Comprehensive Agriculture Support & Mafisa Funding Programmes: Agriculture Department briefings

Meeting report

Comprehensive Agricultural Support Programme (CASP) Briefing by Department of Agriculture (DOA)
Mr Masiphula Mbongwa, Director-General, Department of Agriculture, accepted the Chairperson’s criticism that the Department had not sent to the Committee copies of the presentations some days in advance and apologised.

Mr Mbongwa said that the Department was shifting its focus to the quality of spending in the Comprehensive Agricultural Support Programme (CASP). This programme was a support service to farmers as part of the agrarian and land reform programme. To this end, the Department had restructured its relationship with the provinces.

Dr Sizwe Mkhize, Acting Deputy Director-General, Department of Agriculture, said that CASP was a Departmental initiative, begun in the financial year 2004/2005, to support provincial departments of agriculture (PDAs) to create a favourable environment for emerging farmers and to expand provision of support services for the development of agriculture. CASP had six pillars: information and knowledge management; technical and advisory assistance, and regulatory services; training and capacity building; marketing and business development; on-farm and off farm infrastructure and production inputs; and financial assistance. CASP accounted for only 15% of the farmer support budget.

Medium Term Expenditure Funding (MTEF) allocations to CASP had risen from R200 million in 2004/2005 to R415 million in 2007/2008. For 2008/2009 a budget allocation of R535 million was projected, rising to R758 million in 2010/2011. The Department projected that it would be growing even further in the future.

Figures taken from the National Treasury’s provincial budget review for 2006/2007 indicated that CASP support to farmers versus equity, expressed as a percentage of total funding, ranged from 9% (R50 million CASP support) in Limpopo to 33% (R25 million) in the Free State. The figure for the Eastern Cape was 16% (R57 million), for Gauteng 25% (R7 million), for KwaZulu-Natal 12% (R56 million), for Mpumalanga 13% (R28 million), for the Northern Cape 31% (R16 million), for the North West 18% (R40 million), and for the Western Cape 29% (R21 million). Overall, the CASP support versus equity was 15%.

Since its inception, CASP investment had supported about 3 270 projects and 218 000 beneficiaries.

The overall number of projects had not changed greatly, but CASP’s budget had virtually doubled. This was because projects themselves had become more ambitious and the quality of the Department’s investments had improved over the years.

By the end of 2007/2008 the Department projected that it would have supported 116 projects in the Eastern Cape, with 8 698 beneficiaries, with a budget of R70 million. In the Western Cape, support would have been given to 107 projects, with 5 390 beneficiaries, and a budget of R33 million. In North West, there were 63 projects, with 4 328 beneficiaries, and a budget of R53 million. The total number of projects for the year was projected as 817, with 51 276 beneficiaries, and a total budget of R415 million.

Dr Mkhize said that the figures for provincial CASP expenditure performance as of 31 December 2007 were very important. By then CASP had expended 77% of its allocation for the Eastern Cape, 94% for Gauteng, and 28% for Limpopo. In the majority of provinces, the bulk of the CASP budget had been committed. Details were illustrated in a bar graph.

Department of Agriculture. MAFISA Progress Report. Presentation
Mr Mbongwa said that with regard to MAFISA there was both good news and some adverse items to report. MAFISA had been launched on the advice of Cabinet as a pilot in three provinces, and, from a pilot perspective, the results had been very satisfactory and had given the Department a firm basis for rolling out the project across all the provinces. Sadly, just when the roll out was scheduled, activities were suspended, not because of problems within MAFISA, but because of problems in the Land Bank. Later, the Department did succeed in resuming the roll out. Staff were forced by these circumstances to adjust their expectations for MAFISA for the current year, but were not discouraged.

Mr Buhle Dlulane, PSAI:MAFISA, Department of Agriculture, noted that MAFISA was formed to address the constraints facing the target market. These included inadequate market activity, low levels of physical, financial and human capital; high transaction costs and interest rates, inadequate access to and long distances from financial service providers, and inadequate personalised client services. MAFISA sought to provide funding, through participating institutions, for on-lending to target markets; to address the financial services needs of entrepreneurs in the second economy and to strengthen the developmental agricultural micro-finance system for their benefit.

MAFISA therefore was looking to establish an efficient and effective agricultural finance system; more accessible, relevant and responsive financial services; increased productivity in farming and agribusiness operations; equitable access to markets; sustainable financial institutions with greater outreach capacity; and sustainable food production.

MAFISA had faced major challenges. Disbursement of loans had started late. The Land Bank’s suspension of MAFISA operations and subsequent expiry of the pilot agreements had resulted in a hiatus. However, the Land Bank was now back in operation, and all its branches were ready to disburse loans.

MAFISA’s annual allocations had increased from R150 million in the 2005/2006 financial year to R250 million in 2007/2008. Cumulative capital transferred to the Land Bank amounted to R588 million.

