Roger Godsmark: Forestry South Africa

1. Best Practice and Participation in Sustainable & Economically Viable Land Reform – FSA’s Experiences & Recommendations Roger Godsmark: Forestry South Africa Joint AgriSA Commodity Chamber / Transformation Committee Meeting Centurion, 10th February 2014

2. Presentation Outline • Background: • Best Practice: Restitution • Corporate Timber Companies • Private Timber Farmers • Best Practice: New Afforestation on Communal Land • Lessons Learnt • Recommendations

3. Section 1 Background

4. The Forestry Industry’s Characteristics In order to understand the context in which the Forestry Industry has made decisions regarding land reform, the following points need to be made…… • Industry Structure & Ownership: • Of the 1.27 million ha of forestry in SA, 884 000 ha (69%) is owned by 9 corporate entities - 306 000 ha by 1 100 private commercial farmers and 50 000 ha by 25 000 small scale growers. • All the corporate entities are also involved in timber processing • Institutional Arrangements: • The Forestry Industry has its own Charter Council and SETA • It was only incorporated into DAFF 5 years ago (DWAF prior to that) • It does not belong to the ARC and it not within the funding ambit of various Govt. agencies. • Long Rotations –(leading to financing problems): • 7 to 35 year – thus cash flow and financial problems for new growers / beneficiaries

5. Current Land Reform Situation: Forestry Industry The Forestry Industry’s strategy is based on ensuring restituted land remains sustainable and that any new forestry development takes place on communal land. RESTITUTION • It is estimated that over 60% of the plantation area in SA is under claim • Market value (including trees) – R16bn • Potential production from these areas – 12m tons p.a. • Very few claims have been settled and the process itself has come to a grinding halt. • The LCC will, unless small farms, only buy the land and not trees. REDISTRIBUTION • No initiatives are underway to transfer existing plantations to new owners (grower / processors want to protect their mills) • The focus is to develop new plantations on communal land.

6. Support Received by Forestry Industry for Land Reform • Department of Agriculture, Forestry and Fisheries • Have still not established Forest Enterprise Development Fund • Have still to implement Integrated Small Enterprise Devt. Strategy • Department of Rural Development & Land Reform • Other than purchasing farms, nothing • Land Bank • Interest rates not appropriate • Agricultural Research Council • Forestry not in its ambit so no support • Commercial Banks • Are willing to finance projects but interest rates & rotations a problem The Bottom Line: No support received from Govt. - all support provided by the Industry itself & limited amount from banks

7. Section 2 Best Practice - Restitution

8. Best Practice Development of Post-Settlement Support Models The Forestry Industry realised at an early stage that land reform could have a devastating effect not only on the Forestry Industry but also on the Forest Products Industry to whom we supply the feedstock. It was thus essential that post-settlement models were agreed upon and had the buy in from Government to ensure that any transfers to new beneficiaries were sustainable businesses and continued to supply our mills with fibre. FSA thus developed 2 sets of post-settlement support models for restitution claims: 1. for Corporate growers 2. For private timber farmers

9. Models - Basic Principles (1) Importantly, the Models we developed were based on certain basic principles – these were as follows……. • Where Models involve leases being entered into with beneficiaries, these must be for a minimum period of two rotations (according to crop grown) • Models only apply to forestry land (e.g. excludes mills) • FSA should act as the development agent i.t.o. the Charter Framework Agreement that was signed with DWAF (now DAFF) i.r.o. expediting land claims (to retain control) • Where claims cover multiple owners and land uses, the principle of “one size fits all” must not apply. Different PSS Models must be allowed to be implemented (to take into account individual needs and circumstances)

10. Basic Principles (2) • Any compensation paid must be based on valuation of property at date of transfer (trees and land need to be valued / revalued immediately prior to sale) • In Models where owner sells trees, proceeds should be free of tax (LCC to get tax directive from SARS) • Choice of Model must be driven by financial viability and be that of beneficiary community (i.e. not ex-owner, DRDLR, LCC) • Any agreement signed with DRDLR / LCC must be adhered to by all officials (right down to Project Manager level) • A “Forestry Tribunal”, containing specialist staff, be established to adjudicate forestry claims Outstanding Issues: Tax Issue Establishment of Forestry Tribunal

11. Corporate Timber Company Restitution Model Given the resources available to a Corporate Timber Company (as opposed to a private grower), this Model is more demanding. BASED ON LEASE BACK DEAL Applicable when LCC buys the land but not the trees. • Beneficiary Input: Land • Ex Corporate Owner Input: Trees • Ex Corporate Involvement: • Rental of at least 5% on productive land • Rental of at least 2% on unproductive (conservation) land • Social Development Contribution of at least 4% (1% CSI – 3% enterprise devt.) of net profit after tax (NPAT) OR 4% of annual rental, whichever higher • Management of plantations • Guarantee to buy timber at current price when felled • Opportunity to get involved with value chain

