Agricultural Debt Management Repeal Bill [B24-2008]: deliberations and adoption

Agriculture, Land Reform and Rural Development

02 June 2008
Chairperson: Mr M Mohlaloga (ANC)
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Meeting Summary

The Department of Agriculture and National Treasury outlined the purpose of the Agricultural Debt Management Repeal Bill. It was explained that the repeal of the Agricultural Debt Management Act was aimed at addressing anomalies in accounting practices. The repeal of this Act would not affect the ability of the Department to collect debts that were presently being collected through the Act. However, it would mean that the funds would be ringfenced but that the Department would no longer have to produce a separate audit report because the Act was regarded as setting up a trading account. The funds would, by agreement between the Department and National Treasury, continue to be directed to agricultural development, and would essentially be treated as Mafisa funds. There were no unintended consequences, and it was considered that making the Bill retrospective also would cause no problems as there were no vested rights that would be affected. The Repeal Bill was merely a stratagem to address a technical accounting problem. It would further have the advantage of streamlining the process for appropriating funds for use by the Department.

Concerns by Members related to the use of the funding, whether National Treasury’s obligations to use the funding for agricultural development should not be included in the body of the Bill, whether they would be used to assist emerging farmers and affirmative action, and whether the funds would be identifiable. Members also raised queries on how much of the debt was likely to be recoverable, what security was held, and whether the Bill would grant the Department any additional leeway in terms of enforcing or writing off debt. Finally Members accepted the assurances of the National Treasury and Department. The Bill was adopted and would be referred to the House, together with the Report.

Meeting report

 

Agricultural Debt Management Repeal Bill (the Bill): Department of Agriculture (DOA) and National Treasury (NT) briefings
The Chairperson welcomed representatives from the Department of Agriculture and National Treasury and noted that no representative was present from the Office of the State Law Advisor.
Ms Jo Ann Ferreira, Chief Director: Legislation, National Treasury, said that the purpose of the Bill was to address a number of difficulties that had arisen in respect of accounting practices, including the accounting for security. These problems had been noted by the Auditor General (AG) in his audit report.

She noted that the Bill contained a “savings provision”, which provided for the preservation of all debt and also preserved the Department’s obligation to collect such debt. The Bill did not provide for any new credit, but was aimed at merely managing debt accumulated before 2001. This debt was accumulated in respect of the Coloured Farmers Assistance Bill and the Agricultural Credit Act. The debt had been consolidated into one fund under the Agricultural Debt Management Act 45 of 2001 (ADMA), so that the Department could manage it as a separate account. However, this had created accounting difficulties. In addition, the Department was required to prepare separate financial statements for the account, which placed an additional burden on it.

She explained that ADMA at present provided for quite a complex procedure to utilise the fund. The money was kept in a separate account. If the Department wanted to use the funds, it would have to submit a business plan to the National Treasury, which would then approve the plan and duly authorise a portion of the funds to be paid into the National Revenue Fund. From that Fund it would then be appropriated back, through the Appropriation Act,
 to the DOA.

National Treasury felt that an appropriate response to the problems would be to repeal the entire ADMA. Instead, the funds would be allowed to flow through the budget of the Department of Agriculture (DOA). National Treasury had had extensive meetings with the DOA to devise the Bill and NT was convinced that there would be no unintended consequences of repealing the ADMA.

Mr Simon Maphaha, Director, National Treasury, said he foresaw no problems, since NT would still remain responsible for the relevant funds. Even if the Department came to Treasury asking for more than had been collected, Treasury could still look at the Department’s priorities and discuss the issue of funding with the Department, and would fund any “identified” agricultural project. The fiscus promoted all functions of government. Ring fencing would not be applied strictly so that other projects could be considered if they were identified as priorities.

Ms Ferreira added that there was currently about R300 million outstanding and it was expected that about R60 million would be collected annually over the next three-year Medium Term Expenditure Framework (MTEF) period. Although the figure of R60 million might seem large, it was actually quite small when put into the bigger context. National Treasury had given its commitment to the Department, and Cabinet had approved the Bill on the basis that that R60 million would continue to be earmarked.

Ms Ferreira said NT recognised the broader priorities in connection with agriculture and had a programme in place to ensure that the funds it collected over the MTEF period increased steadily.

Discussion
Ms B Ntuli (ANC) asked which fund was being spoken about in this legislation. She pointed out that this had not been made clear in the presentation.

Mr Tommie Marais, Chief Financial Officer, Department of Agriculture said that the basis of the loans was the Agricultural Credit Act, which came into operation in 1968. This had provided for loans to farmers, and other agricultural financial assistance. This Act was repealed by the Land Bank Act in 1998. The purpose of the ADMA legislation was merely to provide for the recovery process in respect of loans given to farmers.

Mr Marais said that the main reason for the repeal was that, from the point of view of the Public Finance Management Act (PFMA) ADMA money was classified as a trading account. It fact it was not so, since the Department did not trade but merely recovered outstanding loans from farmers. All of the outstanding debt was being recovered in terms of contracts between the Department and the individual farmer. The recovery of that debt would continue, but it would no longer be done by way of the ADMA, nor would it be reflected in an ADMA account, but through the PFMA. All the debt would still be repaid to the Department. This was merely a streamlining of the process.