MAFISA had been piloted for a period of one year until the end of March 2007. Examples of agricultural enterprises financed during the pilot period included 5053 projects for crop production, financed to a total of R31 872 181 million; 32 projects for broiler poultry production, financed to a total of R275 534; 14 projects for farming equipment, financed to a total of R20 638; and 91 projects for ostrich production, financed to a total of R9 029 480. 5 190 loans, representing R41 197 832 were disbursed. The target had been 2 000 loans. The average amount loaned was R28 000. These loans resulted in the direct support of at least 5 176 direct jobs. Loan repayments at the end of February 2007 were R4 million. Many loans were still not due since disbursements had started late.

In the 2007/2008 financial year, 778 loans totalling R3 907 300 were disbursed between April and December 2007 to crop production enterprises; 201, totalling R813 249 to broiler poultry production enterprises; 2, totalling R104 000, to farming equipment enterprises; 1 of R10 400 to a piggery enterprise; and 102 totalling R10 075 000 to ostrich production enterprises. In all, 1 084 loans amounting to R14 909 949 were disbursed, against a set target of 4 000 loans. The average size of loan was R13 755. These resulted in the direct support of at least 600 additional jobs. Loan repayments at the end of February 2007 were R4.2 million. Many loans were still not due as disbursements had started late.

Mr Dlulane then gave cumulative figures for MAFISA loan disbursements for the period April 2006 to December 2007. The targets were exceeded by 274 loans, and there had been direct support of 5 776 jobs. Loan repayments at the end of February 2007 cumulatively totalled R8.2 million. Many loans were still not due since disbursements had started late.

Mr Dlulane then proceeded to describe projects in the broiler, agricultural, and ostrich sectors, giving full details of their location, participants and loans.

It was noted that the Department faced further challenges relating to capacity, delayed establishment of accreditation committees at the initial stage, prolonged process lead-times that affected end user entrepreneurs, and reliance on extension officers who claimed to be already overloaded. The non-cooperation by some Land Bank branches, the need to coordinate programmes, and problems with Land Bank disbursements in Limpopo that posed a threat to loan repayments were further hindrances. There was a need to change the mindset of end users who saw their loans as grants, since they were unwilling to repay loans, as also to address the configuration of interest rates and compounding of interest, and address end users’ difficulties in accessing financial services.

Discussion
Members expressed their dissatisfaction at the fact that the responsible parliamentary officials had not prepared the equipment to show the presentations properly, nor were the microphone and speaker levels properly adjusted.

The Chairperson asked what interest rate MAFISA charged.

Mr Dlulane said that it was 8%.

Mr Nel asked if interest was payable through an agent.

Mr Dlulane said that it was payable through an agent. He said that it was a low rate, given that the base rate was about 11%. He emphasised that an interest rate of 8% was low by any standard.

Mr Abram asked if MAFISA’s interest rate had been 8% since MAFISA’s inception.

Mr Dlulane said that it had been so.

Mr Nel said that MAFISA’s interest rate was too high for start-up projects, and asked if the Department had examples from other countries. He said that it was important to think again about the implications of high interest rates for start-up projects.

Mr Mbongwa said that the Department was under pressure from the National Treasury to conform to a market-based rate nearing 14%. Moreover, the Department had to assume risks in lending to beneficiaries in that particular end of the market.

The Chairperson said that the Department must resist such pressure and ask the Treasury to explain itself to the Committee. He pointed out that the money used for MAFISA loans came from the government, not from the financial markets.

Mr D Dlali (ANC) referred to the six pillars of CASP and said that he wanted specific details of progress and performance measures per province, criteria for determining whether or not a project was successful, and how the Department monitored MAFISA’s performance. He asked why MAFISA monies had been transferred to the Land Bank, and how the Department intended to ensure that there was no repetition of the Land Bank’s recent debacle. He asked about the prospects of establishing a second entity that would not be dependent on the Land Bank.

Mr Dlulane assured Mr Dlali that the Department invested in all six pillars of CASP. There was ring fencing of funds. Farmer to farmer mentorship was general.

Ms B Thomson (ANC) asked how the Department addressed provinces that did not spend their allocations. Secondly she said that the Department’s allusions to capacity-related measures did not mean anything specific.

Dr Makhiza said that procurement processes were slow, and these, together with shortages of materials, were problems for all the projects.

Mr Abram criticised MAFISA’s high transaction costs and interest rates. He asked how the poor people who had been given loans to rear ostrich chicks could afford to service their loans. In reality, such beneficiaries were working not for themselves but for the government, since it was from government money that they had been given loans. MAFISA’s exorbitant interest rates were a recipe for disaster. For those who had received loans from MAFISA there was ‘no light at the end of the tunnel’.

When the Department had given its first presentation on MAFISA at a past meeting, Mr Abram  had said that MAFISA would not succeed on such premises. He restated his argument on the present occasion. He asked the Departmental officials to be ‘brutally frank’, and asked themselves if they honestly believed that there was hope for the impoverished beneficiaries of MAFISA loans. He called for a reversion to the low interest rates that prevailed when the Land Bank had been originally established during the Union of South Africa. The old regime had managed to do some things right, for example, low interest rates for loans to farmers. It was important not ‘to throw away the bath water with the baby’.

