Submission of Agribusiness on the Transformation of South African Agriculture

1. Submission of Agribusiness on the Transformation of South African Agriculture Portfolio Committee 17 September 2010 Agricultural Business Chamber

2. Background • ABC a voluntary and dynamic association of agribusinesses - positions for an enabling agribusiness environment - plays a constructive role in the country’s economic growth, development and transformation • Turnover/exposure of members in excess of R150 billion pa • ABC members active in all the major agro-food value chains • ABC actively involved in negotiating the gazetted AgriBEE Transformation Charter, and now in AgriBEE Charter Council • Land Reform and Post Settlement Support (PSS) • ABC represents the views of its members in a number of national structures and bodies, both statutory and non- statutory.

3. Food Security • South Africa has a highly diversified agro-food industry • Net exporter of agricultural products and has provided national food security since the start of the 20th century (Population: ~4,0 million), right through to the 21st century (Population: ~49 million, ~60% domiciled in cities). • Household food security is however a problem. • SA has of the most affordable, safe and nutritious food in the whole world, and this needs to be recognized as a major asset to this country.

4. SA Agriculture Policy Environment • Since 1994, SA’s agricultural policy has primarily been informed by Government’s White Paper on Agriculture (1995), the Strategic Plan for South African Agriculture (2001) and recently the MTSF. • Number of Acts (~60) provide execution of agricultural policy, of which the Marketing of Agricultural Products Act, no. 47 of 1996, deregulated the broader industry. • Global agro-food system is a market economy, though highly skewed in trade and support measures. • SA Agriculture of least supported (OECD PSE system) • Constraining environment for growth and new • entrants.

5. SA Agriculture Policy Environment Currently the ABC believes that in general terms current government policy on agriculture is correct (deregulated market economy driving efficiency and competitiveness through competition), but that effective support for agriculture and implementation of agricultural policy by government is severely lacking in many instances.

6. Agriculture’s Performance and its Contribution to the Country’s Economy • Primary agriculture’s shrinking contribution to GDP now at ~2.5% • Lack of growth in primary agriculture over the past 10 years – see graph • Contribution of the agro-food industry to GDP? • Gross value of production per sector increased in nominal terms • Net farming income under pressure, esp. for smaller farmers • Competitiveness Status Index & Factor Analysis

7. Contribution of Primary Agriculture to GDP (Source: Statssa) %

8. SA economic growth: Tradable goods sectors lag the non-tradable goods sectors Source: StatsSA

9. Performance of SectorGross Value of Production in R million R'million Source: DAFF, 2009.

10. Performance of Sector Source: DAFF, 2009.

11. ABC Agribusiness Competitive Status Index Government support, Low interest rates, Low inflation Sanctions, Marketing boards, Droughts, High interest rates Economic growth, Deregulation (Co-ops to Comp’s), Weaker Rand, New markets Stronger Rand, Drought, Administered prices Drought, Political uncertainty 1st phase deregulation

12. Agribusiness Executive Survey: Factor analysis

13. Agricultural support systems and institutions • Two critical issues in agro-food industry: - Financing - Research & Development (R&D) • Principal supporting institutions being the Land Bank and the Agricultural Research Council (ARC) respectively. • Critical role of other support/enabling structures, such as DAFF (e.g. Act 36 of 1947), OBP, PPECB, NAMC, IDC, etc.

14. Farming Debt (X R1 000 000) Source: DAFF, 2009.

15. Insight into the AgriBEE Charter • ABC role in development of AgriBEE Transformation Charter (20 March 2008), and in Charter Council • ABC has continuously created awareness: - 2007 ABC/IDC AgriBEE Survey - 2010 ABC AgriBEE Survey • Latest survey to determine contribution of ABC members falling under the scope of application of the AgriBEE Charter, to transformation. • Reports case studies on establishing black commercial farmers (ED – 1 of 7 elements)

16. 2010 ABC AgriBEE Survey • Progress on B-BBEE’s CoGP by Agribusiness? • Questions on the contribution by agribusiness toward transformation of South African Agriculture. • ABC commissioned study and survey amongst its members in 2009. Only those in AgriBEE scope. • 30 respondents (R66.7 billion turnover; 21 000 permanent employees). • 9 case studies selected to showcase development programmes (ED) by ABC members. • Objective of presentation: to present main findings

17. Attitudes towards B-BBEE • 50% will consider selling ownership stake • 67% will consider joint venture • 90% prepared to mentor and assist emerging farmers • 63% have already implemented BEE initiatives • 30% have completed a valid BEE scorecard • 50% still in process

18. Priority Elements Elements of scorecard viewed as priority by respondents: - Skills development (100%) - Preferential procurement (97%) - Socio-economic development (94%) - Enterprise development (87%) Elements largely viewed as lesser priority: - Management control - Ownership - Employment equity (These were all viewed priority areas by members in 2007)

19. B-BBEE Status of ABC Members

20. B-BBEE Status of ABC Members • The scores for Management Control are low • The scores for Employment Equity are very low. This is due to a combination of very strict measurement criteria and a lack of available skills at higher management levels in the market. • The scoring for Skills Development is average to low. This due to both the high targets and the poor employment equity profile of employees. • The scoring for Preferential Procurement is average. This element is complex with a heavy administrative burden. • The scores for Enterprise Development are uniformly high. This indicates a positive move to broad based empowerment. • The scoring for Socio Economic Development is generally good as companies have historically focused on this type of corporate social investment.

21. Main points from case studies of development programmes

22. Credit, input and market access • Members of ABC provide and serve SA agriculture with large agricultural infrastructure • Most farmers are within reasonable distance of depots, trading stores, silos, etc. • Advisory and extension services are available • Management, financial and credit systems in place • Many black farmers are already making use of these services (especially buying inputs on cash/credit and delivering commodities to depots, auctions, silos) • ABC’s biggest problem: nobody knows how many Black farmers make use of these services

23. Constraints preventing scaling-up of development programmes of ABC members • Security of land tenure/property rights • Thus no collateral – ABC members not able to carry full risk • Limited partnership with the State/no State guarantees for farmers with non-formalised rights to land • Innovative models are implemented to overcome this constraint but are costly and management intensive • This is especially problematic in livestock and field crop production but not so much with broilers, sugarcane, cotton, etc. • Solution: Agribusiness presents ideal vehicle to channel all government grants in a sustainable, responsible and accountable way to Black farmers. • Will avoid double dipping and will enable scaling-up.

24. How to ensure sustainable B-BBEE enterprise development by Agribusinesses • Need clear and transparent governance arrangements and management models • Provide accountable and business directed coaching, mentoring and counselling support to beneficiaries (“farmer incubators”) • Clear and dedicated funding arrangements with the Land Bank and other State agencies • A clearly defined role of the State in providing support to agribusiness initiatives such as State guarantees and channelling all State support to targeted farmers through Agribusiness firms

25. Concluding remarks • Some significant progress on BEE compliance since 2007 • Interesting picture of Agribusiness initiatives to support Black farmers • Lack of coordination between agribusiness, government departments and different State agencies is evident • There is a need for proper partnerships and coordination to implement a comprehensive agricultural development effort across South Africa • Otherwise all efforts will just be tinkering on the margins.

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