Getting practical about agricultural development

Amadlelo Agri (Pty) Ltd, an empowerment company driven by the expertise of 70 dairy farmers from the Eastern Cape and KZN, has attracted much attention for establishing commercially viable dairy projects in the former Ciskei – one of the few examples of truly viable agricultural development in the country.

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Jeff Every, managing director of Amadlelo Agri and agricultural consultant, spoke to Mike Burgess about why this company was created, how it manages to establish successful projects where others have failed, and the future of agriculture in South Africa.

Why and when was Amadlelo Agri created?

Agricultural Consulting Services liaised with scenario planner Clem Sunter in early 2004, and the conclusion was that our farmer clients needed to be proactive regarding land reform. As a consultant I realised that the farmers held the key to successful land reform and that government needed to play an enabling role. Amadlelo Agri was formed in 2004 to drive a transformation initiative on behalf of its contributing farmers.

What is the shareholding structure of Amadlelo Agri?
Commercial farmers make up 49,9% of the shares; their 500 farmworkers own a further 15%, and Vuwa Investments 35,1%.

How much do the 70 commercial dairy farmers in the Eastern Cape and KZN contribute to?

They contribute most of the shareholder funding, and have contributed some R20 million to date with another R8 million expected over the next two years.

Which shareholders carry the financial risk, and do they benefit from this arrangement?
Amadlelo is structured to minimise individual shareholder risk, but the farmers stand to lose what they’ve put in if the company doesn’t succeed financially.

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How and from where does Amadlelo Agri access funding for development projects?
When the company was formed, many commercial banks were approached, but without success. The Land Bank came to its assistance with an innovative loan funding package involving loans and preference shares. The company has already repaid its loan funding, and will now convert the shares to loan funding and repay these over the next three years. This funding package, together with funds that the commercial farmers contributed, was used to develop the dairy at Fort Hare.

The National Empowerment Fund funded the Middeldrift Dairy with R9,5 million. Amadlelo contributed R8 million. Mutual and Federal assisted in providing some funds at very favourable interest rates. Amadlelo is partnering with the agriculture department to resuscitate the old irrigation schemes – Amadlelo provides the moveable asset funding, and the agriculture department provides the fixed infrastructure spending.

Amadlelo Agri has been praised for its involvement in creating successful dairies in the former Ciskei, including near Alice and Middledrift. What has made these initiatives successful?
The selfless, giving attitude of the commercial farmers, not only financially, but in terms of their time, knowledge and skills. Their support through monthly visits ensures ongoing skills transfer and an outside eye that picks up any aspect of the management of the projects that isn’t up to speed.

Intensive daily monitoring and mentoring over a wide spectrum of the job, training in personal financial management and wealth creation, casting a vision for the job and personal development, and goal-setting also made these initiatives successful.

Lastly, rigorous on-the-job selection and training over a four to five year period [of managers and other staff] and support by experienced farmers and consultants also helped the projects succeed. Young black managers, trained on farms belonging to farmers involved in Amadlelo Agri, run these dairies. How important has their contact with a commercial dairy environment been in ensuring their success as managers?

Their contact with a commercial dairy is non-negotiable. The commercial environment tolerates nothing but the best and only the top 10% make acceptable margins.

Do all the projects make a profit?

Are there screening processes to identify future black managers and interns for development projects, such as the Fort Hare Dairy Trust initiative near Alice? And how important is the mentoring process of these managers and interns?
Substantial time and effort is taken on the part of mentors and students. They put in long hours after work to ensure all the aspects and skills of the farming business are transferred.

What role does commercial agriculture play to ensure sustainable rural development in South Africa, and do you think commercial farmers in general want to assist black farmers?
There’s a silo mentality in this country on the part of government, education and commercial agriculture. There’s a critical need to include all parties. Neither party can do it on their own. This is what makes the partnership with the University of Fort Hare work.

But many academics feel that commercial agriculture has nothing to teach them and commercial agriculture tends to think that institutions have nothing to offer. Rural development isn’t the sole domain of government; they can’t manage a commercial operation and are much less able to develop it. They need to let those who can get on with the business do so. I can’t comment on commercial farmers in general, but those who form part of Amadlelo are more than happy to assist black farmers.

