1 epor 20192020 - arc.agric.za

Annual Report 2019/2020 2
TABLE OF CONTENTS PART A: GENERAL INFORMATION 1. GENERAL INFORMATION .............................................................................................................................................. 2. LIST OF ABBREVIATIONS/ACRONYMS ....................................................................................................................... 3. ARC 2019/20 COUNCIL MEMBERS ........................................................................................................................... 4. ARC 2019/20 EXECUTIVE MANAGEMENT ............................................................................................................... 5. FOREWORD BY THE CHAIRPERSON .......................................................................................................................... 6. CHIEF EXECUTIVE OFFICER’S OVERVIEW ................................................................................................................. 7. STATEMENT OF RESPONSIBILITY AND CONFIRMATION OF ACCURACY FOR THE ANNUAL REPORT .............. 8. STRATEGIC OVERVIEW ............................................................................................................................................... 9. LEGISLATIVE AND OTHER MANDATES ....................................................................................................................... 10. ORGANISATIONAL STRUCTURE .................................................................................................................................
PART B: PERFORMANCE INFORMATION 1. AUDITOR’S REPORT: PREDETERMINED OBJECTIVES ............................................................................................. 2. SITUATIONAL ANALYSIS ...............................................................................................................................................
2.1. Service Delivery Environment ............................................................................................................... 2.2. Organisational environment .................................................................................................................. 2.3. Key Policy Developments and Legislative Changes ............................................................................. 2.4. Strategic Outcome-Oriented Goals .......................................................................................................
3. PERFORMANCE INFORMATION BY PROGRAMME 3.1. Programme1: Crop Production, Improvement and Protection Programme .......................................... 3.2. Programme2: Animal Health, Production and Improvement Programme ............................................. 3.3. Programme 3: Natural Resources Management Programme ............................................................... 3.4. Programme 4: Mechanisation and Engineering Programme ................................................................ 3.5. Programme 5: Agro-Processing, Food Technology and Safety ............................................................. 3.6. Programme 6: Smallholder Agricultural Development Programme ...................................................... 3.7. Programme 7: Agricultural Economics and Commercialisation Programme ........................................ 3.8. Programme 8: Training and Extension Programme .............................................................................. 3.9. Programme 9: Administration and Corporate Affairs Programme ........................................................ 3.10 Research Highlights ..............................................................................................................................
PART C: HUMAN RESOURCES MANAGEMENT 1. INTRODUCTION ............................................................................................................................................................. 2. HUMAN RESOURCES OVERSIGHT STATISTICS ........................................................................................................ PART D: GOVERNANCE 1. INTRODUCTION ............................................................................................................................................................. 2. PORTFOLIO COMMITTEES ........................................................................................................................................... 3. EXECUTIVE AUTHORITY .............................................................................................................................................. 4. THE ACCOUNTING AUTHORITY/BOARD .................................................................................................................... 5. RISK MANAGEMENT ..................................................................................................................................................... 6. INTERNAL CONTROL UNIT ........................................................................................................................................... 7. INTERNAL AUDIT AND AUDIT COMMITTEES ............................................................................................................. 8. COMPLIANCE WITH LAWS AND REGULATIONS ........................................................................................................ 9. FRAUD AND CORRUPTION .......................................................................................................................................... 10. MINIMISING CONFLICT OF INTEREST ........................................................................................................................ 11. CODE OF CONDUCT ..................................................................................................................................................... 12. HEALTH, SAFETY AND ENVIRONMENTAL ISSUES ..................................................................................................... 13. COMPANY/BOARD SECRETARY ................................................................................................................................... 14. SOCIAL RESPONSIBILITY ............................................................................................................................................. 15. AUDIT COMMITTEE REPORT ....................................................................................................................................... 16. B-BBEE COMPLIANCE PERFORMANCE INFORMATION ............................................................................................ PART E: FINANCIAL INFORMATION 1. REVENUE COLLECTION ............................................................................................................................................... 2. REPORT OF THE EXTERNAL AUDITOR ....................................................................................................................... 3. ANNUAL FINANCIAL STATEMENTS ...............................................................................................................................
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145 147
152 152 152 153 156 156 156 157 158 158 158 159 160 160 162
164
6. Chief Executive Officer’s Overview
7. Statement Of Responsibility And Confirmation
Of Accuracy For The Annual Report
8. Strategic Overview
10. Organisational Structure
REGISTRATION NUMBER: Agricultural Research Act 86 of 1990 (as amended)
PHYSICAL ADDRESS: 1134 Park Street, Hatfield, 0001
POSTAL ADDRESS: PO Box 8783, Pretoria, 0001
TELEPHONE NUMBER: +27 12 427 9700
FAX NUMBER: +27 12 430 5814
EMAIL ADDRESS: [email protected]
WEBSITE ADDRESS: www.arc.agric.za
BANKERS: Standard Bank
COMPANY/BOARD SECRETARY: Ayanda Ndamase
2. LIST OF ABBREVIATIONS/ACRONYMS
