Truter Lutz, a viniculturist and viticulturist, and his partner Jan Louw, a mechanical engineer with experience in large companies, came across land for sale near Lutzville in the late 1990s, which had an unused water source on it. “We were both looking for a new opportunity and knew the potential of the area,” says Truter. “At the time I was farming successfully with vegetables and grapes on rented land, using water from the end of a canal that runs from the Olifants River.
The canal stops some 3km from the land that was for sale. was also familiar with that particular farm as had previously done trials with watermelon and pumpkins there.” T he partners were intrigued by the fact that surplus water from the lower Olifants River, which forms one border of the farm, was being wasted – it was running back into the sea. “We agreed it would be viable to collect that water in the winter and store it for use in autumn and summer,” explains Truter.
“So we took an option to buy 400ha of the farm that was only being used for grazing at the time, on condition that we could get the water rights to collect the water there in the winter rainy season.” A lthough the water in the lower Olifants River is saline most of the time because of the open estuary and its proximity to the sea, it’s possible to pump fresh water directly out of the river during the rainy season when it’s in flood and if it’s done when the tides are at the right stage. “We decided that we would build a reservoir and then pump fresh water into it from the river, which would then allow us to access water for irrigation throughout the year,” says Truter.
The BEE deal
As building a reservoir was crucial to the partners’ plans, they approached the Department of Water Affairs and Forestry (DWAF) for permission to build the dam. They got the go-ahead on condition that 40% of the total development (value of the land and dam) should be made available to black partners in terms of the National Water Act of 1998. It stipulated through the Water Allocation Reform Strategy that 70% of licensed water should be allocated to black people by 2024, starting with 30% by 2014. Also that 50% should be allocated to women by 2024, starting with 30% by 2014. “We began to search for a BEE partner and after a while, we decided it made sense to rather empower our own farmworkers. We identified a group from both our farms and set up a list of criteria including length of time in employ and level of responsibility.
Thereafter we made the selection and established the Omaza Trust,” Truter says. While it was stipulated that 40% of the value of the project should be owned by previously disadvantaged individuals, the funding for this 40% was not part of the deal. Truter explains that it then became a major challenge to find funding. And while the difficult and long-winded process was carrying on, the entire construction cost of the dam had to be covered by Truter and Jan. R2,7 million, the value of the 40% share that was owned by the Omaza Trust, was eventually sourced and comprised a grant from DWAF and a loan from the South African Wine Industry Trust (SAWIT), which also made funds available for training.
Truter and Jan then launched Lutouw Estate (Pty) Ltd which now consists of the Omaza Trust (40% share), Le Monde Boerdery Trust (a 50% share owned by the partners) and Olifants Beleggers (a 10% share invested by other private individuals). Getting to grips with the grape market The vineyards at Lutouw Estate are the most northwesterly commercial vineyards in South Africa. As it takes approximately three years for vines to come into production, it was essential that the partners had a back-up crop to keep them going financially. “Having monitored the environmental conditions, we were sure we had a unique climate and terroir for grapes,” says Truter. “We planted vines, but to make the enterprise more viable, we planted tomatoes on the same drip as the young vines. We started with 4 500t of tomatoes for processing for the informal sector in Durban.
This stopped once the vines were in production.” Lutouw Estate does not make its own wine and many of the major cellars only buy grapes from producers who have established contracts with them to supply specific quotas. The partners didn’t have such contracts, but despite this they are now supply leading cellars in the Stellenbosch area such as Kleine Zalze, Distell, Vergelegen, KWV, Eikendal, Stellar and few others with grapes. “We’ve planted varietals which grow well in this cool climate such as Pinot Noir and Sauvignon Blanc,” explains Truter.
“The wine quality of the Sauvignon Blanc is exceptional and unique and in great demand. We also grow Shiraz, Cabernet Sauvignon, Semillon and Chenin Blanc grapes.” “A major advantage for us is that because of the cool breeze from the Atlantic Ocean and the low rainfall, we don’t have problems controlling the usual viticultural diseases,” he points out. Getting to grips with BEE Truter says they have faced a number of challenges on the shareholder side. “This has included getting the project profitable fast enough to keep the worker-shareholders satisfied, getting workers trained as the education levels are generally very low, training shareholders as to how a business works and helping the shareholders to understand finances.”
Furthermore, the partners say that it’s been tough keeping the worker-shareholders motivated for longer than five years and getting them to believe in the long-term plans of the project. “It’s very difficult as they have short-term needs and aren’t used to long-term planning,” explains Truter. “None of the BEE shareholders have the confidence yet to manage a cost centre on their own. They manage small projects as a group, but not yet as individuals and we’d like to see that change.” The directors decided a few years ago that there was a need to empower individual workers within the bigger empowerment project.
Three tractor drivers were given the opportunity to purchase tractors (via a loan from Lutouw (Pty) Ltd which they then rented back to the farm. After a few years, the farm was developed to the extent where these tractors were no longer needed and they were sold. Those involved took the profit and used it in their own way. One of the farmworkers, Neels Kammies, used part of his profit to buy a 50% share in a grape harvesting machine. This machine is still in operation on the farm and he gains extra income from renting it out. Truter says that the farm has grown steadily for the past 10 years and now it’s right at the beginning phase of making a profit. “The shareholders knew all along that it would take at least five years before they would receive any cash payout through the project. Many of them will only start seeing the financial benefits now and in the next few years.
However, one of the major benefits already visible is the exposure to financial institutions and invaluable training.” What the partners have learnt about BEE “Firstly, we feel that any BEE project should have a commercial partner who’s willing and able to contribute financially when it struggles,” says Truter. “Secondly, transparency and the will to genuinely empower people is absolutely critical and thirdly, we believe that the involvement of someone like a consultant or facilitator to support and guide the worker component is crucial to building trust and assisting them with comprehending the workings of such a project.”
Truter stresses that honesty and trust between all involved parties are the two major ingredients needed to make a project like this work. He adds that he and Jan would like to emphasise the constant support that farmworkers need in such a project and that management should budget upfront for it. Where to now? The partners believe that their model is working. “That’s because we have access to the relevant knowledge, skills, financial management and financial support. Also, we have a unique, high-quality product and national wine buyers are prepared to pay a premium,” Truter points out. Going forward, he says that it would be highly rewarding if some of the BEE shareholders and/or their children could become involved in a management capacity. “It would also give us a huge sense of satisfaction to see that the dividends that shareholders earn are used to educate their children, raise their living standard and open new horizons for themselves and their relatives.”
Truter feels that there are enough opportunities available in the agricultural industry, as long as the normal flow of supply and demand of products and labour is allowed to continue without interference from decision-makers. But he thinks labour productivity can be improved and believes it’s imperative that land is not used as a political tool. He says financial institutions will regain confidence in agriculture, as farming is starting to be seen as a business.
After a 10-year involvement in BEE and grape production, Jan and Truter are optimistic about farming in South Africa. They believe that there are many opportunities for farmers, but acknowledge that it’s a challenge to survive all the negative influences. “We have to focus on the many privileges that we have in South Africa, such as the lovely climate and wide open spaces,” says Truter. The partners believe that Lutouw Estate has much more growth ahead of it and will ultimately offer huge opportunities to all of its shareholders going forward. For more information contact Lutouw Estate on (027) 217 1444 or e-mail [email protected]. |fw