Mr Mbongwa noted Mr Abram’s concept of a developmental state and his call for ‘brutal honesty’. MAFISA beneficiaries could reasonably be given a longer time to repay their loans. A 48 month to 60 month repayment period was not considered anything other than perfectly normal for car purchase loans. In the 1920s, white farmers had been given equipment almost free of charge. MAFISA was an intervention process that sought to link the second economy to the first economy. The President had stated at the time of the establishment of MAFISA that it must work with existing financial institutions.

Noting that CASP accounted for 15% of the farm support budget, Mr Abram asked if the Department had conducted an audit of the status of all CASP projects and would make such an audit available to the Committee. He criticised supply to farmers of totally unsuitable equipment, such as Tata double cab pickup trucks that were essentially family, rather than utility vehicles, and imported Massey-Ferguson tractors that were poor quality imitations of the real thing.

Dr Makhiza said that imported vehicles and equipment had first to be tested by the Agricultural Research Council before they could be imported. It was the Department’s understanding that beneficiaries were happy with their tractors.

Dr Makhiza noted that a report on every project would be made available.

Mr Abram said that the Department’s officials might be in an invidious position, but from the perspective of their ‘plush’ offices, they could not appreciate the reality of daily life for the impoverished, disadvantaged farmers whom the Department claimed to be assisting. It had to be understood that South Africa was a developmental state.

Mr Abram expressed the view that MAFISA had failed. Its loan book was increasingly in deficit.

Ms C Nkuna (ANC) asked for the guidelines for CASP allocations, and questioned whether the beneficiaries really benefited.

Dr Makhiza said that procurement processes were slow, and these, together with shortages of materials, were problems for all the projects.

Mr Nel said that the Treasury was not familiar with the climate of droughts, other extreme weather conditions and the lean times that were the daily lot of emerging farmers. These realities must be presented to government. He also felt that interest rates must be set as low as possible. The 8% interest rate was far too high and was ensuring that beneficiaries would fail. This interest rate must be put on the Minister’s table. A low interest rate would be conducive to success, while a high rate ensured that all concerned would lose.

Ms M Ngwenya (ANC) said that to the best of her knowledge the Land Bank was the major obstacle. She called upon the Department to establish a monitoring system for projects. Currently the people were not receiving justice.

The Chairperson criticised CASP for not being sufficiently comprehensive. He said that he was curious about the distribution of branches of the Land Bank. He asked if the Department had considered using the extensive network of Post Bank branches for disbursement of loans. He noted that the Department of Home Affairs used Post Bank branches, and its example was relevant given the formidable challenges presented by the Land Bank.

Mr Mbongwa replied that the Post Bank had more than 4 000 branches. He noted that the Department was considering asking the Post Bank to offer their services for loan distribution;  but that the Post Bank currently only took deposits, and did not disburse loans. He said that the Department recognised that clients would benefit from the establishment of one-stop service centres.

Mr C Greyling (ANC) took over as Acting Chairperson for the remainder of the meeting.

Mr Dlali called upon Mr Mbongwa for a new approach. There was no alternative but to name officials who were not fulfilling their responsibilities.

Mr Dlali further said that the Department had presented a very similar presentation in 2004. He was harshly critical of the Department’s responses thus far and urged them to do better.

Mr Dlali suggested formally that a Treasury official brief the Committee. It was high time that the Committee engaged with the Treasury.

Mr Dlali called for action to be taken against extension officers and service providers who failed to perform their duties or made blatant mistakes, such as service providers who planted maize at the wrong season. He criticised local councillors for travelling excessively for non-essential purposes.

Mr Mbongwa said that the Department would send its own standing internal audit team to investigate extension officers and service providers who neglected their duties, a trend especially noticeable in the North West. He would welcome co-operation from the Treasury.

Ms Ngwenya said that if there was no agriculture there would be no food. In many cases, land had been given to people, but there the process had stopped. She called for the two departments of Land Affairs and Agriculture to co-operate with each other more. She said that she talked with one of the visiting officials concerning the extension officers, and wished to take the matter further: it was important to change the mindsets of the extension officers and she stressed that  extension officers should work for the people, not the people for them.

Mr Abram asked for an analysis of the 15% of the farmer support budget for which CASP accounted.

Mr Abram said that the Department’s precise figure for the market value of mature ostriches was unrealistic, since this value would fluctuate.

Mr Abram appreciated the response with regard to the overdue realignment that needed to be implemented. He trusted that the Department would, from its side, inform its principals of the problems that the Department had identified. The politicians would have to make difficult choices. It was not possible to tinker with MAFISA as it was operating at the present time. He reiterated that he saw little hope for MAFISA in its present form, with its high interest rates and the challenges enumerated on the last page of the presentation. He asked for a list of the projects with which MAFISA had been engaged and a progress report on each.

Mr Mbongwa noted that an internal audit system was being established. There was a special focus on the North West. He acknowledged a need for greater follow-through of procurement processes.

Mr Dlali insisted that the Department give the Committee a timeframe of between seven and 14 working days for reporting back to the Committee.

The Acting Chairperson said that he trusted that Mr Mbongwa would adhere to the timeframe that he would give to the Committee.

 Mr Mbongwa said that the Department would respond within the next 21 working days.

The meeting was adjourned.