Ms Ntuli said that, as far as she knew, when the Agricultural Credit Act was repealed, it was said that the funding would assist emerging farmers. She wondered if the funding would still perform this function.

Mr Marais replied that it would. The funds were merely being channelled in a different way. Until now, the funding had gone through the Agricultural Debt Account. Now they would go through the Agricultural Revenue Fund. The funding would still be directed to emerging farmers.

Mr Marais said that at the moment there was R686.9 million in the account, of which R250  million still had to paid to Micro Agricultural Finance Institution of South Africa (Mafisa) for the current year, which would leave cash available of R293 million, plus possible further amounts.
The total outstanding debt was R329 million, although it could not be guaranteed that all of this debt would eventually be recovered.  After paying out to Mafisa, the Department would still be able to put a further R623 million, via a ringfenced process, back into agricultural development, which was exactly what would have been done under ADMA. The money was agreed as being earmarked for agricultural development.

Adv S Holomisa (ANC) asked whether it was correct that NT was not abandoning these debts owing, despite the proposed repeal of ADMA. He referred to the Memorandum on the Objects of the Repeal Bill, which stated that “These monies will still be earmarked for agricultural development”. However, he was concerned that this statement was not in the Bill itself. The Committee would like to be certain that if the repeal was effected, there would be a stated legislative commitment to use the funds for agricultural development and for the promotion of black farmers. He asked whether this should not be inserted into the body of the legislation.

Ms Ferreira agreed that there was no “legislative commitment” to say that the money would be earmarked if the Act was repealed, but she said that this was the condition on which Cabinet had approved that the legislation be brought before Parliament. NT had made a commitment to the DOA in writing. She pointed out that the repeal of the ADMA was really a technical issue. It concerned accounting practices, and was an attempt to remove an unnecessary loop in the accounting process. Both the DOA and NT were committed to the plan and there were also significant other projects being supported to promote agricultural development and emerging farmers, including conditional grants.

She reiterated that R60 million was not much money, compared to the total budget of the Department, but it was important from an accounting point of view for Treasury to repeal the Bill. The existing practice only created difficulties, and did not tie in with the bigger scheme of PFMA nor with accounting practices.

The Chairperson said that it seemed that Treasury was confirming also that if the DOA asked National Treasury for money, it could be accessed through the normal budgetary processes. 

Mr J Bici (UDP) asked which of the two documents would have more weight - a written agreement from National Treasury or an Act that spoke about agricultural development.

Ms C Nkuna (ANC) asked for clarification. Clause 1.2 of the Memorandum of Objects in the Bill stated that “The Department… is currently only administering the recovery of the debt until it is fully recovered or otherwise extinguished”. She asked what was meant by the term “extinguished”. She also noted that the amendment supposedly was to alleviate the debt burden on farmers, yet they were still obliged to pay their debts. She asked what role Khula would play in the recovery of this debt.

Dr A Van Niekerk (DA) said there seemed to be some misunderstanding about the ADMA. The Agricultural Credit Act used to be a whole function within the DOA. This Act had a revolving fund used specifically for agriculture. Although he had been opposed to the repeal of that Act, that issue was now water under the bridge. The Act ceased to function in 1998. Debts incurred under that Act remained still to be paid. He asked how much had the Department recovered of the total debt, how much was unrecoverable, and what happened to that debt. The amounts recovered were paid to a fund administered by the Department, but, like all administered funds, NT wanted to know what was being done with the money. If DOA wanted to use the funds under the present system, they would first have to be paid to the National Revenue Fund and then appropriated back to the DOA. He said that the money would indeed remain available. However, his concern was that in the past the loans had been granted against very little security, and many of the farmers were now old.

Mr Marais replied that in 1998, when the Agricultural Credit Act was repealed by the Land Bank Amendment Act, the DOA had outstanding debts of R1.1 billion, and 9 614 debtors under the Agricultural Credit Act. As at the end of March the outstanding debt was down to R329.2 million, owed by 2098 debtors. The debt was thus reduced by about R900 million and number of debtors by over 7 000. It was difficult to say to what extent DOA would be able to recover the outstanding debt, but anticipated probably being able to recover about R150 million.

He clarified that the term “extinguished”, meant either that the debt was recovered in full through the recovery process, and reduced down to nil, or that it would be written off if it was irrecoverable. He explained that Khula played no role at all, as the recovery process related only to loans given by Government to assist farmers up to 1998.

Mr Marais assured the Committee that he and his team would ensure that all the money recovered would come back to agriculture for agricultural purposes. This was the agreement also with Parliament.

Mr Marais said that Mafisa, which was designed to support and assist small farmers, was due to come to an end next year. However, he would personally recommend to his Minister that the DOA must continue to apply Mafisa principles, and use the outstanding amount for agricultural purposes or to back agricultural development.

Ms M Ngwenya (ANC) asked what happened to debtors if the money was not recovered.