12. Private Timber Grower Restitution Model Three options are available – 2 lease back, the other management • Option 1: LCC Buys Land Only Lease-Back – 2 rotations • Farmer pays a lease rental to beneficiaries (% negotiated but min of 5%) • In addition to this, farmer provides mentorship; and • Farmer makes a skills development commitment (higher of R20 000 or 1% NPAT) • Option 2: LCC Buys Land & Trees Lease-Back – 1 rotation • Farmer pays a lease rental to beneficiaries (% negotiated but minimum of 5%) + Rental deposit of 3 month’s operational exp. • In addition to this, farmer provides mentorship; and • Farmer pays beneficiaries a share of NPAT (% to be negotiated) • Option 3: LCC Buys Land & Trees Management Agreement • Farmer is paid a management fee by beneficiaries (negotiated) • In addition to this, farmer provides mentorship; and • Farmer receives a profit share (minimum 10% NPAT)

13. Advantages of Models Because the State does not, as a rule, buy the trees on a timber farm, the ex-owner and new beneficiaries have to enter into some form of partnership to sustain the business. • Allows for gradual transfer of ownership as option given to beneficiaries to replant felled areas at their own expense. • Opportunity for involvement in downstream value-chain • Enterprise development opportunities (e.g. contracting) FINANCING / FUNDING • New beneficiaries do not have to raise working capital • Beneficiaries get regular and guaranteed income • Beneficiaries benefit from “social development” funding MANAGEMENT • Because have to form a partnership, ex landowner still involved in management of business (ensures sustainability) • Market access guaranteed EMPOWERMENT

14. Section 3 Best Practice – New Afforestation on Communal Land

15. Forestry Development Initiatives The Forestry Industry realises that its current “traditional "footprint cannot expand - the only opportunity for expansion is in Zululand and the Eastern Cape (i.e. communal areas). What are the role players doing? Forestry South Africa • Has established a “Business Development Unit” to organize and train existing growers and facilitate the expansion of the Industry in the areas mentioned above. Corporate Timber Companies • Have actively sought out individuals and communities eager to enter the Industry to supply them with timber in both regions, thus expanding the footprint of the Industry. Government • Not only nothing but the Dept. Water Affairs is actually hindering these developments!

16. Selection of New Timber Growers The Forestry Industry is not currently involved in identifying land for transfer in terms of Redistribution. What we are doing, however, is to expand the footprint of the Industry into new areas where water availability will allow & no land acquisition problems (as communal areas). These are the following: ZULULAND • 40 000 ha on communal land (Individual tenure rights) EASTERN CAPE • 100 000 ha on communal land (Communal tenure rights) Section of Participants 1. Communities & individuals themselves; 2. Timber Companies & FSA Business Development Unit Outgrower Codes Developed to manage relationship

17. Support Provided by Forestry Industry to New Timber Farmers on Communal Land The Private Sector has for a long time been involved in developing the small-scale grower sector through “out-grower schemes”. • Technical and financial assistance: • Subsided loans • Interim payments (i.e. voorskot) to ease cash flow problems • Technical input • Assistance with land preparation • Seedlings, fertilizer & other inputs • Skills transfer • Institutional assistance (community schemes): • Establishment of CPAs / Trusts • Marketing assistance: • Market for timber at prevailing market price when timber felled Support varies from scheme to scheme but can include….

18. Section 4 Lessons Learnt

19. Lessons Learnt The Industry has been involved for a long time in developing its land restitution and new afforestation models. During this period we have learnt lot. • The best chances for success are where partnerships between beneficiaries and ex-landowners are entered into • However, be prepared to dedicate considerably higher management resources to the new partnership • CPAs are NOT the best way to go – rather go the trust route • First prize is to develop models which involve participation in downstream value-chain • Ensure any agreement reached with DRDLR at national level is filtered down to Provincial level as this does not always happen • Getting buy in from the DRDLR is essential

20. Section 4 Recommendations

21. Recommendations A “one size fits all approach” to land reform will not work due to the characteristics of each commodity. It is thus essential that tailor made approaches are developed by & for each commodity • Establish a Land Reform Committee which: • Fully represents the sector • Has a mandate from the sector to act on its behalf • Set “Basic Principles” • Develop “Models” tailored to suit characteristics of the sector • Get buy-in from sector (through own Commodity Organisation) • Get buy-in and full support from the DRDLR / LCC Recommended Steps to be Taken by each Commodity AND MOST IMPORTANTLY