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					Submission of Agribusiness on the
       Transformation of
   South African Agriculture
       Portfolio Committee
       17 September 2010

   Agricultural Business Chamber
              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.
       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.
  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.
  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.
  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
       Contribution of Primary
    Agriculture to GDP (Source: Statssa)


%
SA economic growth: Tradable goods
sectors lag the non-tradable goods sectors
                         GDP Index per Sector of Economy
        250


        200                                                       GDP
                                                                  Agric
        150                                                       Mining
INDEX




                                                                  Manufacturing
        100                                                       Construction
                                                                  Trade
        50                                                        Transport
                                                                  Finance

         0
              2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
                           Source: StatsSA
                    Performance of Sector
     Gross Value of Production in R million

            60000
                              Crops     Horticulture    Animal products


            50000
R'million




            40000


            30000


            20000


            10000


                0
                    2001/02   2002/03   2003/04   2004/05   2005/06   2006/07   2007/08




                    Source: DAFF, 2009.
                            Performance of Sector
                                 Gross and Nett Farming Income
                                   Gross Farming Income     Nett Farming Income

              120 000


              100 000
Rand X1 000 000




                  80 000


                  60 000


                  40 000


                  20 000


                       0
                             2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08

                           Source: DAFF, 2009.            Seasons
ABC Agribusiness Competitive Status Index

 2.00
         Government support,
         Low interest rates,                Sanctions,
         Low inflation                      Marketing boards,                                                                                                             Economic growth,
                                            Droughts,                                                                                                                     Deregulation
                                            High interest rates                                                                                                           (Co-ops to Comp’s),
 1.50
                         2.50
                                                                                                                                                                          Weaker Rand,
                                                                                                                                                                          New markets
                         2.00
                                                                                                                                                                                                      Stronger Rand,
 1.00
                                                                                                                                         Drought,                                                     Drought,
                         1.50                                                                                                            Political                                                    Administered
                                                                                                                                         uncertainty                                                  prices
                         1.00
                                                                                                    1st phase
 0.50                                                                                               deregulation
                         0.50




                          -
                                61

                                       63

                                              65

                                                     67

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                                                                   71

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                                                                                                      81

                                                                                                             83

                                                                                                                    85

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                                                                                                                                                              97

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                                                                                                                                                                            01

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        08
                        (0.50)
        6
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        0
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      19




(0.50)
  Agribusiness Executive Survey:
          Factor analysis
                                   Cost of doing business
                                Aids       3             Labour
                                         2.5
                       Crime                                      Infrastructure
                                           2
                                         1.5
       Labour policy                                                     Capital
                                           1
                                         0.5
Land reform policy                         0                               Technology



        Trade policy                                                     Market size


 Local suppliers of primary
                                                                  Market growth
          inputs
                 Electricity supplies                    Financial institutions
                                      Scientific research
                                    2004 institutions
                                                2008      2010
     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.
    Farming Debt (X R1 000 000)
           Land Bank       Commercial Banks      Agribusinesses    TOTAL
50,000

45,000

40,000

35,000

30,000

25,000

20,000

15,000

10,000

 5,000

    0
         2000    2001     2002    2003    2004     2005     2006   2007    2008

         Source: DAFF, 2009.
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)
  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
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
         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)
B-BBEE Status of ABC Members
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.
Main points from case studies of
  development programmes
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
   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.
    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
       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.
Thank you

www.agbiz.co.za

				
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