What are the obstacles to sustainable rural development and land reform in South Africa, and how can these be overcome?
Irresponsible utterances by people with influence harden the attitude of roleplayers, making progress difficult. Lack of leadership at government level leads to a lack of confidence. A lack of knowledge, skills and experience in what it takes to be profitable and sustainable in agriculture is another challenge.

There are no funding models to ensure that development projects are successful. Agriculture returns around 12% on capital invested. This means that an interest rate of around 3% with an annual repayment of around 6% of capital is needed to allow for a dividend for the beneficiaries. In our experience, budgets and plans are far too optimistic and are based on theory rather than on hard experience and knowledge of what a particular project can achieve.

Does communal politics and land tenure in the former Transkei and Ciskei complicate the establishment of commercially based development initiatives?
Dealing with communities is challenging. The answer lies in patience, communication, facilitation, more communication and more communication. There is no quick fix and there are many hours of frustration, but that’s no excuse. It’s merely part of the deal.

There has to be certainty of ownership, by the state or private [entities], together with the beneficiaries or the project won’t succeed. Projects fail because of a lack of planning and sorting out of all issues around ownership and beneficiaries. A full-scale social plan must be done, with facilitation starting even before the project, so that expectations are communicated and managed.

How important are the irrigation schemes of the former Eastern Cape homelands in the future development plans of Amadlelo Agri?
They’re a communal and national asset to be used for the good of the country. These schemes were developed at huge cost and can play a role as economic nodes for other development to tag onto.
Part of Amadlelo’s mission is to develop latent community assets, and these assets fall into that category. However, Amadlelo will also target transformation projects within the white commercial agricultural community.

Can significant partnerships between Amadlelo Agri and government be expected in the future?

Amadlelo is ready to partner with anybody who buys the vision of “creating profitable, sustainable black empowered agribusinesses”. We have some very large projects before government that we hope will become a reality.

Besides dairy, is Amadlelo Agri aiming to get involved in other initiatives, and will it get involved in development initiatives beyond the Eastern Cape?

Amadlelo intends to play a role in transforming white-owned land and is involved in projects in KZN and Mpumalanga.

What does Amadlelo Agri wish to achieve in the next five years?
We aim to create a sound financial basis for sustainable growth, and together with government, deliver on the current projects that have been identified.

Should farmers be worried about Minister Gugile Nkwinti’s threat to limit private property rights? And does Minister Nkwinti have a point when he says farmers should expect a repeat of Zimbabwe here if they don’t get involved in land reform?
I can’t comment on what farmers should do, but land transformation touches every South African and is a national problem. It’s being made a white farmer problem to a large degree, and this is wrong.
Wealth in agriculture comes from two sources – profit and long-term asset growth. In a highly competitive country like New Zealand, most of the wealth comes from long-term land appreciation, not from profit on operations.

They are some of the lowest-paid dairy farmers in the world, so land value increase is a crucial aspect of their returns. South Africa went to great lengths to liberalise the marketing side of the agricultural sector after 1994, and many farmers left the industry as they couldn’t compete. Growing farm size is a natural reaction to counter lower farmgate prices to compete globally.

Unless the South African agricultural sector has a well-thought-out strategy, fiddling with one aspect to the exclusion of others will have unintended consequences. We’re trying to encourage small farmers, but we’re delivering produce to four supermarkets that want small quantities from large suppliers who can ensure quality and continuity of supply. The two objectives are mutually exclusive.

The answer to land reform is to privatise the process and take the politics out of it. Farmers are part of the solution. Government doesn’t have the capacity to deliver land reform on its own.

Are you positive about South Africa’s future in agriculture, and in what state do you believe the agriculture sector will be in 10 years?
If our leaders take responsibility and we all adopt the “can do” attitude we had for the 2010 World Cup, then anything is possible. If we’re to be globally competitive, we need a national strategy that suggests we’re serious, and we all need to focus on delivering on it.

If government will partner with Amadlelo Agri, I believe we’ll see a vibrant, transformed agriculture sector that can truly deliver on a global scale. This is the belief that has emerged from Amadlelo’s black farmers who aren’t content to only be competitive against the best in South Africa, but want to compete against the world. This goal is clear to us all.