Khula and Agriculture Research Council Annual Reports: briefings

Meeting report

AGRICULTURE AND LAND AFFAIRS PORTFOLIO COMMITTEE
31 October 2006
KHULA AND AGRICULTURE RESEARCH COUNCIL ANNUAL REPORTS: BRIEFINGS
 

Khula Land Reform Empowerment Fund Annual Report 2005/06: Briefing
Agriculture Research Council Annual Report 2005/06: Briefing
Agriculture Research Council Annual Report 2005/06 (available later at www.arc.agric.za)
Agriculture Research Council Annual Report 2005/2006: Analysis

SUMMARY
The Khula Land Reform Empowerment Fund (KLREF) reported on the mandate and goals of the organisation. Funding was currently channelled through commercial banks and divided between share equity schemes and mortgage loans. Some provinces had been receiving a larger share of the loans than others. Khula challenges included the need to grow the fund in order to be sustainable, and promoting skills development for the staff running projects.

Members’ concerns included the use of commercial banks as intermediaries, and the lack of post-funding support and mentorship.

The Committee then heard a briefing by the Agricultural Research Council (ARC) on its Annual Report. This presentation covered their goals and mission statement, annual financial statements, a human resources overview, and research and development progress. Some of their challenges included placing more emphasis on basic, rather than applied, research; and sorting out the problems pointed out by the Auditor-General in the latest qualified report.

Members’ concerns included the high performance bonuses paid to staff. They wanted to know more about research into climate change and soil erosion, and unused research facilities. Members could not understand the reason for the ARC firing and rehiring the same employee and thus wasting money in the process.

MINUTES

Khula Land Reform Empowerment briefing
Mr G Mothua, Khula LREF, explained the mandate of his organisation and the purpose of this Land Reform Empowerment Fund. Goals included the broadening of previously disadvantaged individuals’ capacity to own, manage and control land-based agricultural assets, and the facilitation of land purchase. Target areas were agriculture, agro-processing and eco-tourism. The funding was divided into mortgage loans and equity share loans. The application process required funds to be channelled through the retail financial intermediaries before they reached the borrower. Marketing of services had inadequate ‘reach’.

Provincial allocation was highest in the Western Cape, followed by KwaZulu-Natal (KZN) and Mpumalanga. The projects had empowered more women as shareholders and facilitated job creation. He also mentioned their Black Economic Empowerment (BEE) ‘scorecard’ and related projects in the pipeline. Banks that participated in the scheme included ABSA, Standard, Nedbank and Ithala Bank. The business plan prioritised achieving a more balanced provincial spread and portfolio mix. Khula wanted to grow and sustain the LREF.

Discussion
Adv P Holomisa (ANC) asked why Khula channelled the money through banks with high interest rates. Mr Mothoa replied that Khula had always channelled funds through commercial banks, but the strategy had not been successful. Khula would thus start lending directly to borrowers, and such a pilot project was running in the North West Province.

Mr Lucas (ANC) asked about the kind of support given to loan recipients. Mr Mothoa replied that the Thuso Mentorship Scheme helped borrowers with the required skills and expertise. In Limpopo province, some farmers had gone to America for training in winemaking.

Mr Ditshetelo (UCDP) enquired why ABSA was the leading bank in providing loans to the agricultural sector. How did Khula ensured the safety of their investments?

Mr Mothoa replied that ABSA had a long history of dealing with the agricultural sector. The unit dealing with agriculture had been transformed and was working closely with Khula. Ithala Bank in KwaZulu-Natal had been funding emerging farmers. The mentorship programmes ensured that these farmers were not ‘set up to fail’.

Mr D Dlali enquired about Khula’s marketing strategy. He felt that their target market did not know about the organisation. He also wanted to know what had been done to areas where Land Redistribution for Agricultural Development (LRAD) had failed. He further enquired about the remuneration of boardmembers.

Mr Mothoa replied that Khula used radio programmes on various stations to market their services. The Landbou Weekblad was also used as a marketing tool. ELRAD had been most successful in the Western Cape, Eastern Cape and KwaZulu-Natal

Mr S Abraham (ANC) asked why Khula was holding so much liquid cash. He also wanted to know more about the eco-tourism projects, and their relationship with the Micro-agricultural Finance Initiative of SA (MAFISA). He enquired further about the interest rates charged; more on the BEE scorecard; the Land Bank’s rating for borrowers into Silver, Gold and Platinum categories. He asked how Khula rated their clients. He lastly mentioned an article published by the Landbou Weekblad on 3 November 2006 entitled "Why Empowerment Fails".

