Land Bank Progress Report on Implementation of the Agricultural Financial Instruments

Meeting report

The Chairperson welcomed all the Committee Members, entities, and Department of Agriculture, Land Reform and Rural Development (DALRRD) delegates to the meeting.

Apologies

The secretariat received apologies from the Minister of Agriculture, Land Reform and Rural Development and Mr Tshokolo Nchocho, CEO, IDC.

Briefing by the Land Bank

Ms Thabi Nkosi, Chairperson, Land Bank, shared the current state of the Bank, focusing on the following areas:

- Financial Discipline: Contained the level of Non-Performing Loans under difficult conditions of a significantly reduced loan book;

- Insources SLA Loan Book: Insourced the management of the SLA book from SLA intermediary partners, and significantly;

- Saved on SLA management fees, and also tightened the credit management of this portfolio;

- Resumption of lending activities: A pipeline of R1.454bn has been developed to accelerate momentum into FY24;

- Reduced Funding Liabilities: Reduced funding liabilities in line with the reduction of loan book (45% since default), with a further repayment being currently under consideration;

- Stakeholder engagement: A Reputation Management Plan has been implemented to proactively engage stakeholders;

- Audit outcome: The Bank received a clean audit outcome in the 2022 financial period from the Auditor General;

- Leadership Appointment: The Board is pleased to have appointed the new CEO, Mr Themba Rikhotso;

- Organisational Capacity: The Board continues to implement targeted employee retention strategies;

- Accountability and Consequence Management: Progress is being made by the Board to address outstanding instances of confirmed or potential misconduct that may have contributed to the Bank’s current position.

The Bank’s strategy includes reemphasising its mandate by having measurable outcomes like food security, environmental stewardship, inclusion of historically disadvantaged people, contribution to the GDP, job creation, and increase in economically active population. The client value proposition of the Bank proposes that businesses with an annual turnover greater than R50 million should facilitate transformation. Those with an annual turnover between R10 million to R50 million should increase production capacity, and those with an annual turnover of less than R10 million should enable value chain integration through digital platforms. The Bank seeks to work with DALRRD to significantly contribute to, but not limited to, effecting change in the patterns of land ownership by promoting greater participation in the agricultural sector of historically disadvantaged persons and an increase in ownership of agricultural land by such persons through the provision of appropriate financial services.

Mr Sydney Soundy, Acting Executive: Commercial Development and Business Banking, Land Bank, said that the AgriBEE Fund was established in 2006 by the Department in terms of the AgriBEE Charter and guided by the sector codes to facilitate broad-based Black Economic Empowerment in the agriculture sector. As of 31 March 2023, the balance on the fund was R363 590 302. The disbursements amounted to R68 672 047, and 45% of the amount was accumulated between April 2022 and March 2023. The Mafisa Fund was established by the Department in 2004 to fill the gap that resulted from the closure of the Agriculture Credit Board. As of 31 March 2023, the balance on the fund was R16 049 934, and disbursements amounted to R1 302 852 719.

In July 2020, DALRRD and Land Bank entered into an agreement for a grant amount of R100m to be allocated to the Bank as part of the Department’s programme of interventions to assist agri-businesses in mitigating the impact of Covid-19 on their operations. The Covid-19 his fund may be used as a loan instalment waiver of no more than one year of instalments due per farmer whose business operations have experienced distress caused by COVID-19 and associated intervention measures implemented by government. As of 31 March 2023, the balance on the fund was R92 510 371; disbursements amounted to R17 580 151 and 38% of the amount was accumulated between April 2022 and March 2023.

Mr Themba Rikhotso, CEO, Land Bank, said that the purpose of the Blended Finance Scheme is to:

- Support sustainable commercialisation of black producer’s farming enterprises in meeting food security and wealth creation

- Support enhancement of production and Agro-Processing by black producers through deliberate, targeted, and well-defined interventions

- Accelerate land redistribution and make land reform successful

- Grow the economy, create sustainable employment, and eradicate poverty

- Transform the sector.

