Massive Fraud Programme – and the plan to fix it

Despite enormous agricultural potential the Eastern Cape remains a net importer of food staples. The government launched the Massive Food Programme to turn this situation around, but with little effect. Farmer’s Weekly can now reveal land still lies fallow because this money became easy pickings for tractor mafias and fraudsters who systematically looted the state coffers with the help of corrupt farmers and officials. Stephan Hofstätter uncovers the Massive Fraud Programme, and government’s efforts to clean up the mess.
Issue date 17 August 2007

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The Eastern Cape government clearly had noble intentions when it launched its ill-conceived maize subsidy scheme, which it expected to feed the Cape. Despite enormous agricultural potential, the province is a net importer of maize, the staple diet of most of its people. R ather than provide the poor with food handouts, the government opted for a conditional grant system to stimulate commercial maize production. Once farmers found their feet, the subsidy would be phased out.

The Massive Food Programme (MFP) was launched in 2003 with a R50 million budget. In 2004 it received a once-off allocation of R150 million, half for tractor and equipment costs. Another R336 million was allocated from 2005 to 2008. M assive, as it was dubbed, focused on high-potential agricultural land in the former homelands of the Transkei and Ciskei. It had two aims. First, to correct market failures in communal areas inherited from apartheid. These included crumbling or non-existent infrastructure hampering the transport, storage, processing and marketing of grain; a low skills base as a result of Bantustan education; and the difficulty farmers had in accessing credit because communal land can’t be used as collateral. It would do this by consolidating land holdings, providing training and credit to farmers, and improving farm infrastructure. S econd, it serves as a food security grant. People with small communal land allotments can lease them to aspirant commercial farmers.

Repayments can include a share of the crop, and are initially sponsored in the form of inputs paid for by the province’s food security programme. Farmers had to comply with strict criteria to qualify for the grant. It was only available for high potential agricultural land capable of yielding over 3,5 tons/ha of maize with mean rainfall of at least 500mm between 1 November and 30 April, or reliable irrigation. Soils had to have an effective rooting depth of at least 600mm and slopes couldn’t exceed a 6˚ gradient. The land had to be a contiguous block of at least 50ha, within a 15km radius of at least 200ha used for the scheme, accessible by a 5-ton truck. Grants were initially up to R2 300/ha to cover input costs.

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Farmers were required to pay back 25% of the value of inputs used to Uvimba Rural Finance Corporation, the provincial parastatal implementing the scheme. Paybacks rose by 25% each year until the subsidy was phased out. The conditional grant was supplemented by an interest-free loan for mechanisation, either to farmers or tractor contractors, who were supported if they signed up at least 120ha consolidated from MFP units and based on their experience or training. Extension officers were appointed to each district municipality to verify farm units and supply needs and ensure the remaining qualifying criteria were met, co-ordinate training and technical support, and liase with tractor contractors. All district managers in the provincial agriculture department sit on a board with Uvimba officials to monitor effective implementation. Widespread abuse The programme got off to a shaky start. In the first two years 15 000ha were signed up, involving 250 entities.

The average yield was 1 ton/ha – less than three times the expected. Hardly any farmers paid back a portion of inputs. Anecdotal evidence suggests abuse was widespread. Contractors, peasant producers, input suppliers, commercial farmers and officials colluded to fraudulently sign off on orders never delivered, or pay for soil preparation never done. Compliance criteria were frequently waived so farmers and local officials could get their hands on the loot. These abuses were confirmed by senior agriculture department officials and a devastating audit report on Massive leaked to Farmer’s Weekly. The report was commissioned by Uvimba, based on a field audit of 43 projects in the Chris Hani region. It found only four actually qualified fully. A senior government official says it was common knowledge that over half the sites used weren’t suitable. “The selection of sites was driven by political and social concerns,” says the official euphemistically. “High-potential land was left fallow and places with low rainfall and high slopes used instead. They were doomed to fail.” Criminal cartels Some of the concerns highlighted in the report were technical in nature.

They included incorrect chemical and fertiliser application, inability of farmers or officials to calibrate equipment, bad timing of applications, using the wrong cultivars, and poor business plans. Contractors, farmers, input suppliers and government field officers were all fingered as lacking the right knowledge and expertise. Other concerns raised amounted to fraud, profiteering and the creation of criminal cartels. An audit of inputs found several discrepancies pointing to fraud. They included inputs being sold instead of used on farms; claims for inputs that weren’t delivered; and claims for inputs that weren’t needed. The report listed 16 projects requiring further investigation for fraud. The scheme’s mechanisation component came in for a pounding.