4IR Fourth Industrial Revolution AATF African Agricultural Technology Foundation AD Anaerobic Digestion AESA Agricultural Economics Association of South Africa AGSA Auditor-General of South Africa AHSV African Horse Sickness Virus AR Annual Report ARC Agricultural Research Council ASBVd Avocado Sunblotch Viroid B-BBEE Broad-Based Black Economic Empowerment BBTV Banana Bunchy Top Virus BGP Beef Genomics Programme BMGF Bill & Melinda Gates Foundation BRICS Brazil, Russia, India, China and South Africa BW Bacterial Wilt CA Conservation Agriculture CARA Conservation of Agricultural Resources Act CCARDESA Centre for Coordination of Agricultural Research and Development for Southern Africa CEO Chief Executive Officer CFO Chief Financial Officer CIMMYT International Maize and Wheat Improvement Center CMI Cell-Mediated Immunity CREA Council for Agricultural Research and Economics
CSA Climate Smart Agriculture
1. GENERAL INFORMATION
Annual Report 2019/20205
DALRRD DEA DEFF DLDD DPME DSI DTIC EB EBP ECSP EMC EPs EPF ERM ESD EU FAO FARA FAW FCM FHB FMD FSR G4AW GAC GAP GDARD GDP GIZ GPS HGBF HSRC IA IAP ICAR ICT IDRC IGR IWE IIA IKS IMF IP IPAP IPGR IRM KyD LSD M&E MINMEC MIF-PA MISS MLND MoA/U MPSS MTBPS MTEF MTO MTSF MV NAMC NAMPO NARIS
Department of Agriculture, Land Reform and Rural Development Department of Environmental Affairs Department of Environment, Forestry and Fisheries Desertification, Land Degradation and Drought Department of Planning, Monitoring and Evaluation Department of Science and Innovation Department of Trade, Industry and Competition Elementary Bodies Extension Big-Five Economic Competitiveness Support Programme Executive Management Committee Extension Practitioners Entomopathogenic Fungi Environmental Resources Management Enterprise Supplier Development European Union Food and Agricultural Organization Forum for Agricultural Research in Africa Fall Armyworm False Codling Moth Fusarium Head Blight Foot-and-mouth Disease Farming System Research Geodata for Agriculture and Water Global Affairs Canada Gauteng Accelerator Programme Gauteng Department of Agriculture and Rural Development Gross Domestic Product German Development Cooperation Global Positioning System Howard Graham Buffet Foundation Human Sciences Research Council Internal Audit Invasive Alien Plants International Committee on Animal Recording Information and Communication Technology International Development Research Centre Intergovernmental Relations Institute for Water Education Institute of Internal Auditors Indigenous Knowledge System International Monetary Fund Intellectual Property Industrial Policy Action Plan Institute of Plant Genetic Resources Insect Resistance Management Kaonafatso ya Dikgomo Lumpy Skin Disease Monitoring and Evaluation Ministers and Members of Executive Council Makonde Indigenous Fruit Processing Association Minimum Information Security Standards Maize Lethal Necrosis Disease Memorandum of Agreement/Understanding Minimum Physical Security Standard Medium-Term Budget Policy Statement Medium-Term Expenditure Framework Mountain To Ocean Medium-Term Strategic Framework Military Veteran National Agricultural Marketing Council South African Agricultural Trade Show National Animal Recording and Improvement Scheme
NCEP NCFAD NDP NEHAWU NEMA NGOs NGP NIR NPP NRCS NRF NSDF NSO NSW NUPSAW OBP OIE PBMC PDP PFMA PLAS POMASA PSA PwD(s) QTL R&D R4A RB RDI RVF RMRDSA ROI RTU SADC SAFCOL SAMRC SATI SAWS SCM SDG SEACF SEDA SHF SMART SMME SOC SPCA SPI STEMI TIA TMV TRV UAV UK UN UNCCD UNDP USAID USDA-ARS VC VIDO-InterVac WEMA WRC WUR
National Cultivar Evaluation Programme Canadian National Centre for Foreign Animal Diseases National Development Plan National Education, Health and Allied Workers’ Union National Environmental Management Act Non-Governmental Organisations New Growth Path Near Infrared Net Primary Productivity National Regulator for Compulsory Specifications National Research Foundation National Spatial Development Framework Netherlands Space Office National Science Week National Union of Public Service and Allied workers Onderstepoort Biological Products World Organisation for Animal Health Peripheral Blood Mononuclear Cells Professional Development Programme Public Finance Management Act Pro-Active Land Acquisition Strategy Pomegranate Association of South Africa Potatoes South Africa People with Disability/ies Qualitative Trait Loci Research and Development Rain for Africa Reticulate Bodies Research, Development and Innovation Rift Valley Fever Red Meat Research Development of South Africa Return on Investment Real Time Ultrasound Southern African Development Community South African Forestry Company Limited South African Medical Research Council South African Table Grape Industry South African Weather Service Supply Chain Management Sustainable Development Goal Southern and Eastern African Cotton Forum Small Enterprise Development Agency Smallholder Farming Specific Measurable Achievable Realistic and Time-bound Small, Medium and Micro Enterprise Soil Organic Carbon Society for the Prevention of Cruelty to Animals Standard Precipitation Index Science, Technology, Engineering, Mathematics and Innovation Technology Innovation Agency Tobacco Mosaic Virus Tobacco Rattle Virus Unmanned Aerial Vehicle United Kingdom United Nations United Nations Convention to Combat Desertification United Nations Development Programme United States Agency for International Development United States Department of Agriculture - Agricultural Research Service Value Chain Canadian Vaccine and Infectious Diseases Organisation Water Efficient Maize for Africa Water Research Commission Wageningen University & Research
Prof Sibusiso Vil-Nkomo
* 1 April 2017 until 30 June 2020
# 1 April 2017 until 30 June 2020 (Re-appointed to new Council on 1st July 2020)
Dr Mnqobi Ngidi Member *
Ms Bongiwe Kali Member *
Dr Shadrack Moephuli President and CEO
Ms Maureen Manyama Chief Financial Officer
(CFO)
Resources and Legal Services
On behalf of the Management Team and Council (Board), it gives me pleasure to present the Annual Report for the Agricultural Research Council (ARC) for the financial year 1 April 2019 to 31 March 2020. This Annual Report is presented in terms of the Agricultural Research Act, 1990 (Act 86 of 1990 as amended by Act 27 of 2001) and the Public Finance Management Act, 1999 (Act 1 of 1999, as amended by Act 29 of 1999).
Further, this Annual Report provides information and data on the organisational performance based on the approved Strategic Plan (2015/16- 2019/20), the Business Plan for 2019/20, and progress made on the action plans that resulted from the Auditor-General reports on the 2016/17 to 2019/20 audit cycles.
Due to the outbreak of Coronavirus that causes COVID-19, the term of Council was extended from 1 April 2020 until 30 June 2020. This resulted in a new Council that assumed responsibility for governance and oversight on the management and control of the Agricultural Research Coun- cil (ARC) on 1 July 2020. Consequently, the new Council has assumed responsibility for finalisation of this Annual Report, an unusual context.
We hereby acknowledge and appreciate the contributions of the previous Council towards ensuring the ARC remains in pursuit of fulfilling its mandate, particularly as a leading agricultural research and development organisation.
During 2019/2020 the ARC continued to be well governed and managed. The Council carried out its mandate through the proper exercising of good governance and effectively carrying out the fiduciary responsibilities while working very well with management to ensure appropriate utilisation of public and private resources.
The scientific endeavours of the ARC during this year continued despite limited resources.
Firstly, the organisation did not shy away from producing cultivars through innovation and contributing to new discover- ies. These cultivars were intended to improve the nourishment of our people, to contribute to stable food supplies in our country and to ensure that agriculture remains sustainable. Let me once more say: “A country that cannot feed its people is a basket case and therefor, besides political leadership, scientific leadership by organisations like the ARC remained a sine qua non”.
Secondly, this scientific entity also focused on vegetables and ornamental plants research. Its focus was on fighting diseases and pests that infect sweet potatoes, green beans, carrots, tomatoes, potatoes and others. Experiments in the ARC laboratories were used to the fullest to combat these potential threats.
