In 2002 commercial farmer Jan Wilkens decided the time had come to sell his layer enterprise in the Heidelberg valley, 5km from White River in Mpumalanga. Nic Elliot, currently managing director of Heidel Eggs, was then a young entrepreneur from Nelspruit who had a very close bond with the people on the farm. When he heard the farm was up for sale, he suggested that instead of selling it to another commercial farmer who’d be a stranger, Jan should let the workers buy it.
After getting a valuation of the farm and agreeing on a price, the new owners-to-be set about obtaining finance. This was very time-consuming and at times it took long negotiations to keep the deal alive. “We battled to get bank funding so we approached the government for a grant,” recalls Nic. “The Department of Land Affairs gave us a grant that covered 50% of the purchase price of the farm. For the balance we secured a loan from the Land Bank, which was later taken over by Standard Bank. Obtaining this government grant was really important as it let the company offer quicker returns to the beneficiaries and ensured they bought into the project from the start.”
Thus, in October 2003, 221 farm employees became the new owners of the 68ha Heidel Eggs farm. F or the project to raise a large enough grant from government funds, they needed a critical number of beneficiaries because grants are allocated per person involved in the project. As Heidel didn’t have enough workers to make up the number, some family members were also given the option of becoming “passive” beneficiaries of the trust.
Furthermore, non-South African citizens can’t qualify for government grants. “At the time there were a lot of Mozambican nationals working on the farm,” says Nic. “Even though they couldn’t become beneficiaries, we still wanted to take care of them. It was agreed that all our non-South African workers would get the same benefits as the beneficiaries in terms of dividends, etc.” Officials approved the arrangement. Not all the farm’s current workers are beneficiaries, as some started working after the inception of the project. Nic says newcomers would need to find a way to buy into the trust, for example by obtaining further grants from government.
Challenges and disappointments
As with all new ventures there were some challenges in the beginning, not least of which was the lack of a similar project that could be used as a model. Heidel Eggs has really been a pilot project for similar operations to learn from. “We have also had to put significant time into explaining to the workers that they needed to be committed to the project’s long-term success and not to see it as a way to get rich immediately,” says Nic. Despite initial expectations of the benefits of BEE, Nic says there have also been some disappointments. “We’re a 100% black-owned enterprise but we receive absolutely no benefits in terms of guaranteed markets, higher prices or preferential treatment of any sort. And while we’re still successful, I do believe when we started we expected the business would benefit from its BEE status.” It seems that retailers give no preferential treatment to BEE companies and the procurement of goods from them currently isn’t monitored within the agricultural sector.
Successes and benefits
“One of our biggest successes in this project is that we’ve managed to pay out dividends each year since we took over ownership,” says Nic. This motivates beneficiaries in staying committed to the project and is no small feat, given that with high debt loads it takes many BEE projects an average of five to 10 years before dividends are paid out. Dividends have been limited to enable the company to upgrade its transport fleet, improve workers’ housing and train the new shareholders in various skills. “The people on the farm seem happier,” says Nic. “When one takes it all into account, the average standard of living on the farm has improved over the last five years.” The company has also made 3ha of land available for employees to grow their own vegetables.
“Benefits are not always as obvious as one would think,” says Nic. “If someone wants to buy an electrical appliance such as a fridge or TV, the company will buy it on their behalf and deduct the cost from their monthly wages. We strive to buy these items in bulk and pass on the discount. The beneficiaries also avoid paying high interest. We’re trying to teach them to avoid incurring a lot of debt. We give loans to people who have needs their wages can’t cover. In addition, every beneficiary gets an allocation of eggs each week.” Heidel Eggs has a brand new packhouse and offices, funded partly by the Mpumalanga provincial government’s Comprehensive Agricultural Support Programme (CASP) and partly by Heidel Eggs. Nic says provincial and national government still follow the progress of the project. “They take an interest in what we do and help us when they can, which the beneficiaries greatly appreciate.”
Growth in production
The company produces almost 120 million eggs annually and has a turnover of R80 million. “Our point of lay production has improved from 75% to 120%,” explains Nic. “Previously we could only rear 75% of our layer hens when we brought them in as day-old chick. Now we have enough production houses to supply 100% of our own needs and raise another 20% to sell to others. We also employ more people now than in 2003.” The farm has 10% more layers than it did in 2003 and has expanded layer production into Mozambique. The company was already operating in Swaziland in 2003 but its capacity there has doubled. “Its difficult to export eggs into other countries’ markets, so we decided to establish a production plant with local partners,” explains Nic. Nic is very positive about operating outside South Africa’s borders. When the company started its Mozambique plant, it offered its Mozambican employees the opportunity to go back to their home country and work there – a few accepted and a few opted to stay in South Africa.
The South African Poultry Association has launched an awareness campaign to show consumers that eggs are the cheapest available source of protein. Nic is confident this campaign will increase the demand for eggs, giving Heidel Eggs the scope to expand its local production. “We have the facilities to increase our output, but market demand restricts us, so we need to find a way to increase it,” he explains. The company is also looking to expand further into the rest of Africa. “We believe there are major opportunities to expand our production in Mozambique and potentially into Namibia too. We could even increase our capacity in Mozambique and export the eggs back here. We also have our eye on Zimbabwe.
” With a twinkle in his eye he adds, “When I see the Zimbabwean cricket team in action, I see a country that needs help!” Jokes aside, Nic believes Zimbabwe could offer “excellent opportunities” when the political situation calms down. “We believe we can develop a good footprint in the Southern African Development Community.” Heidel Eggs’ local operation is a huge buyer of feed for the layers. “We’re looking into our own feed mill and have already identified land for it,” says Nic. “We’re in discussions with the provincial government to build a feed mill where we would further backward integrate by buying in maize from small-scale black farmers in the area – a mutually beneficial relationship.” Looking even further into the future, he feels the business would benefit from its own hatchery.
Looking back on five years
“We feel we’ve done well in a very short time,” says Nic. “Despite our problems, our success has been enhanced by the intervention of the Department of Land Affairs at national and provincial level. We need to thank everyone who’s helped this project get to this point.” He adds, “We believe our success is partly because the farm retained its core personnel from the top down, regardless of skin colour.” The company is a strong believer in investing in its people. “If your people have the right mindset and are positive about the initiative, make them a part of the process.” Nic has a passion for agriculture, but sometimes feels that the industry doesn’t get the recognition it deserves. “Agriculture employs people who have minimal or no skills and plays an important role in the South African economy,” he explains. “Food shortages all over the world will make people more aware of the support that should be provided for farmers.” Nic believes that emphasis needs to be placed on training previously disadvantaged individuals who enter the agricultural industry “to build the agriculture sector in this country properly.” He is hopeful that South Africa will see more and more successful agricultural BEE projects. With Heidel Eggs paving the way, at least they’ll have a strong success story to learn from. Call Heidel Eggs on (013) 751 3897 or e-mail Mark Gouws at [email protected]. |fw