NAMC Application for Statutory Measures on Potatoes; Agri-Inspec: briefing

Meeting report

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The aim of this report is to summarise the main events at the meeting and identify the key role players. This report is not a verbatim transcript of proceedings.

land and agriculture portfolio committee
28 May 2002
NAMC LEVIES APPLICATION FOR STATUTORY MEASURES ON POTATOES; AGRI-INSPEC: BRIEFING

Chairperson: Mr N.H. Masithela

Documents handed out:
Agri-inspec presentation on its programmes (see Appendix)
NAMC submission on application for proposed statutory measures on potatoes in terms of the marketing of agricultural products Act, 1996

SUMMARY
Agri-inspec informed the Committee that they were a non-profit, Section 21 Company collaborating with inter-state and government structures in Southern Africa to combat financial fraud and international trade irregularities in the food, agricultural and agro-business sectors. As a non-profit organisation, they needed funding to spread their operations to other countries as well. The Committee commended Agri-inspec on their good work and promised to look at their systems, interact with the Department and the Ministry and to see what they could do to assist them.

The National Agricultural Marketing Council also presented its recommendations supporting the approval of the proposed statutory levy on potatoes to the Committee. The Committee rejected those recommendations, arguing that given the information that had been presented before them by the NAMC, it was not possible to approve the application. The Committee also said that even if the management of the trust were changed, the management would come from the same organisation in any case. The Committee concluded that they would provide reasons for their disapproval in a written form to the Minister.

MINUTES
Agri-inspec
Mr Joe Hanekom, Managing Director of Agri-inspec informed the Committee that the main aim of his organization was to safeguard the interest of South African communities in the agriculture and food sector. It is a Section 21 Company (non profit organisation) and Mr. Hanekom formed it in 1994. Their work include conducting forensic investigations on illegal marketing of agricultural and food products. Agri-inspec also work with state law enforcement agencies in combating illegal trading in the agricultural sector. This was achieved by encouraging the implementation of border control measures so that the agricultural sector could perform to its full potential. Agri-inspec believed that this would decrease the maximum tax scale in South Africa to 30%.

According to Mr Hanekom the success of Agri-inspec ranged from decreasing tariffs in the following agricultural products; dairy, poultry, beef (from Zimbabwe). Other achievements include identifying the under declaration of mutton values and import comparison of sunflower seed oil and cotton seed oil which was identified not to be good for human consumption. He added that Agri-inspec was developing a database that would improve their intelligence network, court related investigations and to stop illegal trading.

Discussion
Mr A. Botha (DP) asked whether it was countries with highly subsidized products that were involved in illegal trading.

Mr J. Hanekom said that most of the imports came from highly subsidized countries. For instance there was recently an outflow from Canada and Malaysia.

Mr R. Schoeman (ANC) asked how does the performance of the Agri-inspec staff component compare to the old inspectorate.

Mr Hanekom replied that Agri-inspec was a private company formed by him and consisted of seven hardworking members who were not related to any government institution. They have a very well organised intelligence network that operates in the different ports of Walvis Bay, Lesotho, and on the borders of Namibia, Angola and Mozambique. He said its performance was of high standard as the report on their activities clearly illustrated.

Mr D. Maluleke (DP) asked whether the countries where the products originated were aware of the irregularities and what they were doing about it.

Mr Hanekom replied that there was no involvement of governments in irregularities. It was only individual entrepreneurs who were doing it for their own benefit. Agri-inspec made the countries aware of these illegal practices because they were working with the law enforcement structures in those countries.

Ms Mathibela (ANC) asked what could ordinary persons do when they came across a fake product like the mentioned so-called olive oil.

Mr Hanekom said that there were contact numbers that people should call in the event that they bought a suspicious product. Cases should be reported immediately so that the necessary action could be taken.

Mr Botha asked where Agric-Inspec got its funding from.

Mr Hanekom replied that as a non-profit organisation and it derived its money from the companies who hired them. He appealed to the Committee to use their influence in persuading government to subsidise them. He added that they were really in need of funding.

Mr Botha asked whether Agri-inspec was involved in the investigation of meat that had been infected with the foot and mouth disease.

Mr Hanekom replied that Agri-inspec had been involved in investigations at the initial stages of the outbreak of foot and mouth disease.