Thirdly, the ARC focussed on advancing food production from the scientific perspective of conservation agriculture (CA). As succinctly articulated: “The Agricultural Research Council promotes conservation agriculture as the preferred crop- ping system to optimise crop water use, while improving yields and reducing the drought risk.” As observed in the reports management shared with the Council during the year under discussion, the studies on soil protection were fundamental, the education of growers on the use of mulch was promoted and crop rotation was advanced to support CA.
Finally, on the domestic animal side, fighting Foot-and-mouth Disease remained a challenge for the ARC. Previously, the development of a vaccine did not receive adequate funding from the shareholder. This year, funding was promised by the Department to build a state-of-the-art facility that will enable the ARC to once more become a leader in the vaccine production locally, continentally and globally in 2021 onwards.
During the 2019/2020 financial year the ARC renovated its wine cellar in Stellenbosch, including conversion to renewable energy. Further, the facility was renovated to meet the demands of this millennium, including training of new entrants into winemaking and is being used for testing wines produced in the Western Cape. As Council, we also encouraged the head of the facility to position the cellar as a historic tourist attraction site.
5. FOREWORD BY THE CHAIRPERSON
Ms Joyene Isaacs Chairperson of the ARC Council
(With effect 1 July 2020)
Collaborations remained critical for the ARC. Research work with South African universities continued, global partnerships were promoted, the private sector was encouraged to participate in the ARC endeavours and small as well as large farmers were also the focus of the ARC. The Council noted that improvements, in particular with the South African private agricultural sector, was a necessity.
Considering the success and challenges of the ARC during this year, a Turnaround Strategy was approved by the Council for implementation by management. This strategy took into consideration the financial state of the ARC, the poor con- dition of the South African economy and that of the world, the threat to South Africa’s sovereignty if agriculture was to collapse, the need to properly make use of the scarce financial resources, consolidation and effective utilisation of the ARC campuses and the focus on investing in the human capital that drives the primary research business of the ARC scientific endeavours. Here, management was requested to make hard and difficult choices for the ARC to remain viable into the future.
The above said were well supported with the recent appointments to the ARC Executive Team who came on board in the previous year. These include Ms M Manyama: Chief Financial Officer, Dr T Mkhabela: Group Executive, Impact and Partnership and Dr T Sethibe: Group Executive, Information Systems. Their contributions in 2019/2020 were invaluable and they strengthen the Executive Team.
In this year, the ARC had to confront a challenge that no one foresaw, COVID-19. The CEO, his team and the Council had to make hard decisions when the country went into Lockdown-5. The Council, Executive Management interactions and all the research operations of the ARC had to be conducted virtually. Thank you and congratulations to the Executive Team for implementing what some refer to as the “New Normal”, wherein which the organisation demonstrated to South Africans and the world that ICT was not an enigma to this society.
I am delighted that the CEO, CFO and Council relentlessly pursued revenue collection from long outstanding debtors as reported in the financial statements contained in this report. This would not have been achieved without the assistance of Minister Thoko Didiza. We thank her for her strong leadership and wish her the best in the important work assigned to her by the President and the people of South Africa. This achievement bodes well for the financial recovery of the ARC.
While in 2019/20, the ARC witnessed improvements, there were, however, some exogenous wicked problems. The ARC experienced losses due to a rise in crime. Burglaries, land invasions and other unpalatable criminal activities were experienced on some of our campuses. As a result, financial resources that could have been dedicated to research activities had to be channelled to securing the ARC facilities. The continued inconsistency in the Tshwane Municipality electricity billing system also caused some havoc with the ARC financial planning.
“To my fellow Council members, you took the 2019/20 task of the ARC with determination. You were forthright and willing to turnaround an ARC that is important for agriculture and its science. I thank you for your steadfastness”, said Professor Sibusiso Vil-Nkomo, former Chairperson of the Council.
To the previous Chair and Council members, we have taken note of the plans to make the ARC resilient, and this ultimate challenge remains for the new Council to continue with renewed vigour and commitment.
_________________________ Ms Joyene Isaacs Chairperson of the ARC Council 06 October 2020
In accordance with the requirements of the Agricultural Research Act, 1990 (Act No. 86 of 1990 as amended by Act No. 27 of 2001) and the Pub- lic Finance Management Act, 1999 (Act No. 1 of 1999 as amended by Act No. 29 of 1999) we hereby present the Annual Report of the Agricultural Research Council (ARC) containing the audited financial statements and performance information for the year ending 31 March 2020.
Further, on behalf of all employees, including management and together with Council, the ARC hereby submits this Annual Report to South Africa’s Parliament, through the Executive Authority, the Minister of Agriculture, Forestry and Fisheries (now called Agriculture, Land Reform and Rural Development): Ms A. Thoko Didiza, MP.
The outputs in this Annual Report were in accordance with the predetermined objectives that are contained in the Business Plan for financial year 2019/20 as approved by Council, and tabled in Parliament by the Executive Authority. Further, this Annual Report provides information on the organisational performance for the fifth year of the five (5) year Strate- gic Plan for the period 2015/16 to 2019/20.
On behalf of all employees, management hereby express gratitude for oversight, good governance and strategic advice provided by the previous Council (Board), including the Audit and Risk Committee.
During the financial year, the ARC received science policy and financial support from the Department of Science and Innovation. Other financial support was from the Department of Environmental Affairs. All financial support enabled the ARC to fulfil its mandate as a science council and towards natural resource management. The ARC expresses appreciation for the support from these government departments in particular. In addition, the ARC hereby expresses appreciation for financial support from various other stakeholders, particularly the agriculture commodity trusts and associations (list is too long to mention), for enabling the organisation to develop and deliver scientific solutions sorely needed by various agriculture enterprises.
In the reporting period the ARC, through research and development, technology transfer and dissemination placed particular focus towards contributing to the achievement of the following national priorities as outlined in the Medium-Term Strategic Framework (MTSF):
• Outcome 4: Decent employment through inclusive economic growth; • Outcome 7: Vibrant, equitable, sustainable rural communities contributing towards food security for all; and • Outcome 10: Protect and enhance our environmental assets and natural resources.
As expected, the ARC’s efforts were also aligned to the United Nations Sustainable Development Goals (SDGs).
Briefly, the ARC achieved good performance as per strategic goals with limited resources, particularly people (scientific skills and capacity), ageing infrastructure (buildings and laboratory equipment) and obsolescence of technology, primarily through effective utilization of partnerships, collaboration and other cost-saving measures. Due to financial constraints and escalating costs the ARC could not entirely fulfil its mandate.
