Black economic exasperation!

Strawberry farmer John Sandison’s plan to sell 36% of his company to 15 black workers has been plagued by hurdles from the Department of Land Affairs, and has turned a BEE opportunity into a bureaucratic nightmare. Robyn Joubert reports.
Issue Date 27 April 2007

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Strawberry farmer John Sandison’s plan to sell 36% of his company to 15 black workers has been plagued by hurdles from the Department of Land Affairs, and has turned a BEE opportunity into a bureaucratic nightmare. Robyn Joubert reports.

Ask Cato Ridge strawberry farmer John Sandison how his plan to sell 36% of his company to 15 black staff members is going, and you’ll be met with a stony face. “My frustration is unprintable,” he says. “I have given up. don’t even phone the KZN of Land Affairs and Agriculture any more. I get nowhere and don’t have the time to sit on the phone all day. I’ve got a farm to run.”

John established his strawberry and vegetable farm Red ‘n Jucy in 1999 after he obtained a licence to the US-based VertiGro system, where strawberries are grown in moulded polystyrene pots stacked in vertical columns. n 2005, motivated by a desire to offer his staff a better life, and under pressure from a major retailer to become BEE compliant, John applied for black economic grants for his 15 workers to purchase 36,6% of the shareholding in Red ‘n Jucy. At the heart of the buy-in is the plan to increase the number of strawberry plants from 50 000 to 200 000. This would not only have a fourfold impact on turnover, it would also have a real impact on shareholders’ lives, says John. “Based on the estimation that these plants would each yield 400g of fruit a year, we would harvest 80 tons for a turnover of R2,4 million,” John says. “And if they yield 300g of fruit per plant per year, this would translate to 60 tons, or R1,8 million. At the end of the year a commercial decision would be taken on what dividends to declare and what profits to reinvest. Based on the assumption that if we make R1 million profit and reinvest half, the workers could each be paid out R16 000 per year. That can make a real difference to their lives.”

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On 3 November 2005 Deloitte & Touche submitted John’s business proposal to the of Land Affairs. The business plan included the proposed purchase of 6ha of land adjacent to Red ‘n Jucy from Rainbow Chickens to expand the operation. They applied for grants of R36 100 per worker, and an advance of R36 000 (R6 000 for land evaluation, R10 000 for surveying and subdivision and R20 000 for the establishment of the legal entity). One step forward … Eight months later (3 July 2006), John received good news from Zama Molefe, acting deputy director for the Department of Land Affairs Pietermaritzburg district office. In an e-mail, Molefe said that on 7 June 2006 the Provincial Grants Approval Committee of the Department of Land Affairs had approved the application. Red ‘n Jucy workers appointed two members of their staff to act as trustees, along with John and his wife Jenny, and an independent auditor. Based on the advice of Land Affairs, John then went ahead with the legalities and spent R12 000 on property valuations and legal fees. But when Rainbow Chickens decided against selling the land, John had no option but to change the plan from purchasing land to converting a portion of his own vegetable fields to high-density VertiGro strawberries.

“VertiGro is a high-density, hydroponic system,” John says. “We only have 3ha of land – but in the VertiGro system, land is of less importance. You can grow six times as many plants in the same area as you would grow farming traditionally in the field – half a hectare can accommodate 150 000 plants in VertiGro pots as opposed to 25 000 plants in the field.”

After the Rainbow blow, the Department of Land Affairs has become “uncontactable”, says John. “We used an NGO to find out why the project had died. It managed to establish that the project had to be ‘re-motivated’ due to the fact that land would no longer be purchased from Rainbow. I faxed [land and agriculture] minister [Lulama] Xingwana a ‘re-motivation’ on 8 October 2006 informing the department of the changes, which ultimately did not affect the viability of the business in any way. If anything, it makes the project more viable as we do not have to spend additional money on land, and can rather use the money to develop existing land to its full potential.” ut eight months after submitting the re-motivation, John says there is still no acknowledgement of the fax from the minister’s office, nor has any response been forthcoming from the of Land Affairs.

In a telephonic conversation with Farmer’s Weekly Molefe gave her side of the story, “A few of the conditions on which the Red ‘n Jucy grant was approved have changed,” she said. “John is no longer expanding in the form of buying land from Rainbow Chickens – the workers will be buying shares in an existing business and he has not confirmed with us how many shares he will be selling. Because of these changes, we had to rescind the application and could not release the funds. We need to meet again with John to make a reassessment and to agree on the shareholding structures.

People with expertise, such as legal and agricultural, will need to attend that meeting. Once we know how the funds are going to be used, we can then resubmit to request the release of funds. It is up to John. I can set up an appointment as soon as we can get the other role-players to the meeting.”

Molefe’s response comes as a surprise to John. “This is now a new story. We were told time and again that the submission merely had to be re-motivated and there was nothing further that we had to do,” John says. “But now suddenly they say it is up to me to re-submit. If it was up to me, I’d have done it ages ago. The percent shareholding was agreed to long ago and was based on the net asset value of the company.” With the current stalemate, all parties lose out: the workers lose out on their profit share, the company doesn’t have the capital input to increase levels of capacity and hence profits, and the government gets grumpy because it’s not seeing transformation in agriculture. “The Department of Land Affairs is incapable of fast-tracking a relatively uncomplicated issue to completion. Government should get its own house in order before pointing fingers at others and setting up new divisions,” John says, referring to KZN premier Sbu Ndebele’s announcement in February that government would establish a provincial black empowerment council to speed up the slow pace of transformation of business ownership in his province.

What should have been a BEE opportunity has now become a complicated knot. And if the saying “the head sets the culture” holds any measure of truth, John might still be in for a rough ride. The KZN Department of Agriculture has to date lost R115 million of taxpayers’ money, with KZN agricultural boss Jabulani Mjwara and his chief financial officer Petrus Mahlangu still smarting from auditor-general reports that found discrepancies in their department’s finances for two successive financial years. This has resulted in a planned disciplinary hearing and the Scorpions now waiting for clearance to conduct a search-and-seizure at the department’s shambolic Cedara headquarters. John wonders whether the lost R115 million has left Molefe’s department with empty pockets, unable to fulfill its financial promises.

But Molefe says that while she cannot comment on the missing millions – that issue concerns the Department of Agriculture, not Land Affairs – it does not affect the awarding of grants. “That money is allocated and available. All John needs to do is reassess and re-submit,” Molefe says. “Reassess what?” John asks. “Changing the ground on which a crop will be grown doesn’t change anything – the profit forecast remains the same. Both my workers and I are anxious to go ahead, so why do they cause delays?

This is the same old story of government blaming the farmer for the delays.” According to Molefe there are no delays. “The average application process is estimated at six months due to the screening process that projects go through. The department does not only receive BEE applications, it also receives projects and packages them accordingly. The department does not have a backlog on the applications. They are processed as and when they arrive.” In the meantime, John continues to wait. Contact John Sandison on (031) 767 2096. |fw