The report branded tractor contractors “profiteers [with] little concern for the well-being of the farmer”. Despite the official requirement for contractors to have the right skills, equipment and training, in reality anyone with a tractor could sign up and plough, plant and spray for a handsome fee funded by taxpayers. The report found tractor owners “form units like the taxi associations with enormous power, to the detriment of emerging farmers”. Tractors, boom sprayers and planters were often in poor condition and continually broke down. This caused production delays, inaccurate application of inputs and poor planting depths and spacing. Interviewed by Farmer’s Weekly, farmers signed up for Massive referred to these groups as “tractor mafias”, and said their tractors and equipment had often been looted from liquidated irrigation schemes. Officials concede that handing the government schemes over to communities had been poorly managed and resulted in asset stripping.

Like their taxi industry counterparts, the tractor mafias use threats and violence, including murder, to eliminate competition for contracts. Complaints are widespread about contractors paid for jobs they haven’t completed or done at all, with the connivance of corrupt agriculture department officials who sign off on their cards for a fee. The report also highlights how storage and marketing were poorly thought through. Only five of the projects surveyed had adequate grain storage facilities and only four had maize outlets. It points out a 50ha project yielding 3,5 tons/ha would require storage space for at least 150 tons. “These facilities aren’t available at present and tanks, cribs or storage within houses [are] hopelessly inadequate.”

The report recommends the programme start over with a 100% subsidy; non-qualifying farms be withdrawn from the scheme with immediate effect; a qualified agronomist be appointed to investigate each proposed project, and accept only those with the potential to achieve target yields and profitability; production plans must be improved and ensure correct fertiliser and pesticide application based on professional soil analysis; and professional training and mentoring must be introduced. It also recommends further investigation into a number of suspicious transactions, warning of increased fraud, and that dodgy contractors with faulty equipment must be withdrawn from the scheme. “With no major inputs the Massive Food Programme is doomed to failure,” the report concludes. Hushed up The report was submitted to the provincial agriculture department and Uvimba in 2005 but its findings were never made public, probably because of political embarrassment. Felix Hobson, the senior manager in charge of the scheme, says most of its recommendations have already been implemented.

A decision was taken not to waste precious time and resources on investigations that might not lead to convictions, he says. It’s understood corruption was so widespread and pervasive it would take years to investigate. “We decided to cut our losses and start again,” says Hobson. He declined to quantify the loss. Reforms introduced since the report was issued have produced remarkable results. The number of projects involved has almost doubled, and yields more than trebled this year. “It’s been a breakthrough,” says Hobson. Mindset change He attributes this to two key interventions. The first was bringing 10 commercial farmers on board as mentors.

All are fluent in Xhosa, have at least seven years experience in commercial agriculture, are paid a salary directly dependent on yield, with substantial performance bonuses, and are accountable to Uvimba, which is audited by PricewaterhouseCoopers. “We were using extension officers who didn’t know anything about commercial agriculture,” explains Hobson. “Now we have professionals with no vested interest in the input supply chain and contracting companies.” The second intervention restructured the subsidy, linking repayments to crop prices rather than input costs. Under the new system two grants are available, one for individual commercial farmers with holdings larger than 50ha, and the other, dubbed Siyakula, for groups whose 1ha to 2,5ha allotments are consolidated into units larger than 50ha. Commercial farmers are eligible for R3 500/ha grants to cover input costs in the first year of production.

To qualify for a 25% subsidy the following year, they must pay a deposit based on 75% of the value of the crop, 69% of which becomes available for input costs for next season. The same system applies during the third season, and by the fourth they’re on their own. The deposit is calculated by taking the average Safex price for white and yellow maize over several months and subtracting about 15% for transport costs to arrive at a basis price, multiplied by the minimum yield of 3,89 tons/ha set by the department. Of this, 6% goes to Uvimba for technical support and 69% is payable by the farmer from the proceeds of sales. At an average Safex price of R1 000 per ton the deposit on 50ha required will be calculated as follows: 85% of 1 000 x 3,89 (min yield) x 75% = 2 480 x 50 = R124 000. This amount, less a 6% technical support levy, becomes available to the farmer to cover production costs in the following season.

The remaining 25%, in this case R41 000, goes directly to the farmer. Only a few farmers in the scheme fall in this category, and all are apparently prospering and able to pay their deposits. The vast majority, however, fall under Siyakula, which has a different disbursement formula and much higher subsidy value. For Siyakula, farmers receive 100% of input costs in the first season. To qualify for a 75% grant in the second season they must pay a 25% deposit at the end of the first season. The subsidy decreases by 25% a year until phased out. This reform, and the department’s willingness to enforce compliance, has changed the mindset of farmers who now see the scheme as an incentive for commercial production rather than an opportunity to milk government, says Hobson. “Last October orders didn’t go out because farmers didn’t pay their dues, so we held big public meetings and gave people breach of contract notices,” he explains. They were given 15 days to pay their deposit or be thrown out. Typically, farmers who had paid supported the department, urging defaulters to comply. “This is the beginning of a major mindset change. I believe we’ve turned a corner,” says Hobson. In next week’s issue: The Massive Turnaround Plan.