During the reporting period the ARC continued to invest in skills development through partnerships mainly in the following areas:
• Employee Development: Education and training of employees, mainly through short term courses as well as improvements in employee qualifications;
• Mentorship and Coaching: Introduction of post-retirement mentorship, including partnership with international organisations on a number of projects to improve the skills of junior employees; and
• Professional Development Programme (PDP): A partnership with various universities for the training and education of postgraduate students in practical applications of scientific solutions for the agriculture sector. This programme has increased from about 50 students in 2007/08 to more than 200 in 2019/20. During this period, ARC scientists have supervised PDP students, resulting in the granting of postgraduate degrees (MSc and PhD) at a rate of 20 per annum.
6. CHIEF EXECUTIVE OFFICER’S OVERVIEW
Dr Shadrack Moephuli ARC President and CEO
Research and innovation are critical elements for enabling sustainable and competitive agriculture enterprises. During the reporting period, the ARC has developed and released crop cultivars to ensure increased yield, productivity, improved quality (nutritional aspect) and resilience to pests, diseases and drought. Examples include the registration of wheat, maize, soybean and fruit cultivars through government authorities. Further, the ARC has continued to provide research services aimed at disseminating data and information about suitability of various cultivars, mainly through National Cul- tivar Evaluation trials.
Livestock production and productivity are an important component of South Africa’s agri-food systems, in particular, as a source of protein that is essential for food and nutrition security among the population. During the financial year 2019/20 the ARC provided technical and scientific support to 4 625 smallholder farmers, mainly through Kaonafatso ya Dikgomo (KyD), an animal improvement scheme. Participating farmers in the KyD were generally more successful in livestock sales, including higher incomes. Other research services for livestock production included real-time ultrasonic assessment for carcass traits, beef genomics for feed efficiency, disease diagnostics and vaccine development.
As a key provider of solutions for the management of pests and diseases and the mitigation/adaptation to climate change, a non-functional ARC would present significant threat to food and nutrition security, agriculture and economic growth, peace and sustainable development. It is therefore essential to ensure a financially resourced ARC able to fulfil its mandate.
Analysis of financial performance linked to organisational performance is hereby presented in this Annual Report.
GENERAL FINANCIAL REVIEW OF THE PUBLIC ENTITY
Figures in Rand Thousands FY2020 FY2019 * VARIANCE (R) * VARIANCE (%)
Financial Performance Overview ____________________________
Total Expenditure
Financial Position Overview ________________________
Cash Flows Overview ___________________
Cash flows (net) from Operating Activities Cash flows (net) from Investing Activities
Cash balance at the end of the year
379 041 978 340
314 423 248 563
372 130 139 645
Financial Performance
The Total Revenue of the Council for the FY2020 was R1.36 billion which represents an overall 3.3% (R43.6 million) growth.
The revenue from exchange transactions earned for the FY2020 is R379 million which a slight decline of 1.5% as com- pared to the prior year. The performance was influenced positively by the performance of the following revenue streams namely: Rental of facilities and equipment; Bad debts recovered; Other income; and Interest received (interest received from invested funds).
The performance of the following revenue streams was lower than the previous year’s performance: Sale of goods in agricultural activities; Rendering of services; and Royalty income.
The ARC received a 5.3% growth of the Parliamentary Grant, and has continued to receive funding (conditional grant) towards the Foot-and-mouth Disease (FMD) facility, which has been ring-fenced and invested at the Corporation for Public Deposits (CPD).
SPENDING TRENDS OF THE PUBLIC ENTITY
The total expenditure was R1.28 billion and resulted in a 1.6% (R21.2 million) year-on-year savings.
The personnel cost remains the significant cost driver within the ARC, as it constitutes an average of 63% of the total expenditure. The year-on-year savings on the employee costs are attributable to the delayed filling of positions, which has been a conscious decision to minimise the recruitments whilst the organisation is busy with the implementation of the Sustainability and Financial Turnaround Plan (as approved during April 2019). The Employee costs continue to absorb a major portion of the Operational Parliamentary Grant; however, there has been an improvement year-on-year from 98% (FY2018/19) to 90% (FY2019/20). The organisation has, during the 2020 financial year changed its funding for ICT equipment from the lease option to outright purchase, which has resulted in year-on-year savings of R10.7 million.
REQUESTS FOR ROLL-OVER OF FUNDS
Section 53(3) of the Public Finance Management Act (PFMA) requires a public entity, which must submit a budget in terms of section 53(1) of the PFMA, not to budget for a deficit and not to accumulate surpluses, unless prior written approval of the National Treasury has been obtained.
Calculation of Surpluses FY2020
Cash and cash equivalents at the end of the year Add: Receivables
245 935 648 132 014 635
Less: Current Liabilities
Surplus 63 527 757
The ARC will submit a request to the National Treasury to seek approval for the roll-over of surplus funds of R63.5 million.
SUPPLY CHAIN MANAGEMENT
The ARC has a Supply Chain Management Policy in place, which was approved by the Council. The SCM standard operating procedures as approved by the Executive Management Committee (EMC) are in place. The ARC submitted its Procurement Plan for FY2020 within the prescribed timelines in compliance with Paragraph 3 of National Treasury In- struction 2 of 2016/17. The Procurement Plan had 92 projects with an estimated value of R336.6 million, including Value Added Tax (VAT). Due to various internal challenges, 68 tenders to the value of R223 million were not processed during FY2019/20. There were no unsolicited bid proposals concluded by the ARC during the period under review (FY2019/20).
AUDIT REPORT MATTERS IN THE PREVIOUS YEAR
The ARC had in place an Audit Improvement Plan, which was presented and monitored by the Audit and Risk Commit- tee as well as the Council. Progress on the Audit Improvement Plan was subjected to review by the Internal Audit on a quarterly basis. The ARC prepared the Interim Financial Statements for the period ending 30 September 2019, which were audited by the Auditor-General South Africa (AGSA) with an Interim Management Report issued. The organisation further prepared the Financial Statements for the period ending 29 February 2020, which were subjected to a review by Internal Audit. The February 2020 review was aimed at ensuring that all audit findings raised by the AGSA were addressed, initiatives per the AIP were closed, whilst assessing the state of readiness for the FY2019/20 year-end audit.
The audit qualification matters which have been addressed as follows during the FY2019/20 include:
Reference to the Audit Report FY2019 Basis for Qualification Progress or Status
3 Asset register includes assets at zero and R1 values, which are still in use. [Residual values and Useful lives]
Accounting records were updated and the Annual Financial Statements for the year ended 31 March 2020 have resolved this matter.