Ms Ntuli asked about writing off of other debts. In terms of the Agricultural Credit Act, the interest rate had been about 4 or 8% and she wished to know if this would remain the same, or if the debtors would have to repay purely the capital, or capital plus a different interest rate.
 
Mr Marais replied that the interest rate charged on Government loans had been 8 %. DOA had subsequently approved the raise of that rate, in respect of defaulters, to 14%. That was still the position today.

Mr Marais repeated that the DOA felt that it could probably recover about R150 million. The capital outstanding was at the moment equal to the interest outstanding. He noted that accounting practices did not allow for recovery of interest in excess of the capital amount owed. However, the larger the capital plus interest became, the more difficult it was to recover the loan. The Department did hold some mortgages as security, and, although this did not often happen, it could encourage sale of the land to meet the debt. Where it did not hold this security, it could not sell the land. The DOA gave debtor farmers as much leeway as possible but some loans had been outstanding for up to 20 years and enforcement of debt must be upheld as a principle, albeit in as humane a manner as possible.

Ms Ferreira said that the Bill in fact did not deal with these issues. There was nothing in the Bill that gave the Department more leeway to write off debts than it had in the past. The aim was obviously to try to recover the debt, and in many instances these debts were referred to the State Attorney’s Office for collection. That Office did in many cases advise the Department to write off the debt as its recovery would cause undue hardship to the debtor farmer. However, this was not to say that all outstanding debts should be written off. Some of the debts were current, not overdue, as the debtors were still paying off in instalments. Some only were becoming due and payable now, and those debtors were obviously not in arrears. 

Mr Marais said that the framework applied in relation to the recovery of agricultural debt was the same as for any other departmental debt, and would continue to apply.

Adv Holomisa reiterated whether there was any guarantee that such money would be used for the promotion of black agriculture if there was no provision for this in the Act. He postulated that, although this was unlikely, a new Minister might be opposed to affirmative action, and might not wish to honour this undertaking.

Dr Van Niekerk interjected that as matters stood it was merely the Minister’s word.

Mr Marais replied that he understood the problem posed. However, public finance worked on the basis that there was a sort of moral obligation that the money would be used for the said purposes. The debt, and the promise, would afford the Department a “big stick” to wield against NT. He was confident that the money would end up where it should.

Mr Marais said that the whole chapter should be closed by putting money through the Mafisa process, to return to the financial position as it was prior to 1968.
 
Ms Ntuli asked whether the Bill had any negative impacts on the development of farmers.

Mr Marais assured her there would be none whatsoever; this was purely an accounting issue. The Department would benefit because it would not have to compile and have audited another set of financial statements

.
Ms Ferreira assured the Committee that there was still full accountability, and the Committee would still be exercising its oversight role. The financial statements of the DOA would show  the amount as having been owed and collected. It would be possible to trace the money and see where it had been spent. NT would still be accountable for its obligations to the DOA. 

The Chairperson noted the commitment that the money would be used for agricultural purposes through Mafisa and there was a formal commitment by Treasury to that effect. There had also been the promise that even more money could be appropriated than might be held in the Fund. He thought that the Committee must accept that this was an accounting matter, and suggested that the Bill’s clauses be looked at in more detail. He noted that the State Law Adviser had been asked to deal with the issue of retrospectivity, but that he was not present.

Ms Ferreira said that there was a general rule that Parliament could make legislation retrospective, only as long as no vested rights were being affected. She confirmed that in this case there would be no effect on any vested rights, and there was no risk. 

Mr D Dlali (ANC) said he had raised the issue of retrospectivity in light of comments made by the Constitutional Court during the floor crossing discussions. Judge Albie Sachs had said that there were problems in making legislation retrospective from a precedent point of view. He asked about setting an undesirable precedent.

Ms Ferreira replied that the problem arose only in the context of vested rights. Only where vested rights could potentially be affected, did one have to tread very carefully, so as to show that the benefits outweighed the potential injustices. In this case, because there were no vested rights, there would be no such problems.

The Chairperson then invited Committee Members to go through the Repeal Bill clause by clause.

Adv Holomisa interjected to ask whether a motion of desirability had been adopted.

Mr Dlali replied that that was a formality that could be attended to at a later stage.

Ms Ntuli referred to the “Savings” clause of the Bill. This noted that despite the repeal of the (ADMA) Act, certain named provisions of the Act would remain in force until all agreements referred to in that Act have been terminated and the debt associated with those agreements had been recovered or otherwise extinguished. She sought explanation of this clause.

Ms Ferreira noted that the provisions that would remain in effect were as follows:
Clause 2, which made the Minister of Agriculture responsible for recovery of the debt.
Clause 7, which ensured that the validity of agreements entered into under the old Act survived after the repeal of the Act.
Clause 8, which defined the Director General’s powers in terms of recovery of the debt. .
Clause 9, which ensured that Government enjoyed exemption from stamp duty in respect of the registration and filing of agreements.

She said that essentially these clauses would ensure that prior agreements were preserved.

The Chairperson then put a motion of desirability to the Committee. This was acceded to.

The Committee unanimously voted to adopt all clauses of the Bill. 

The Chairperson read out the Committee’s report, which was accepted by Members.

The meeting was adjourned.

 

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