Agricultural Produce Agents Amendment Bill: public hearings

Meeting report

The Chairperson indicated that the Committee would proceed with the second day of its public hearings on the Agricultural Produce Agents (APA) Amendment Bill [B33-2020].

Citrus Growers Association submission

The Citrus Growers Association (CGA) Industry Affairs Manager, Mr Paul Hardman, briefed the Committee on the CGA’s submission on the APA Amendment Bill.

Mr Hardman indicated that the CGA was specifically concerned by the additional regulations included in the Bill, such as the inclusion of credit insurance. It believed that this regulation would bar exporters from markets where credit insurance was not available or was too expensive. The CGA was also concerned by the requirement of additional trust accounts per grower, as this would be costly for small-scale growers.

He said that the CGA believes that the Act's objective is to promote transparency, effectively regulate produce agents, and provide sufficient protection to producers.

See attached submission for further information.

Freshworld submission

A representative of Freshworld agricultural produce agents, Mr Adolf Kiviet, highlighted five main concerns the company had about the Bill. These were:

• The requirement of additional trust accounts per grower would be costly for small-scale growers.
• The requirement for producers to register as directors would prohibit non-executive directors from participating in the fresh produce export industry.
• The additional costly examinations that producers would have to undergo.
• The marine insurance requirements would add additional transaction costs of at least one percent.
• The proposed fidelity fund contribution would place a burden on exporters.

 

Mr Kiviet said Freshworld had two recommendations for the Bill. One was that there be a review of the definition of agent, as the current definition was not representative of the fresh produce export environment. The other was greater reliance on current structures in place, such as the Fresh Produce Exporters Forum (FPEF), to self-regulate and provide guidance to the government on the industry.

See attached submission for further information.

Discussion

Mr N Capa (ANC) asked Freshworld what the difference between a redrafted Bill and the one currently under consideration. 

Ms T Mbabama (DA) said that the presentations had given valuable insight into the business of exporting produce and the Committee had noted the recommendations made. However, it was clear that the industry faced several challenges. She noted that presenters from both days of hearings had raised similar issues and recommendations, such as redrafting the Bill completely instead of Parliament passing a rehashed Bill.  

Ms N Mahlo (ANC) highlighted the importance of the Department looking into the loopholes contained in the Bill, as it would play an important role in growing the economy.

Mr N Masipa (DA) asked for detailed comments from the presenters on their concerns about the Bill so that the Committee would have a better understanding when it deliberated on it. He asked if there had been engagements between the Agricultural Produce Agents Council (APAC), the Department and the industry about the Bill before it was presented to Parliament. He noted that the industry was complex.

Ms T Breedt (FF+) noted that the Committee heard that there had been insufficient engagement between the Department, APAC, and other industry players on the first day of hearings. She proposed that the Committee ask the Department whether it had involved the various stakeholders during the drafting of the Bill. She cautioned Members against passing a Bill which did not include input from industry players.

Inkosi R Cebekhulu (IFP) said that the Committee would chart a way forward once all the submissions had been presented.

Ms M Tlhape (ANC) noted that both presenters had raised similar issues to the FPEF on the previous day. She asked whether the organisations were affiliates of the forum. The purpose of the Bill, she said, was to protect farmers, promote market access and ensure a level playing field for agents. Where in their presentations did the organisations touch on issues relating to the protection of farmers? 

Mr N Matiase (EFF) agreed that the industry was complex and involved players with different roles and skills. He asked whether the organisations believed that the amendments in the Bill would address the issue of rogue elements in the sector and assist in its professionalisation. Secondly, he asked what effect they believed the requirement of joining the fidelity fund and obtaining insurance would have on farmers and agents.

Responses

Mr Hardman said the CGA was concerned about how the Bill defined export agents, as it did not consider their involvement in supplying a range of services. The CGA believed that there needed to be a clear definition of what an export agent was and the agent’s roles. It further believed that the Bill needed to distinguish between a local agent and an export agent instead of referring to the former as a fresh produce agent. He recommended that local agents be referred to as local market agents. He added that the Department had copied and pasted an old Bill into the newly proposed Bill.

Regarding the payments to the fidelity fund, he mentioned that the Bill referred to the publication of notices, which would most likely be posted on social media platforms. He asked if stakeholders should be expected to monitor these platforms for the notices.

On the insurance requirement, he indicated that insurance would not be available in certain countries. Also, as one could not ensure the same fruit twice, producers would have fewer options when choosing an agent, simply because the first agent who acquired the insurance would be the only one able to do so. The CGA believed that this requirement should be excluded from the Bill.

Mr Hardman referred to the proposed amendment to section 16, which dealt with the prohibition of individuals acting as agents under certain circumstances. He said the CGA was concerned that when a claim was raised, it would immediately tie the hands of the export agents and limit their ability to sell perishable products. This would also affect the producer's returns. The CGA proposed greater flexibility to ensure that fruit in the system could be sold while the claim was being processed.