4 Assets acquired through non-exchange transactions were not measured at fair value at date of acquisition.
5 Assets under construction could not be audited.
6 Property, Plant and Equipment overstated due to differences between the accounting records and financial statements.
Resolved. A 100% assets verification was performed and all legacy balances on the Fixed Assets register have been written off. Assets scrapping and disposal approved by Council - 06 June 2020.
7
ARC recognized all living resources as inventories, and not only the items used for research purposes, as required by GRAP 27 biological assets.
This has been corrected and will be accounted for as Biological Assets, and Property, Plant and Equipment (Bearer Plants). The accounting records were updated based on the valuations reports for the respective farms (Vine- yards and Orchards) as well as the Livestock valuation report. The matter has been resolved.
8 Appropriateness of the accounting for Live- stock as Inventory.
The Accounting policy for biological assets was approved by Council. The change in accounting policy will be accounted for appropriately in the FY2020 AFS.
9 Inventories understated by R4.4 million. Resolved. Inventory count performed at year-end.
10 Unable to obtain sufficient appropriate audit evidence for other payables (R227 million). Resolved.
11 Unable to obtain sufficient appropriate audit evidence for payment received in advance. Resolved.
12 Payables from exchange transactions were understated by R6.2 million. Resolved.
13 Unable to obtain sufficient appropriate audit evidence for trade debtors. Resolved.
14
Unable to obtain sufficient appropriate audit evidence for staff debtors, as entity did not perform adequate reconciliation of outstanding debtors.
Resolved.
15
The entity did not recognize receivables from exchange transactions as assets and liabilities were offset inappropriately (WIP accounts).
Resolved. The use of WIP accounts has been discontinued effective 01 April 2019.
16 Revenue for rendering of services incor- rectly recognized. Resolved.
17 Revenue from rendering of services was not recorded in the correct period. Resolved.
18 Unable to obtain sufficient appropriate audit evidence for rendering of services. Resolved.
OUTLOOK/PLANS FOR THE FUTURE TO ADDRESS THE FINANCIAL CHALLENGES
The ARC has developed a Sustainability and Financial Turnaround Plan, which is aimed at improving the financial position of the organisation. The plan was approved towards end of FY2018/19, and implementation is underway. As at 31 March 2020, the ARC was considered solvent as the assets exceeded the liabilities by R1.6 billion. Therefore, based on this assessment, it can be concluded that the ARC is solvent. The liquidity assessment was concluded at year-end, which took into account the impact of COVID-19 on the business. It was concluded that the ARC will continue as a going concern, for the foreseeable future.
IMPACT OF THE COVID-19 PANDEMIC
COVID-19 is an unprecedented challenge for humanity, businesses and the economy at large. At the date of the report, its effects are subject to significant levels of uncertainty. In order to further address the inherent uncertainty embedded in the current situation that the ARC and country find themselves in, management has considered the potential impacts on the organisation by taking a variety of risk elements into account and their impact on forward-looking business prospects as articulated in the MTEF FY2021-FY2023:
• Future revenue pipeline: it is assumed that 40% of the external income is at risk and thus highly unlikely to be achieved. This is estimated at an external income loss of R197 million and R247 million for the 2021 and 2022 financial years, respectively;
• Impacts on cost structures: the additional costs arising from the COVID-19 pandemic will be prioritized and catered for, within the approved budget. The Operating Costs for FY2021 is estimated to be at 60% of the planned levels due to the delayed spending on core business;
• Impact of the reduction in employee-related costs arising from the implementation of the ARC Financial Sustain- ability and Turnaround Plan. The resulting savings is estimated at 15% and 30% for the 2021 and 2022 financial years, respectively; and
• Impact of the non-payment from private customers has been considered not significant.
Some of our clients may also face credit-related issues but an assessment of credit risk found that the ARC customer base is unrelated and concentration of credit risk, with respect to trade receivables, is limited.
Despite the potentially considerable impact of this pandemic on the 2021 results and financial position, the equity of the ARC is strong enough for the foreseeable future to absorb the economic shock caused by COVID-19. The ARC will be able to continue its operations for at least the next twelve months. Therefore, the 2020 Annual Financial Statements have been established on a going-concern basis.
Based on the assessment done, the use of the going-concern assumption is considered appropriate.
EVENTS AFTER THE REPORTING DATE
The ARC has received R60.4 million from the Department of Agriculture, Forestry and Fisheries towards the settlement of its long outstanding debt.
The extended term of Council (Accounting Authority) for ARC expired on 30 June 2020. Therefore, on behalf of the ARC management hereby expresses appreciation for the contribution, good governance and oversight of the previous Council.
As at 1 July 2020 the Minister of Agriculture, Land Reform and Rural Development appointed a new Council (Accounting Authority) for the ARC. All employees and stakeholders of the ARC hereby welcome this appointment and we look forward to working with the new Council members.
Management has accepted with disappointment the outcome of the external audit from the Auditor-General of South Af- rica and resolved to implement immediately measures to eliminate adverse audit findings for 2020. This includes, among others:
• An Audit Improvement Plan targeted at eliminating root causes of adverse findings, including consequence management;
• Review and development of policies, business processes and where necessary, associated delegations of authority;
• Review of skills (competencies and appropriate placements), including required training among all relevant personnel;
• Further implementation of the ARC Financial Sustainability and Turnaround Plan approved by Council during financial year 2019/20.
TO OUR CLIENTS AND STAKEHOLDERS
To our most valued customers, partners, beneficiaries, suppliers and stakeholders, we, the people at ARC, hereby extend our utmost gratitude for your support and assistance during the financial year. We trust and hope you will continue to collaborate with the ARC in various ways to ensure that we meet the expectations and developmental needs of the South African communities.
Management hereby expresses gratitude and appreciation for the dedicated contribution/s of all employees of the Agri- cultural Research Council. It is your contributions that enable the sustainability, competitiveness and growth of the agriculture sector; which in turn enables food and nutrition security.