As of 31 March 2023, the balance on the fund was R1 175 224 461, disbursements amounted to R539 675 695, and 0.63% of the amount was accumulated between April 2022 and March 2023.

The Minister of Agriculture Land Reform and Rural Development announced the establishment of the Agro-Energy Fund during her 2023/24 Policy and Budget Vote on 09 May 2023 for the purpose of financing farmers and agri-businesses, with the implementation of alternative energy sources in response to the energy challenges in the country.

Briefing by the Industrial Development Corporation (IDC)

Mr Bongani Miya, Divisional Executive: Agriculture Services, IDC, said that the objective of the Agri-Industrial fund established by IDC and DALRRD is to support economic growth, value chain expansion and broad-based transformation. There was a budgeted amount of R1 billion to cover five years of funding over 60% black-owned businesses. There are 845 jobs created throughout the country since 2021 in products, including poultry, nuts, vegetables, and dairy. Agri-Industrial Fund received two deposits since inception from DALRRD on 08 April 2021 and 15 December 2021, and it has earned interest amounting R29 million. There are key risks relating to the fund, and they are as follows:

- Cash generation negatively impacted by stagnant GDP growth

- Energy Supply constraints

- Water disruption due to ageing infrastructure

- Biosecurity limits access to markets.

The priorities of Agro-Processing and Agriculture include facilitating the aggregation model and co-funding model in partnership with Industrial Processors and FMCG companies, aligned to the SME Connect partnership approach. Livestock is the largest agricultural subsector; it has ample potential for accelerated and inclusive growth. South Africa currently exports four percent of its beef production, and poor biosecurity systems limit SA’s ability to grow exports to new markets. Whilst there is scope for expanding or replacing old orchards in response to consumer demand and taste in privately-owned agricultural land, the greatest opportunity is targeting under-utilised agricultural land. Most of the latter are made up of assets that are part of government’s Land Reform programme (land restitution and redistribution), and old irrigation schemes in former homelands that have unique micro-climates for key long-term crops identified in the Agriculture and Agro-Processing Master Plan.

Discussion

Ms M Tlhape (ANC) welcomed the presentations and said that the Committee would have to revert to the Department about some of the points raised by the Land Bank. She said that she was under the impression that all the programmes exclude small-scale and emerging farmers. She was convinced the programmes were put on hold to be revised and relaunched. This raises a question about the involvement of the Department in these decisions. What is the threshold on the AgriBEE Fund, and what are the statistics of the funds per province for the Covid-19 Relief and the AgriBEE funds? It would also be interesting to know the demographic of farmers funded to see if the transformation idea is implemented when decisions are made.

Mr N Masipa (DA) acknowledged the presentations, and she asked what capacity Land Bank has to fund all the scales of farmers they plan to fund, considering the number of applicants applying for funding. Is there a way the Bank could collaborate with government to increase the funding to reach a larger scale of farmers? How many staff members out of the 300 are in the frontline carrying out the pre- and post-finance support? How much of this support has been given to emerging farmers? He asked how the chairperson of the Bank sees it applying itself within the constraints that the Bank and the country are currently facing.

How did the Department and the Bank agree on a two-year MOU when the agricultural sector is long-term? Is the money that the Bank returned to National Treasury (from Mafisa) going to be received by the Bank again to fund the small farmers? He asked about the process of the Jobs Fund collaboration between the Bank and Hodfin, as it was not part of the presentation in the meeting.

He said that he was impressed by the outline of IDC’s presentation and how clear they were about the risk of the sector. He said that the Committee must investigate the legislation around biosecurity to address its risks. He asked how they are dealing with applications in instances where load shedding is a hindrance to operations.

Mr N Capa (ANC) appreciated the presentations, and commended the Land Bank for its liability reduction and for obtaining a clean audit opinion. He asked what other issues would make an applicant fail, apart from the exclusion points mentioned in the presentation. How long will it take to review the selection criteria?