Ms O. Kasienyane (ANC) asked whether Agri-inspec investigated illegal trading with Zimbabwe only or with other countries as well.

Mr Hanekom responded that they were working in Zimbabwe, Mozambique, Namibia, Swaziland and Lesotho. If funding were available they would spread to other areas as well.

The Deputy Minister of Agriculture Prof D. Du Toit commended Agri-inspec for their work. He said that the Ministry had to look thoroughly at their systems before making a decision on funding them. He said that the major thing to look at was whether Agri-inspec should continue to exist or not. The decision would be taken in a balanced way.

The Chairperson added that the Committee should interact with the Department and see how they could assist Agri-inspec. He said that the Committee would highlight all the issues that were discussed in the meeting.

National Agricultural Marketing Council (NAMC)
The National Agricultural Marketing Council presented its recommendations supporting the approval of the proposed statutory levy on potatoes to the Committee. Mr M.G. Rathogwa, Chairperson of NAMC informed the Committee that mismanagement of funds occurred in Potatoes S.A. NAMC wished to separate management problems from the needs of the potato industry. He said that if the approval were granted, Potatoes S.A. would be in a position to meet its obligations in terms of research, market access and information projects as stipulated in the recommendations that were presented. The NAMC would have to monitor the financial operations of Potatoes SA to ensure compliance with the original intent of the application and to deal speedily with any problems that might occur.

If the approval were not granted Potatoes SA would gradually be forced to reduce the projects it wished to initiate. It would be no longer be in a position to meet its financial obligations. This was due to Potatoes SA's expectation of a further reduction in farmers' voluntary contributions for research and development projects. Statutory measures should be implemented to make the contributions mandatory. NAMC recommended that the Minister approve the implementation of the proposed statutory levy on potatoes.

Discussion
Mr A. Van Niekerk (FA) asked whether the board of trustees of Potatoes SA consisted of the same people that manage it. He said that if this were the case, similar problems would be encountered. New and better management needed to be appointed and action should be taken against those who were alleged to have misused about R22 million of the trust. He said the industry was very important and should be safeguarded.

Mr Rathogwa replied that top management of the trust has been removed and that new management needed to be appointed.

The Chairperson asked how would the money that had disappeared be recovered.

Mr Rathogwa replied that some of the loans that were given to subsidiaries had been ceded to Potatoes SA.

Mr Schoeman said investigations would be difficult because some of the information had been deleted. He noted that fraud had been committed and that there was a need for criminal action to be taken.

Mr S. Bhengu (IFP) remarked that changing people in management would be meaningless because it would be the same people from within the organization.

Mr Botha argued that an organization could not function without accountability in the first place.

Mr Maluleke asked what steps were going to be taken to recover the money that had been given to Potatoes SA.

Mr Rathogwa said that although NAMC wanted to take action, they were advised by legal experts to hand over the matter to Potatoes SA.

Mr D. Hanekom (ANC) said the Committee could not confidently state that someone had pocketed the money. The money could have been used in a wrong way or in a business that eventually failed. He said that whilst the Committee recommended that a new trust be formed, it would not be possible to allow Potatoes SA to collect the levy. Given those reasons, he said the application should not be approved. If for instance the application could be approved, who would collect the levy?

Adv P. Holomisa seconded the motion and added that the Committee should also provide reasons for this motion so that the Minister could see what to do next.

The Deputy Minister said that if Potatoes SA needed to be restructured this would require the consent of all other trustees. The trustees could not be forced to give their consent.This would also mean that the Potato Trust Act should be amended or else the Committee and the Minister would have no jurisdiction over the Trust.

Mr Rathogwa said Potatoes SA needed money. The trustees were told that they should amend the Trust Deed before NAMC could recommend the approval of the application of the levy. They were aware that the Trust Deed needed to be amended. He added that the Committee should separate the financial mismanagement of the trust and the needs of the potato industry. The Minister could decide who should manage the Trust.

Mr D. Hanekom reiterated that the trust could not be approved given the fact that there was mismanagement of funds. It was not possible to approve a levy under those circumstances. Negotiations with the industry should be made to amend the Trust Deed or establish a new trust. He said the Committee should accept the levy for research, market access and information but they should not approve the levy as it was stipulated. Reasons would be given as to why the Committee did not approve it.