Re a leboha, le ka moso
Re a leboga, le kamoso
Re a leboga, le gosasa
Siyabulela, nangamso
Siyabonga, naksasa
Siyathokoza, nangamoso
Ria livhuwa, khazwiralo na matshelo
Baie dankie
Thank you
___________________ Dr Shadrack Moephuli ARC President and Chief Executive Officer Date: 06 October 2020
7. STATEMENT OF RESPONSIBILITY AND CONFIRMATION OF ACCURACY FOR THE ANNUAL REPORT
To the best of my knowledge and belief, I confirm the following:
• All information and amounts disclosed in the Annual Report are consistent with the Annual Financial Statements audited by the Auditor-General;
• The Annual Report is complete, accurate and is free from any omissions; • The Annual Report has been prepared in accordance with the guidelines for the Annual Report as issued by Na-
tional Treasury; • The Annual Financial Statements (Part E) have been prepared in accordance with the Public Finance Manage-
ment Act (No.1 of 1999, as amended) (PFMA) standards applicable to the public entity; • The accounting authority is responsible for the preparation of the Annual Financial Statements and for the judge-
ments made in this information; • The accounting authority is responsible for establishing, and implementing a system of internal control that has
been designed to provide reasonable assurance as to the integrity and reliability of the performance information, the Human Resources information and the Annual Financial Statements; and
• The external auditors are engaged to express an independent opinion on the Annual Financial Statements.
In our opinion, the Annual Report fairly reflects the operations, the performance information, the Human Resources information and the financial affairs of the public entity for the financial year ended 31 March 2020.
Yours faithfully
6 October 2020 ___________________ __________________ Dr Shadrack Moephuli Chief Executive Officer Date
6 October 2020 ___________________ __________________ Ms Joyene Isaacs Chairperson of the ARC Council Date
8.2. MISSION
MISSION
The Agricultural Research Council (ARC) is a premier science institution that conducts research with partners, develops human capital and fosters innovation to support and develop the agriculture sector.
8.3. VALUES
VALUES - “TARGET”
Truth Incorporates honesty and integrity. The ARC shall conduct its business in a trans- parent and ethical way towards its employees, stakeholders and shareholders.
Accountability Incorporates responsibility. The ARC shall accept responsibility and accountability with respect to employee well-being, occupational health and safety (OHS), environmental sustainability and agriculture.
Respect Includes equity, diversity and dignity. The ARC shall conduct its business with respect for our colleagues, clients and stakeholders.
Growth Includes equity, rewards and recognition. The ARC shall ensure equity in terms of race, gender, creed, fair treatment, training and development to all its employees, stakeholders and shareholders.
Excellence Incorporates empowerment and innovation. The ARC strives to conduct R&D in an efficient, effective, professional and accountable manner.
Trust Includes ethics and transparency. We shall ensure and foster trust among our employees, stakeholders and shareholders.
9. LEGISLATIVE AND OTHER MANDATES
The ARC was established as a Public Entity on 1 December 1990, under the then Ministry of Agriculture (now reconfig- ured as the Ministry of Agriculture, Land Reform and Rural Development).
• The ARC is listed as a Schedule 3A Public Entity in terms of the Public Finance Management Act (No.1 of 1999, as amended) (PFMA), and is required to ensure full compliance with all prescripts and regulations arising from the PFMA.
Specifically, the ARC was established in terms of the Agricultural Research Act (No. 86 of 1990, as amended by Act 27 of 2001), from which it derives its core mandate. The objectives of the ARC outlined in the Act are to conduct research, drive research and development, drive technology development and transfer (dissemination) information, in order to:
• promote agriculture and industry; • contribute to better quality of life; • facilitate/ensure natural resource conservation; and • alleviate poverty.
The Act defines: • Research as the furtherance, accumulation and improvement of knowledge in the agricultural and related sciences
through original and other investigations and methods of a scientific nature with the advancement of agriculture as its object;
• Technology Development as activities by which knowledge acquired through research is utilised; and • Technology Transfer - transfer of knowledge, techniques and processes for application thereof.
Further, the Act states that in order to achieve its objectives, the ARC may:
• undertake and promote research, development and technology transfer in connection with: • the optimal utilisation of the agricultural resources and the improvement of the production capacity of such
resources; • the rehabilitation and improvement of the agricultural resources; • the opening of possibilities and the generation of new knowledge to solve particular problems; • the improvement of the nutritional value and quality of agricultural products; • the pollution of the environment and the prevention thereof in respect of agriculture; and • the improvement of existing techniques and the creation of new techniques for the processing of agricultural
products, and to improve the keeping quality of perishable agricultural products; • utilise the technological expertise in its possession and make it generally available; • publish information concerning its objectives and functions, and establish facilities for the collection and dissemi-
nation of information in connection with research and development; • establish and control facilities in those fields of research, development and technology transfer which the Council
may from time to time determine; • promote cooperation between the Republic and other countries with regard to research, development and tech-
nology transfer; and • cooperate with persons, institutions and associations undertaking research, development and technology transfer
in other countries.
The ARC performs its functions through several research campuses that are predominantly commodity-based and are strategically distributed throughout the country. Further, research at these facilities is complemented by on-field experi- mental sites distributed throughout every province of South Africa. In addition, selected farm fields are utilised to study the performance of ARC research technologies under actual farm production environments.
The Council of the ARC is the Accounting Authority in terms of the PFMA, and provides strategic direction and leadership to enhance shareholder value and ensure the long-term sustainable development and growth of the Entity. In fulfilling its responsibilities, the Council is supported by the ARC Chief Executive Officer and the Executive and Senior Management team in implementing the approved strategic and corporate plans and policies. The ARC seeks to operate on sound business principles and practices, and to this end, strives at all times to comply with the principles contained in the King Code on Corporate Governance in South Africa (2016) (King IV).
LEGISLATIVE MANDATE
In delivering on its core mandate, the Agricultural Research Council (ARC) is responsible for performing its functions in line with the following key legislation, which thus directly informs the various day-to-day operations of the organisation:
Legislation Objective of the Act ARC Responsibilty
Fertilisers, Farm Feeds, Agricultural Remedies and Stock Remedies Act, 1947 (Act No. 36 of 1947)
The registration of fertilisers, farm feeds, agricultural remedies, stock remedies, sterilising plants and pest control operators are regulated by this Act. Provision is also made for control over the acquisition, disposal, sale and use of fertilisers, farm feeds, agricultural remedies and stock remedies.
The Directorate Food Safety and Quality Assurance is responsible for the administration of this Act.
There is no specific delegation for the ARC. However, on assignment, the organisation conducts analytical, testing and advisory services to enable regulatory decisions by the Department of Agriculture, Land Reform and Rural Development.
Animal Protection Act, 1962 (Act No. 71 of 1962)
This Act provides for the maintenance of proper standards of hygiene, and in the handling of animals and the prevention of cruelty to animals. The SPCA is responsible for the enforcement thereof.
The Directorate Animal Production is responsible for the administration of this Act.
There is no delegation to ARC. However, the organisation has to comply with the requirements of the Act.