Mr S Matiase (EFF) welcomed the presentations. He stated that both institutions play important roles in advancing the democratic dispensation. Their contributions cannot be measured by what appears to be a meaningless statistical number presented in graphs, but they must directly impact citizens. He commented that the Bank said they currently have R703 million was unbelievable, as the Bank cannot do anything with that amount. He assumed that it was a joke. He suggested that the Bank present its financial records before the Committee, and it should clarify what alternative revenue-generating sources it has besides the annual injections from the government. Clarity is needed on how funding vehicles are used on historically disadvantaged people, breaking it down by gender, race, and geographical factors.

He asked how far the poultry sector is with establishing 50 contract growers by the end of 2023. What is the demographic of beneficiaries of this target? He said he does not know how to feel about IDC’s presentation, pointing out that their selection criteria do not clarify to whom the ownership of the remaining 40 businesses belongs. He feared that it was for predominantly white people. There is also a concern that some black people could be used as fronts to give the idea that they own businesses that belong to whites. This does not necessarily mean that he wants white people to be excluded, but he wants historically disadvantaged people to be prioritised.

Ms B Tshwete (ANC) acknowledged the presentations and commended Land Bank for clarifying its role in the AgriBEE Fund and the role of the Department in processing the funds to beneficiaries. The Committee must follow up on the fraudulent activities, as there were issues raised in the media about certain misconduct with the fund. The MOA in Mafisa expired in 2013 at a balance of R136 million, which was returned to National Treasury. But it is confusing that, in 2014, only R35.9 million was approved. Where are the 25% of the youth that was funded under the BFS programme, and what was the alternative fund during the 18-month period of no operations? She also agreed that the programmes by the Bank are supposed to be funding previously disadvantaged farmers, but the presentation says nothing about the demographic of people funded.

She said that the IDC was very clear with its presentation, and the Department needs to intensify its monitoring of this entity. She raised a concern on the fund dashboard, saying that the Eastern Cape is not reflected as a beneficiary of the grants. This raises a question of why that is and how it can be rectified.

Mr M Montwedi (EFF) said that the Department tends to dump money on third parties to do key departmental programmes, and the third parties fail. The Land Bank has dismally failed to implement development-orientated programmes like the Job Fund, Wine Funds, AgriBEE Fund, Mafisa, Blended Fund and many more. He asked why the Department is still transferring money to the Bank when thousands of farmers are still struggling. What are they planning to do to remedy the situation as commercial banks ignore destitute black farmers?  

He agreed that the Land Bank failed to retain critical employees. But what are they going to do to ensure that they have capable and skilled employees in their team? How many positions remain vacant and funded by the Bank, like the branch manager position in North West? Why were the investment bankers in the Vryburg branch reduced from six to two? He asked how the black-to-white ratio of the beneficiaries is. How is it affecting the decision to invest in their farms?

What are the norms on affordability that are used on black farmers, and where does the Bank get data relating to performance of commodities? Some of the red tapes that were planned to be removed remain – are they willing to review applications that include them? Why is the Bank not funding farm improvements on communal and state-owned land without collateral? He asked if the Bank is willing to review how they deal with the livestock values of farmers in rural communal land – the same way they do with farmers on commercial land. Why is the Bank not funding farmers under claims, as those farms lose value? And how are they planning to expand their footprint by linking their offices with local municipality offices so that they can be accessible to farmers in their areas?

He asked the IDC how they cater for farmers requiring land to participate in any programmes approved by the entity. IDC is known for its tedious application process. How is the entity planning to improve it to a point where applicants can apply on their own? The policy that applicants must have at least 10% of the approved, funded amount is a hindrance, especially to the black community, as it is less likely to find that they have such amounts of money in their possession. He asked what programmes they are implementing to ensure that South Africa’s needs are met, because they put more focus on exports.