Mr Van Niekerk also said the levy should not be approved due to the fact that the Potato Trust did not perform to the Committee's satisfaction.

The Committee recommended that the application of levy on potatoes should not be approved. The Chairperson asked whether the Committee could have a legal backing on recommending that there should be an investigation of the financial mismanagement. Investigations as to whether criminal activities did take place and who was liable should be undetaken.

The Committee agreed that there was a need to hold someone responsible for the mismanagement of funds in the Potato Trust and the Auditor-General should conduct forensic investigations on the matter.

The Chairperson concluded that the Committee would consult with their Parliamentary Advisors to give the Committee direction as to whether they should go ahead with such a recommendation.

The meeting was adjourned.

Appendix 1
AGRI INSPEC PRESENTATION

AGRI INSPEC COMPANY PROFILE
1.1 Agri Inspec is a non-profit Section 21 company collaborating with inter-state and government structures in Southern Africa to combat financial fraud and international trade irregularities in the food, agricultural and agro-business sectors.

1.2 Our expertise are in the field of forensic investigations and market protection and our company is focussed on serving agricultural and food industries, although we also have clients in the general trade and industry.

1.3 Agri Inspec has established itself as an influential forensic import monitoring and market protection company and has achieved major successes during the past 8 years.

1.4 The company is represented on numerous external forums, institutions and committees in Southern Africa working collectively in the field of border control and law enforcement, which further enhance our capacity to detect and combat illegal practices.

1.5 Agri Inspec presently render services to fourteen industries to protect them from illicit import practices.

1.6 The Commercial Farmers Union and National Dairy Board of Zimbabwe are AIS clients and the company has official authorisation by the Zimbabwean Minister of Agriculture and Land Affairs to operate on all Zimbabwean borders.

1.7 AIS also do work on an ad hoc basis for companies in Swaziland, Botswana, Namibia and Mozambique.

2. AGRI INSPEC STAFF PROFILES
2.1 At Agri Inspec we pride ourselves by appointing only the best individuals available in their respective fields of expertise.

2.2 Agri Inspec staff members are all high profile experts in their respective portfolios and the results achieved by the company over the past 8 years bears testimony to that.

3. PROBLEM STATEMENT
3.1 The supposition is that there is not a single food and agricultural industry in Southern Africa today who is not directly or indirectly under risk as a result of irregularities in one way or the other.

3.2 To substantiate this claim we want you to consider a summary of the major cases successfully dealt with by AIS over the past 8 years attached as Annexure A.

3.3 The problems at our borders relating to smuggling, tariff and Value Added Tax (VAT) fraud, especially regarding agricultural and food products, can mainly be attributed to a lack of proper control measures, as well as insufficient knowledge and information regarding agricultural products at our ports of entry.

3.4 Illegal imports and other irregular practices as a result of the above contribute to many long term negative effects on our economy and our people, of which the following are only a few examples:

? Loss of production capacity and destabilisation of the agricultural and food industries and subsequent loss of jobs;? Profound health risks to the people as a result of sub-standard imported products dumped on the consumer market;? Loss in state income amounting to millions; and? Millions of rands are drained from our economy annually by unscrupulous entrepreneurs who do not re-invest in the economy and job creation and who also do not give any benefits of cheaper imported products through to the consumer.

3.5 Imports to South Africa amounted to R189 012 million in 2000 (Reserve Bank, 2001). Imports of agricultural products are valued at around R33 000 million. Based on value-added Tax (VAT) of 14% and average import tariffs of 25% the potential government income on these imports is valued at approximately R11 550 million. Based on the experience of Agri Inspec with various agricultural products, it is estimated that illegal imports constitute approximately 10% of this figure.

3.6 Irregularities pertaining to the importation of agricultural products could therefore cost the country an estimated R1 155 million per year in loss of potential state income. The effect of destabilising in our agricultural and down stream industries cost even more.3.7 In view of increased criminal activity, agricultural and food commodities are continuously at risk and it is therefore in the national interest to manage this process and to enhance the visibility of specialised forensic investigations at ports of entry.

3.8 It is evident from findings by various analysts that the current situation in Southern Africa regarding law enforcement and border control needs serious attention.

3.9 It is therefore imperative that government, corporate institutions and agricultural industries should be focussed on taking co-responsibility to protect our economy.