Touching on the proposed amendment to Section 18, which spoke of export agents having to open trust accounts, he said this requirement would add costs for export agents. They would have to open multiple accounts that had operational fees. Additionally, the Bill was unclear whether producers who had become their own export agent would still have to open a trust account. He believed that this requirement would mean that export agents would only open accounts for legislative purposes.

The CGA, he added, questioned whether industry operators would have to conduct a full audit on their own account or whether it would have to be some other formal auditing process. As some of the businesses were not large, the increased fees might create barriers over time.

Regarding the rogue elements in the industry, he said that the CGA did believe that the Bill helped create rules and prescripts for how agents should operate, but it should also promote greater transparency in dealings between agents and producers. For instance, agreements between the two should be in writing to ensure no hidden transactions. There should be clear communication from agents on their services to make the selection process easier for producers.

He indicated that the CGA had previously engaged with the APAC on engagements with other role players. It was currently interested in providing guidelines on how agents should conduct themselves and what circumstances they should operate.

On engagements between industry and APAC, Mr Kieviet said Freshworld was advised in 2012 that there would be an amendment to the Bill. The Department conducted workshops and Freshworld made submissions. However, none of the submissions came to fruition, and the Bill was not passed. Rules were put in place regarding export agents to make provisions for agents.

When the Bill was drafted in 1992, government regulated all exported South African fresh produce. Citrus was exported by Outspan and all other fruit by Unifruco. In 1996, fruit boards were deregulated, which led to an increase in market share for producers in the country. He said before 1996, South Africa exported 40 million cartons of citrus, whereas in the past year, it exported 160 million.

Mr Kiviet confirmed that Freshworld had engaged with APAC and the Department of Agriculture, Land Reform and Rural Development (DALRRD). Freshworld was surprised that the Amendment Bill had been tabled in Parliament, as APAC had indicated that the Bill had fallen away. He believed the Bill did not consider the changes that had occurred in the industry since 1996, nor did it take into account the intricacies of the trade, such as long transits and international trade. Rather, the Bill was drafted for fresh produce agents and rehashed to include export agents.

He confirmed that Freshworld was a member of the FPEF and APAC, as required by the law.

Regarding the protection of farmers, he said that the FPEF had a strict code of conduct for its members and any wrongdoing would be punished.

On the fidelity fund, he said that Freshworld did not believe that the fund would be able to prevent commercial growers from laying a claim against the export agent.

He recommended that the Bill be repealed and a new one be drafted, as the current one did not consider the intricacies of the trade.

Agbiz submission

Ms Annelize Crosby, Head of Legal Intelligence at the Agricultural Business Chamber (Agbiz), highlighted issues of concern. These were:

• The proposal that the period of subscription of claims be reduced from 6 months to 3 months. Agbiz believed that it was too short.
• The requirement for fresh produce agents and export agents to have insurance, which Agbiz believed would reduce competitiveness, increase barriers to entry and introduce significant costs.
• Over-regulation in the Bill.

 

Agbiz submitted that the Department reconsider including the insurance requirement in the Bill. It also submitted that the requirement for each director, trustee or member of such an entity to be in possession of their own fidelity fund certificate should be scrapped. 

See attached submission for further information.

South African Fruit Promoters submission

The Managing Director of South African Fruit Promoters (SAFPRO), Mr Mark Jensen, underlined the insurance cost for growers and exporters in the industry. It would exclude exporters from markets where credit insurance was not available or was too expensive. This would harm industry players and the economy and contribute to further job losses.

He highlighted the harmful effect the requirement for additional trust accounts per grower would have on small-scale growers, and they would struggle to afford their operational costs.

Mr Jensen submitted that the Bill should allow the industry to self-regulate instead of creating additional regulations, adding greater burdens to operators in the industry.

Discussion

Mr Capa asked if the current subscription period in the Bill disadvantaged the producer and, if so, how. He asked what was meant by the term over-regulation.

Mr Matiase said that the presentations had been informative and would enrich the Committee’s discussions on the Bill. 

Mr Masipa asked Agbiz what legal and financial implications the passing of the Bill would have for the industry. Did the Bill include wine as a finished export product? Why would the Department want to proceed with the Bill, particularly as the industry had rejected it?

Responses

On the subscription period, Ms Crosby said that the notice period was too short, and it would be safer to extend the period.

Regarding over-regulation, she stated that the Bill should look to balance the protection of the industry and the costs to those involved. 

On insurance and the trust accounts, she said that there would be an additional cost for export agents who had not previously been required to obtain insurance and trust accounts. Both would affect every role player in the value chain.

She was unsure if the Bill covered wine as a finished product.

