Farmers reject ‘one size fits all’ AgriBEE document

Farmers across the country are unhappy with the minister of agriculture’s latest adjustments to the AgriBEE draft document. Good news, however, is that the industry can revert to the generic document set by the Department of Trade and Industry if it does not accept these changes.
Issue date 23 March 2007

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Extensive farming makes empowering employees by land transferral difficult.

Farmers across the country are unhappy with the minister of agriculture’s latest adjustments to the AgriBEE draft document. Good news, however, is that the industry can revert to the generic document set by the Department of Trade and Industry if it does not accept these changes. Glenneis Erasmus reports.

Farmers spoke out at the recent Overberg Agricultural Indaba against the minister of agriculture’s latest adjustments to the AgriBEE draft document, which lowers the exemption level for practising BEE from industry’s proposed million to million and raises ownership levels from the proposed 25,1% to 30%. draft document has still not been officially accepted, but rumour has it that the minister has loaded the steering committee with new members who – in contrast to the previous committee – will support these proposals.

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Most farmers don’t understand why empowerment guidelines should be stricter for agriculture than for other industries. Kelly Theunis, chief planner of Cape Winelands and Overberg district in the Department of Land Affairs, answered this question at the indaba. She said the agricultural industry is so small that more than 80% of farmers would be excluded from employing BEE if the cut-off was raised to R5 million. Johan van Rooyen, CEO of the Wine Industry Council, adds that whether the cut-off is at R1,5 million or R5 million is academic, as more than 90% of all farmers have a turnover of less than R1 million according to the 2002 survey.

The survey revealed that 86% of farmers have a turnover of less than million, while in the wine industry 98% have a turnover of less than R5 million. Hence only 12%, or 300 farmers, would be included if a R1,5 million cut-off was used. T obias Doyer, CEO of the Agricultural Business Chamber, considers these statistics rather questionable. He may be right – the average turnover for deciduous fruit producers in 2002 was between R8 million and R9 million, according to Anton Rabe, CEO of the Deciduous Fruit Producers’ Trust.

Turnover or profit?
“It should however be borne in mind that hardly any of these producers made a profit that year. The fruit industry’s turnover should rather be calculated over a three-year period, due to its cyclic nature and the impact of climate, exchange rates, consumer trends and other external factors that influence farm profitability and turnover,” Rabe says.
He adds that farm turnovers might be inflated by other farming activities that have nothing to do with primary production, as many fruit producers add value to production by having their own packing houses, running packaging or drying operations or becoming part of secondary production. he discrepancy is also evident in the grain industry. Neels Ferreira, chairperson of Grain SA, says that a grain farmer with a turnover of million is a relatively small farmer with a profit lower than that of most other farming enterprises. However, profit margins depend greatly on production methods, whether grain is produced under irrigation or not, and the area in which grain is produced. S chalk Viljoen, representative of Grain SA, feels the vast differences between farm operations should mean differentiation in the cut-off points for different types of farm. “A Karoo sheep farmer could be making a profit with a turnover of R1,5 million, while a grain farmer in the Southern Cape with the same turnover might be farming at a loss. The grain farmer might be making a small profit at R5 million turnover, but the Karoo farmer with this turnover would have to farm the whole Karoo,” Ferreira told the indaba.

Arnold Brand, chairperson of the Red Meat Producers’ Organisation, admits that turnover for animal producers is lower on average than for most other agricultural sectors, and that over 90% of animal producers would be exempted from introducing BEE if the exemption level was raised to R5 million. More than 40% of these producers are emerging farmers while the remaining 60% are commercial, giving a skewed representation of animal producers’ turnovers. He adds that many successful commercial animal producers also operate at high turnovers of up to R8 million. The R1,5 million cut-off point is therefore also too low for animal producers, says Brand.

Brand is also unhappy with the distinction grain producers in the southern Cape are trying to make between themselves and producers from other branches of farming. “Turnover is irrelevant. Whether you are an animal or grain producer, you need to make a certain percentage for every rand you invest in the farm,” he says. He adds that various farmers have diversified production to incorporate both grain and animal or other factors to reduce risks. “Most of the farmers in the southern Cape also have an animal factor, so they should not point fingers at other sectors or other production areas,” he says. Unique problems Each sector also poses its own problems. Most extensive animal producers who only farm with animals have only one or two workers. Hence there are fewer opportunities for these farmers to practise empowerment and comply with BEE requirements than there are for other sectors.
Most Karoo farmers farm extensively, which means they need at least 10 000ha to farm profitably. This makes it difficult for them to empower employees by means of equity schemes or land transferral. Grain farmers have a similar problem. Richard Krige, chairperson of the Caledon Farmers’ Association, says that a grain farmer in the southern Cape needs at least 1 250ha to be economically viable. Giving away 30% of your farm, or engaging in a 30% equity share scheme with an empowerment group, will only place more pressure on margins that are already strained by current market conditions.

Van Rooyen and Doyer believe that one of the reasons why the limit for ownership has been set at 30% is because the minister is using the charter as a vehicle for land reform. “Farmers should not confuse empowerment with land reform. Land ownership is only one of seven ways through which a microenterprise, with a turnover of R5 million according to the generic and wine charter and R1,5 million according to the AgriBEE draft, can practise empowerment,” Van Rooyen says. Doyer adds that a microenterprise only has to score in four of the seven divisions when practising empowerment – which means it doesn’t have to create empowerment through land ownership or equity sharing if it does not wish to.

Van Rooyen thinks that government actually places a higher premium on the social dimension of the charter than on ownership. He points out that a report on social empowerment has been requested in five years’ time, but that the report on ownership has only been requested for 10 years from now. He adds that the aim of negotiations in the development of the AgriBEE charter and industry scorecard should be to provide farmers with as many options as possible to practise empowerment, and to acknowledge their efforts when they achieve it.

Wine industry charter
The wine industry, unlike other agricultural sectors, is drawing up its own wine charter. Van Rooyen explains that this sector already had a plan to enhance profitability, and was developing its own scorecard before the AgriBEE charter was proposed. When industries were given the option of creating their own charter or using the generic scorecard, the wine industry opted to create its own charter, which stipulates a R5 million cut-off and 25,1% equity share level. One of the sections of the Wine Industry Plan made provision for black economic empowerment. Van Rooyen says that the industry worked very closely with government in the development of the generic charter and decided to use the cut-off proposed by government and not the AgriBEE draft charter.
He points out that the cut-off for the generic charter was originally R300 000 last year while the AgriBEE draft document proposed a R5 million cut-off. Later, however, the level for the generic charter was raised to the current R5 million, while the level for AgriBEE was reduced to R1,5 million. None of the other agricultural sectors developed their own plans and Rabe says he does not think it is necessary. “The industry would be satisfied to follow the AgriBEE charter, if it is based on sound economic principles and if it is in line with the generic charter that was released earlier this year,” he says. Van Rooyen considers that specific sectors will simply revert to the generic codes if they are dissatisfied with the AgriBEE charter.

Anxiety about the higher levels required by the AgriBEE document is therefore unnecessary. In the meantime Louw Steytler, vice-president of Grain SA, also advised members at the Grain SA Congress at Bothaville in March that the producers should resort to the generic Codes of Good Practice or the charter determined by the Department of Trade and Industry if the goals set by the AgriBEE document are unattainable. |fw