Ms T Breedt (FF+) asked if the IDC considers if applicants have received funding from the state before for other projects and if that disqualifies them. Is there a scale to measure the commercialisation of black farmers? Are there options for loans or does the entity only provide grants? And are the grants a once-off payment? She asked if there is a monitoring process to keep track of spending and if the funds are used for the intended purpose.

Ms N Mahlo (ANC) welcomed the presentations. She asked what the IDC is doing to ensure that they enlarge their footprint in provinces where their impact is low so that they are known more in those provinces and receive more applicants to increase their performance.

The Chairperson asked how the Land Bank ensures that applicants have profit sharing for farm workers, as stated on paper, because some farmer’s names have been used as if they are beneficiaries of some programmes even when they are not. The Committee is not just interested in the spending of funds but wants evidence of improvement of historically disadvantaged farmers. He asked for a report of beneficiaries detailing their race, location, farmer category and commodity. He asked this to be submitted by 19 May 2023.

Responses by Land Bank

Ms Nkosi (Chairperson) said they would provide more details of their response in writing, as requested. The Bank has been in a loss-making position merely two years ago. Through their work, they have come out of that state. The BFS is not on hold, and there is good progress recorded so far. They have looked at lessons to be learnt from previous programmes and have amended their credit policies to ensure that they offer credit in a manner that does not exclude those who need it most. They have reopened many provincial offices that were previously closed, employed sufficient employees to increase capacity, and trained bankers to understand their goals as an entity so that they could select deserving applicants. They have lost a lot of employees in the 2020 period but have embarked on stabilising activities to ensure stability in HR, so that capacity could be increased. They have decided not to reinvent the wheel for the support structures available in the sector. They are aware that some farm and commodity associations are skilled in providing programmes at the ground level, and they are partnering with them.  

Mr Rikhotso (CEO) stated that this is his second month with Land Bank, and he takes full responsibility for the concerns raised by the Committee. The capacity challenge is due to the Bank going into default, where the employees started resigning from their positions, but he prioritises restoring the Bank’s capacity. They have been investigating the capacitating model to be put in place to help with origination, and they are providing clarity to staff members about their revised focus area and plans to get out of the default state. There is a major shift in the number of applications that have been closed – the development impact and challenges that come from provincial levels. There is an HR workshop coming up to address the culture shift. He agreed that the Bank’s impact should not only be measured by the money they give but also by the effectiveness of development, creation of jobs, wealth created, and how well they are helping small farmers become commercial farmers.

The biggest change they are coming up with is to help create effective commercial farmers under the reality that black farmers experience more risks around finances, commodities, cost of inputs and access to the market. They want to take an eco-system approach, negotiate agreements on behalf of the farmers and ensure that they address all pay points with the partnership model. They are taking a full eco-system and value chain approach to ensure that the development impact is not just financial but also addresses the input-cost or cost-related challenges and market access challenges. He stated that the Bank would have failed in events where they were unable to achieve all these goals as intergrades and orchestrators. The funding model is currently not ideal for developing effectively, and they rely on debt and capital markets with many restrictions. This is the reason why the Bank is in default. There is a strategy workshop between National Treasury and the Bank to revise the funding model.  

Mr Soundy said the 18-month MOA in the AgriBEE Fund was made because of a revision. The fund is a grant and not a loan. The time taken does not affect the longevity of the transaction undertaken unless it is an already existing grant that goes on for a long period. Grants are set to a minimum of R1 million and a maximum of R5 million for any applicant, and they must be complemented by the applicants’ own contribution of 10%, depending on the nature of equity taken into the business. Dates on the Mafisa report can be very confusing, as they have given the numbers per financial year. Once the Bank has received land confirmation from a provincial land claims commission about a piece of land under claim. The sought outcome of the claim is not restoration so as to not interrupt the funding of the land.