Mr Mothoa was unable to answer questions on the remuneration of boardmembers, as his speciality was agri-business. The partnership with MAFISA was an ongoing process. There were eco-tourism projects in different provinces, but most were in the Western Cape. He cited the example of the Thandi farmstalls in the Cape.

Mr Abrahams said that Members needed answers to questions that emanated from the report. Mr Dlali said that Khula had an obligation to answer all questions posed by the Committee. Mr Mothoa said that he would ensure that his principals responded to all the questions as soon as possible.

Agricultural Research Council briefing
Dr S Moephuli, ARC Chief Executive Officer (CEO), mentioned the goals and the mission of the ARC. These included conducting research, and developing and transferring technology that promoted agriculture. The ARC had four research divisions, namely covering grains and industrial crops, horticulture, livestock, and public support services. He mentioned achievements in all four divisions.

His human resources overview included the quality and development of scientific capacity, and an analysis of staff currently enrolled in Masters and Doctoral programmes. During the financial overview, he described the assets and liabilities of the organisation, and the seven-year review . The Auditor-General’s Report had been qualified and he mentioned ‘Emphases of Matter’.

Discussion
Mr Abrahams complimented the Bonsmara Bull research, and suggested the ARC research Nguni cattle so that these could produce more milk and meat. He felt that research had to be done on the new breed of weed destroying grazing land. He suggested the ARC hand over extra livestock used for research to poor communities. He also asked whether the ARC was currently involved in litigation.

Dr Moephuli replied that an employee had been under the impression that her contract would be extended, and then took legal action.

Dr L Mbade, Group Executive of Livestock, noted Mr Abrahams’ suggestion about the Nguni cattle. The ARC had been giving surplus livestock to emerging farmers.

Adv Holomisa asked whether the ARC had been receiving the Parliamentary grant through the Department of Agriculture or the Department of Science. Mr Changfoot, Acting Chief Financial Officer, replied that the grant was channelled through the Department of Agriculture.

Mr A Van Niekerk (DA) congratulated the CEO for their work. He asked more about research into climate change; and how much money came from sources outside of government. He was concerned about the money wasted on legal costs when the ARC fired the Group Executive of Business Development, and she was then rehired. He further wanted to know the criteria for contract performance bonuses. He cited the example of Dr N Tau-Mzamane who had been off work for a long time, but had received a performance bonus. He asked for clarity on the neglected research facility in Citrusdal.

Dr Moephuli replied that salaries and performance bonuses stemmed from the package negotiated between the particular executive and the Board. The Council for Conciliation, Mediation and Arbitration (CCMA) had authorised the rehiring of the person mentioned and the ARC had had to pay the legal costs. On another issue, he said scientiests’ salaries had not increased for a while, so some had left for university posts funded by the private sector. The lack of funds had resulted in some of the research projects being cut, such as the one in Citrusdal.

Dr B Molope, Group Executive of Public Support Services, explained that South Africa was a signatory of the Kyoto Protocol, and research was being done into the effects of climate change by the Department of Environment Affairs and Tourism, and the SA Weather Services.

Mr Dlali asked for clarity on the Land Care Programme in Mpumalanga, and what was being done to address the problem of soil erosion. He reiterated Mr Van Niekerk’s concern about rehiring a person that had been fired, and about the performance bonuses. He enquired the reason for such weaknesses in internal control.

Dr B Molope replied that the ARC was using the skills transfer programme to address soil erosion and empower rural communities.

Mr Changfoot explained that the weak internal control systems were a result of four problems, namely with revenue recognition principles, inventory management, budget processes, and segregation of duties in journal processing. He promised that the issues pointed to by the Auditor-General would be sorted out.

Dr Moephuli said that South Africa needed to invest more in basic research that might sometimes not be readily applicable, rather than applied research. Basic research often led to innovations that would benefit the country in the long-run. For example, innovative research was being done into convergence of Information and Communication Technologies.

Adoption of Committee Meeting Minutes of 29 August 2006.
The Committee then went through the minutes of their meetings held on 29 August, 19 September and 10 October 2006. Mr Abrahams suggested a few technical corrections, and the minutes were unanimously adopted for the first two meetings. With regards to the minutes of 10 October, Mr A Nel (DA) said that some deliberations had been omitted on page 5. Mr Dlali referred the minutes back to the Committee Secretary to sort out the errors. The Committee agreed to adopt those minutes at a later date.

The meeting was adjourned.