Plant Breeders’ Rights Act, 1976 (Act No. 15 of 1976)
This Act regulates the granting of certain rights relating to the new varieties of certain kinds of plants, the protection of such rights and the issue of licences in respect of the exercising of the rights.
The Directorate of Plant Production is responsible for the enforcement thereof.
The ARC provides services to the registrar to enable evaluation of material for granting of Plant Breeders’ Rights in recognition of new varieties. The ARC must comply with the requirements of the Act.
Plant Improvement Act, 1976 (Act No. 53 of 1976)
This Act provides for the registration of establishments where plants and propagation material are sold and packed; for the introduction of schemes for the certification of certain propagation material; for the requirements to which plants and propagation material sold for the purposes of cultiva- tion must conform; and for quality control over plants and propagation material imported or exported.
The Directorate of Plant Production is responsible for the enforcement thereof.
Registered testing laboratories (nematology, mycology, virology, bacteriology - American Foulbrood Disease) provide diagnostic services to government in terms of seed/plant quality (free from pests and pathogens), as well as nurseries and other plant propagation material.
Agricultural Pests Act, 1983 (Act No. 36 of 1983)
This Act introduces measures for the prevention and combating of agricultural pests.
The Directorate of Plant Health is responsible for the enforcement thereof.
ARC serves on the National Steering Committees to address specific pest problems. Responsibilities include:
• Calibration of aircraft for control of migratory pests;
• Identification services and registered testing laboratories;
• The insect quarantine service is rendered through a contract with the DALRRD.
Conservation of Agricul- tural Resources Act, 1983 (Act No. 43 of 1983)
This Act provides for control over the utilisation of natural agricultural resources in order to promote the conservation of soil, water sources and vegetation, and the combating of weeds and invader plants.
The Directorate of Land Use and Soil Management and the Engineering Directorate are responsible for the enforcement thereof.
No delegation. Certain aspects of the Act are contained within the mandate of the ARC.
Animal Disease Act, 1984 (Act No. 35 of 1984)
This Act provides for control measures for the prevention of diseases and parasites, and for schemes to promote animal health.
The Directorate of Veterinary Quarantine and Human Health is responsible for the enforcement thereof.
No specific delegation in terms of the Act. However, the ARC provides various services (diagnostic and analytical) to fulfil the aims of the Act, including through OIE reference laboratories.
Animal Identification Act, 2002 (Act No. 6 of 2002)
Provide for the identification of animals and procedures to be followed when applying for an identification mark.
The Directorates Animal Production and Veterinary Quar- antine, and Human Health are responsible for the administration of this Act.
No delegation to ARC. However, certain aspects of animal identification are contained in the implementation of INTERGIS. The INTERGIS is delegated to the ARC.
Intellectual Property Rights from Public- ly-funded Research and Development Act, 2008 (Act No. 51 of 2008),
Seeks to ensure that all publicly-funded research gets intellectual property protection for the purposes of commercialisation.
It further places an onus on the ARC to establish an Intellec- tual Property Management Office.
The ARC has established a functional Intellectual Prop- erty Management Office, along with associated internal policies to ensure compliance to licensing agreements.
Genetically Modified Organisms Act, 1997 (Act No. 15 of 1997)
To provide measures to promote the responsible development, production, use and application of genetically modified organisms; to ensure that all activities involving the use of genetically modified organisms (including importation, production, release and distribution) shall be carried out in such a way as to limit possible harmful consequences to the environment; to give attention to the prevention of acci- dents and the effective management of waste; to establish common measures for the evaluation and reduction of the potential risks arising out of activities involving the use of genetically modified organisms; to lay down the necessary requirements and criteria for risk assessments; to establish a Council for genetically modified organisms; to ensure that genetically modified organisms are appropriate and do not present a hazard to the environment; and to establish appropriate procedures for the notification of specific activities involving the use of genetically modified organisms.
The Directorate Bio-Safety is responsible for the administration of this Act.
No delegation to ARC. However, ARC expertise, facilities and scientific data/information are utilised to support decision-making.
Animal Improvement Act, 1998 (Act No. 62 of 1998)
To provide for the breeding, identification and utilisation of genetically superior animals in order to improve the production and performance of animals in the interest of the Republic.
The Directorates Animal Production and Veterinary Quar- antine, and Human Health are responsible for the administration of this Act.
Certain services that are discharged under this act are managed by the ARC.
• Animal improvement services, including collection of animal data, as well as management of National Databank (INTERGIS);
• Section 20 of the Act on the establishment of the Schemes;
• Declaration of the Schemes Notice 29516 of 2007 Section 5(1)(a)(iii) - the Schemes shall ensure that all recorded data must be submitted to the Integrated Registration and Genetic Informa- tion System (INTERGIS);
• Furthermore, Section 44 of the Declaration stip- ulates that: • The Schemes will be managed by the ARC,
a statutory body established in terms of Sec- tion 2 of the Agricultural Research Act, 1990 (Act No. 86 of 1990);
• The ARC will exercise the powers and perform duties conferred to it in terms of the Schemes; and
• The ARC may make rules relating to the Schemes in consultation with the Depart- ment.
National Environmental Management Act, 1998 (Act No. 107 of 1998)
Provide for measures to prevent pollution and ecological degradation; promote conservation; and secure ecological- ly sustainable development and use of natural resources, while promoting justifiable economic and social development.
The Department of Environment, Forestry and Fisheries (DEFF) is responsible for the administration of the Act.
ARC supports by hosting of national collections and de- veloping data used for conservation and management of natural resources.
Baseline biodiversity data is essential for policy-makers regarding conservation and sustainable use of natural resources.
National Environmental Management: Biodi- versity Act, 2004 (Act No. 10 of 2004)
To provide for the management and conservation of South Africa's biodiversity within the framework of the National Environmental Management Act, 1998; the protection of species and ecosystems that warrant national protection; the sustainable use of indigenous biological resources; the fair and equitable sharing of benefits arising from biopros- pecting involving indigenous biological resources.
The DEFF is responsible for the administration of the Act.
As outlined above in respect of NEMA.
The above-mentioned legislation and Acts are not exhaustive, and it is recognised that the ARC is subject to, and must comply with, all national and provincial legislation and regulations, and all municipal by-laws, applicable to its functions or the areas in which it operates.
POLICY MANDATE
Whereas the above legislation and regulations define the scope of the mandate and regulate how the ARC must operate, various national policy and strategy frameworks give effect to how the mandate should be implemented, and have direct bearing on the priorities and focus areas of the ARC for the 2020/21-2024/25 period of its Strategic Plan.