3.10 We are positive that Agri Inspec can make a difference to stop illegal practices which affect the food and agricultural industries, provided that the necessary funds are available.

4. AGRI INSPEC VISION
Our vision at Agri Inspec is to deploy structures on a national level and to investigate and assist government structures in matters relating to illegal transactions to ensure a crime free trade environment in Southern Africa.

5. AGRI INSPEC OBJECTIVES IN CRIME PREVENTION
Our key objectives are:5.1 To develop our existing data base to determine the nature and extent of illegal imports of food and agricultural products which forms an important management tool in devising strategies to counter illegal imports.

5.2 To improve our existing intelligence network in order to gather all relevant information regarding illegal practices in the food and agricultural industry.

5.3 To direct court related investigations and to gather prima-facie evidence against illegal importers and syndicate members, where necessary.

5.4 To stop illegal imports and other irregularities in respect of food and agricultural products in Southern Africa.

ANNEXURE A
EXCERPT OF AGRI INSPEC SUCCESSES
1. In the first 4 years since its inception Agri Inspec was involved in the stopping of irregularities within the dairy industry to the value of R220 million. This represents a direct impact of 10c/l on the producer price of milk or a total effect on farmers income of R200 million. Over the same period the state fiscus collected additional taxes to the value of R146 million, which would have been lost otherwise.

2. The indirect effect is much larger. Using a GNP multiplier, estimated by Blignaut*, these actions led to an increase of R263 million in the gross national product. It also resulted in the safeguarding of 9 000 jobs which could have been lost if the products were allowed unhindered into SA.

3. During the period 1994 to 1997, dairy product imports escalated from approximately 6 000 tons per year to nearly 40 000 tons. After fixing the tariff structure from ad valorem to fixed tariffs on certain products, this figure fell back to around 10 000 tons per year. This decreased imports put back an estimated R308 million in the pockets of milk producers, translating to an effect of about 14c/l on the milk price.

4. So successful was Agri Inspec in curbing illegal trade in dairy products that the managing director of the National Milk Producers Organisation, Mr Bertus de Jongh, was able to announce late in 1999 that illegal trade in dairy products had for all practical purposes, come to a standstill. This is largely still the situation and the dairy industry has since become a net exporter of dairy products.

5. After successfully cleaning up the dairy industry, Agri Inspec spread its wings further by offering its services to other agricultural industries. Industries currently making use of this service include the pork meat, red meat, poultry, edible oil, sugar, tea, coffee & chicory, seed, National Fresh Produce Forum and milling industries, as well as the National Department of Agriculture and the aviation industry.

6. Companies in five neighbouring countries, Zimbabwe, Swaziland, Botswana, Namibia and Mozambique have also contracted Agri Inspec to conduct forensic monitoring services for them in various agricultural commodities.7. In one case alone in the Poultry Industry approximately 10 000 tons of poultry products were stopped from entering South Africa illegally via Namibia and Angola.

8. The practice whereby pork shoulders and bellies were imported under zero tariff classification as pork ribs to evade import tariffs was effectively stopped.

9. Refined edible oil imported as crude oil to bypass import tariffs was effectively addressed. In the most recent national operation Agri Inspec uncovered a large fraudulent practice whereby coloured sunflower oil was sold to consumers as extra virgin olive oil. (This investigation received broad media coverage, including Carte Blanche and other TV programmes)

10. Various loopholes and discrepancies within the red meat industry were uncovered and stopped during the past 2 years, such as:

- Certain meat cuts imported under incorrect tariff classification as fat to evade import tariffs;- Shared consignments of offal and meat, declaring only the lesser value offal and thereby evading import tariffs and VAT;- Double invoicing of consignments, presenting only one invoice for customs clearing purposes; and- Under declaration of the value of certain mutton imports (latest press release attached).

11. Misuse of rebate permits in respect of sugar were uncovered, one case alone involving 11 500 tons of sugar to the value of R23 million. In another major case a network was uncovered smuggling sugar in liquid tankers declaring it as molasses. The sugar industry was cleared 98% from illicit practices in just under 3 years.

12. These are just a few examples illustrating the threat of illegal imports in the agricultural and food industries. * Prof C Blignaut, University of Pretoria

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