The Chief Executive Officer of Agbiz, Mr Theo Boshoff, said wine would not be covered under the Bill as it was not a perishable product.

On the cost of the insurance requirement, he said that the total value of agricultural exports in the country was roughly R200 billion a year. The opportunity costs of losing export markets would be greater than that, and the loss of market share due to insurance would cost the industry billions of rands.

Mr Jensen mentioned that export agents were excluded from the Bill passed in 2003. This led to a situation where export agents had to be members of APAC to qualify as an exporter, and there were no regulations to ensure good practice. The Bill, in its current form, would have a disastrous impact on the industry.

He highlighted that the industry had been successful since its deregulation in 1996 and most of the transactions conducted had been above-board. The government had to find a balance in allowing the industry to grow, police itself and protect new entrants.

On the cost of insurance, he said 32 percent of markets were non-insurable. The loss of these markets would harm the economy and lead to job losses. While he was pleased that the legislation intended to protect small growers, it should be noted that the industry operated in a global economic system.

Institute of Market Agents of South Africa submission

The vice president of the Institute of Market Agents of South Africa (IMASA), Ms Theresa Fredericks, briefed the Committee on the role of agents in fresh produce markets.

She said that IMASA was against additional insurance being required for fresh produce agents, as they had already been contributing to the fidelity fund for the past 30 years. Fresh produce agents never owned the product in their control and managed products on consignment, and they often did have insurance for products in their private cold rooms. Instead of additional insurance, IMASA recommended three fidelity funds - an exporters fidelity fund, a livestock fidelity fund and the current fresh produce fidelity fund. This would reduce risk in the sector.

Another issue was that more and more producers were selling their products directly to wholesalers and consumers instead of through fresh produce markets. With the proposed additional insurance in the Bill, this trend could increase further.

See attached submission for further information.

South African Federation for Livestock Auctioneers submission

The Chairman of the South African Federation for Livestock Auctioneers (SAFLA), Mr Johan Vosser, referred to schedule 1 of the Bill. He said it only referred to fresh produce agents in part A and livestock agents in part B, whereas export agents were not captured in the headings. It was pleasing that livestock agents were covered in the Bill. SAFLA wanted ostriches and game to be added to part B so that all products were listed in the schedule.

See attached submission for further information.

AAM Livestock Agents and Auctioneers submission

An accountant at AAM Livestock Agents and Auctioneers (AAM), Ms Karen Melouney, told the Committee that the Bill burdened auctioneers with unnecessary and excessive red tape and costs. AAM believed that this would threaten the economic survival of auctioneers, which would, in turn, affect small-scale farmers. One example of this was the requirement that producers have audited financial statements.

AAM called for the requirement for registration of all directors and members of closed corporations to be removed. It recommended that registration should only be for the business entity. It also called for the removal of the requirements for the fidelity fund, credit insurance and trust accounts from the Bill.

See attached submission for further information.

Discussion

Mr Capa asked IMASA why it recommended three fidelity funds to reduce risks in the agricultural sector. Did it still believe that the fidelity funds would assist after hearing the views from other presenters? What risks had the fidelity fund in the fresh produce industry covered? How much money did the local fidelity fund have? He was aware that many producers were selling directly to wholesalers. In addition, several countries did not have fidelity funds; having this as a requirement for trade would lead to a loss of market share.

Ms Breedt said that the Committee should debate the issues raised.

Mr Capa asked AAM if small-scale farmers sold to abattoirs. If so, what impact would the Bill have on their sales to the abattoirs?

Ms Fredericks said that IMASA believed that livestock and export agencies should have fidelity funds to minimise risk for the industry. Over time, the current one had grown and stood at R50 million.

Ms Melouney said that small-scale farmers did have access to abattoirs, although via auction. As the abattoirs usually bought in bulk, only large-scale farmers sold directly to them. A small-scale farmer who sold one cow to an abattoir would get the same price per kilogram as the large-scale farmer that sold 40 slaughtered cattle. She was pleased that small-scale farmers contributed 43 percent of the turnover in KwaZulu-Natal in the previous financial year.

Mr Masipa asked IMASA what the risks they had referred to in the presentation were. He asked whether the fidelity fund protected producers who sold directly to retail outlets such as Woolworths or Checkers. 

Ms Fredericks said that the fidelity fund

 did not protect producers who sold directly to retail outlets, and the fund only protected producers who sold directly to fresh produce markets.

Mr Masipa asked what risks IMASA had encountered over 30 past years, which it believed needed to be covered in the Bill.

Ms Fredericks said the biggest risks were theft and fraud. The APAC regulated the salespersons and the market agents to eradicate that risk.

The Chairperson thanked the presenters for their detailed presentations on the Bill.

The meeting was adjourned after the adoption of minutes.