The requirement from the Department is that the BFS should not be financing land under claim. There are discussions made to find common ground and a resolution. The criteria and exclusions that are specified are the ones that are taken into consideration when making a funding decision. And where there are matters of interpretation, they are in terms of assessment of viability of the transaction, as particular assessment tools must be applied. The relationship between the Bank and Hodfin still exists. Due to the liquidity and operation challenges, they could not maintain their relationship as expected, and Hodfin then sought for alternative financing partners to get support for their transactions.  

Responses by IDC

Mr Miya said that no one is turned away from being funded because of the energy crisis. There are funds to support alternative energy measures. They have the ability to extend the loan maturity date to enable the applicant to pay off the loan because what matters to them is creating wealth for them. The 60-40 split means that 60% is meant for black ownership and 40% for any other race. They assess the transactions to investigate the agreements that include off-takers and service providers. They are aware of the possibility of fronting and are alert enough not to fall victim. They receive applications from various applicants. Some applicants are the ’usual suspects’ whose balance sheets are known, and the entity does not turn them away if they qualify for funding. There is a system that captures the post-investment progress of the businesses where the applicants are supposed to submit annual reports. And there are monitoring teams that visit the progression of programmes on site.

There is a technical team that sits outside Agriculture. It monitors the industrial capacity of every applicant, and the number of personnel dispatched, to ensure that every transaction is successful and is like what may be done in a mining deal. Therefore, they do not take these transactions for granted. They are working on their geographical spread, as it has been challenging for a while now, especially in provinces that Members are worried about. Going forward, they would cater for farm acquisitions towards a viable enterprise that they could support. He indicated that they are working hard to digitise their system to make applications easier to complete.

The FMCG Companies are locally based, focusing on supplying products to the local market. He assured the Committee that the export participation is not detrimental to local food security.

Mr Kgampi Bapela (Head of Agriculture, IDC) said that the criteria are clearly stated in the MOA with the Department, guided by the mandate and the relationship between the IDC. The Department does not aim to change the IDC mandate, but it assists in accelerating and achieving development. They interact with commodity grouping by familiarising themselves to check what is considered viable because ‘emerging’ is often equalised to the black community.

Looking at the poultry masterplan before the IDC, there was never funding made for out growers. So, they engaged with the South African Poultry Association and agreed that the commercial scale is anything from 200 000 bit per cycle. That became the benchmark from which they started their funding. IDC has been able to facilitate ten commercial farmers in an 18-month period, and the funding is placed in a way that helps applicants to strengthen their balance sheets so that they could be eligible to take debt for expansion of their businesses.

Closing Remarks from the Department

Mr Mooketsa Ramasodi, Director-General, DALRRD, thanked the Members for their engagements, and said that the Department is aware of Land Bank’s history and how they are nursing themselves to good health. The Department is supporting the Bank in trying to ensure that it can service the categories as outlined in the Land and Agricultural Bank Act, including areas that are around the development of farmers. He has engaged with the leadership of the Bank to ensure that the funding instruments are moving quicker. As the Department, they need to also assist with ensuring that farmers comply, help with farmer’s business administration skills, and ensure that funding given meets the needs of the farmers. The Department monitors if the loans given by the Bank are reasonable and compliant with the current legislation. The goal is that once the grant portion of the loan is given, the loan portion should respond just to give farmers development finance to be on the mainstream.

He is encouraged by the progress shown by the new Board of the Bank, and he is confident that the Committee’s concerns will be erased. The Department will make a few proposals to IDC about the capital applicants should have for them to be funded so that this policy could be amended to accommodate the disadvantaged applicants. He said that issues around biosecurity, especially SPS measures from WTO or the three sister entities’ (IPPC, OIE and TBT) arrangements on food safety, are trade barriers against South African products. He noted issues that arose from this meeting and encouraged more discussions to bring clarity about them.   

The Chairperson thanked the Department and entities for their engagement, and thanked Members for attending the meeting. He reminded both entities to submit written reports to the Committee by 19 May 2023.

The meeting was adjourned.