial process was concluded and did not apply to persons who missed one or two payments of a clothing account.

Mr J Strydom, Senior Law Advisor, confirmed that insolvency was a legal process and that a person would not be declared insolvent for missing a few clothing account payments.

Ms B Ntuli (ANC) asked how a co-operative would be managed if not by a Board of Directors as advocated in Cosatu’s presentation.

Mr Paulus said support institutions such as Apex that served in the interest of co-operatives, should be allowed to retain the word "co-operative" in their name. He cautioned that initially some enterprises established in a ‘co-operative’ spirit would not be able to comply with the Bill’s definitions and requirements.

Mr Ngema said the services that Apex organisations provided to their member co-operatives rendered them under the definition of co-operatives themselves, and there would be no difficulty in their names reflecting that.

Mr Paulus said that if large co-operatives considered it against their interest to remain a co-operative perhaps it was better for them and the economy to transform into companies. The empowerment of people actively excluded from economic activity was at stake.

Mr Durr said the NTC Forestry Co-operative and the ABC both said that proportional voting was the international trend, but Cosatu seemed to dispute this by referring to the ILO best practice recommendations.

Mr Paulus said South Africa could not claim to be an exception to the internationally recommended practice. Perhaps proportional voting worked in OECD countries such as Italy and Spain but given the history of South Africa and Kenya, the one-member-one-vote system should be employed in South Africa.

Ms Ramodibe reiterated her previous question and asked how the government could assist co-operatives if they had no discernible management structure.

Mr Paulus said a former Minister of Trade and Industry acknowledged the importance of stokvels, yet in terms of this Bill stokvels would not be considered co-operatives. He said the Bill needed to include those bodies established in a co-operative spirit even if did not conform to the letter of the current version of the Bill

Mr Ngema said any organisation that did not comply with the Bill’s requirements for co-operatives would not be recognised as such. Such organisations should be encouraged to conform to the requirements of the Bill.

The meeting was adjourned.