National Framework Implication
Longer-Range Developmental Priorities:
The National Development Plan, Vision 2030
Adopted by Cabinet in 2012, the NDP is the visionary blueprint of government, with business and society as collaborative partners - seeking to eliminate poverty and sharply reduce inequality and unemployment by 2030. All of government is challenged to ensure their medium and short-term planning and M&E are aligned to the NDP. Inclusive growth and development, an active and united citizenry and a capable State are some of the visionary elements of the NDP 2030.
The NDP identifies the following critical actions to realise Vision 2030: • A social compact to reduce poverty and inequality and raise employment and investment; • A strategy to address poverty and its impacts by broadening access to employment, strengthening the
social wage, improving public transport and raising rural incomes; • Steps by the State to professionalise the public service, strengthen accountability, improve coordination
and prosecute corruption; • Boost private investment in labour-intensive areas, competitiveness, and exports, with adjustments to low-
er the risk of hiring younger workers; • An education accountability chain, with lines of responsibility from the State to the classroom; • Phase in national health insurance, with a focus on upgrading public health facilities; • Public infrastructure investment at 10 percent of gross domestic product (GDP) financed through tariffs,
public-private partnerships, taxes and loans and focused on transport, energy and water; • Interventions to ensure environmental sustainability and resilience to future shocks; • New spatial norms and standards - densifying cities, improving transport, locating jobs where people live,
upgrading informal settlements and fixing housing market gaps; and • Reduce crime by strengthening criminal justice and improving community environments.
Implications and opportunities for the ARC are to support agriculture to create 1 million jobs by 2030, through: • Expansion of irrigated agriculture by 500,000 ha; • Conversion of under-utilised land in communal areas into commercial land; • Support to commercial agricultural areas that have the highest potential for success; • Job creation in upstream and downstream areas of agriculture; • Creative combinations for communal land conversion and high potential commercial land; and • Exposure of new entrants to product value chains.
UN Sustainable Development Goals (SDGs)
Adopted by the United Nations in 2015, the 17 SDGs and their 169 key indicators build on the success- es of the Millennium Development Goals, while including new areas, such as climate change, economic inequality, innovation, sustainable consumption, peace and justice, among others. The SDGs set a common sustainable development agenda for pursuit by all signatory nations, including South Africa. South Africa’s contribution to the SDG negotiation process was informed by the priorities of its National Develop- ment Plan (NDP).
Echoing the intent of the NDP, in support of the SDGs, South Africa can realise the goals by drawing on the en- ergies of its people, growing an inclusive economy, building capabilities, enhancing the capacity of the State, and promoting leadership and partnerships throughout society.
African Union Agenda 2063
Aligned to the UN SDGs, the African Union Agenda 2063 reflects the following aspirations: • A prosperous Africa, based on inclusive growth and sustainable development; • An integrated continent, politically united and based on the ideals of Pan-Africanism and the vision of
Africa’s Renaissance; • An Africa of good governance, democracy, respect for human rights, justice and the rule of law; • A peaceful and secure Africa; • An Africa with a strong cultural identity, common heritage, values and ethics; • An Africa where development is people-driven, unleashing the potential of its women and youth; and • Africa as a strong, united and influential global player and partner.
National Spatial Development Framework, 2050 (NSDF)
Under the theme: “Moving South Africa forward towards the desired spatial future”, the National Spatial Develop- ment Framework sets out an action plan to bring about radical spatial transformation at scale, and manage and mitigate national risks (current and emerging),
It proposes a set of five National Spatial Action Areas (NSAAs), which require urgent, focused and integrated national spatial infrastructure investment and spending; and concerted and sustained intergovernmental collaboration, including the alignment of plans, budgets and departmental plans in and between the spheres of government.
10. ORGANISATIONAL STRUCTURE
* Retired May 2019
2. Situational Analysis
1. AUDITOR’S REPORT: PREDETERMINED OBJECTIVES
The AGSA currently performs the necessary audit procedures on the performance information to provide reasonable assurance in the form of an audit conclusion. The audit conclusion on the performance against predetermined objectives is included in the report to management, with material findings being reported under the Predetermined Objectives heading in the Report on other legal and regulatory requirements section of the Auditor’s Report.
Refer to page 169-174 of the Report of the Auditor-General, published as Part E: Financial Information.
2. SITUATIONAL ANALYSIS
2.1. SERVICE DELIVERY ENVIRONMENT
The ARC continuously strives for ensuring optimal value derived from utilization of financial and other resources on behalf of customers, the government and people of South Africa - particularly in fulfilment of the organisational mandate.
Conducting business in the financial years 2016/17 to 2019/20 has been difficult for the ARC, primarily due to inadequate resources to fulfil the organisation’s mandate. Although there are many contributing factors to challenges faced by ARC, South Africa’s poor economic performance, unfavourable climatic conditions (e.g. severe drought in the Western Cape and delayed summer rainfall) and the underperforming agriculture sector had direct negative impacts on the financial resources available to the ARC. This resulted in a decline in external income (mainly farmers and other private sector enterprises) for research services in the sector.
External factors that influenced the service delivery environment of the ARC included the following: • Structural faults in the South African economy, particularly poor educational outcomes that perpetuate
inherited disadvantage, low levels of labour intensive growth, skills shortage, spatial fragmentation of the urban landscape and travel costs, highly concentrated industrial structures, limited competition and high barriers to entry, as well as inefficient public monopolies imposing high cost structures for network infrastructure;
• A collapse in consumer and business confidence leading to a contraction in private sector investments and consumption demand;
• National elections that diverted attention to economic activity associated with volatility in local markets; and • Persistent under-achievement of the agriculture land reform programme.
During the Medium-Term Expenditure Framework (MTEF) period ending 31 March 2018 the ARC Parliamentary Grant was reduced by R252 million; and, in addition, the grant allocation from the Department of Science and Technology (DST) for the maintenance and operation of national gene banks (National Public Good Assets) was reduced by R40 million. In financial year, 2018/19 government implemented a change in the rate of VAT from 14% to 15% that in turn, reduced the parliamentary grant available to ARC.
Further analysis indicates that in the period 2012-2015 income exceeded expenditure; however, since 2015, this trend has reversed (i.e. expenditure exceeding income up to 2019). This scenario has depleted the cash reserves of the ARC. Although the working capital of the ARC showed a positive ratio in 2016, whereby current assets exceeded liabilities; the opposite result obtained in 2017 and throughout 2018, current liabilities exceeding current assets indicating liquidity challenges. Because of prior period financial performance, the ARC undertook drastic measures aimed at improving organisational viability.
The ARC operating environment during financial year 2019/20 included the following risks: 1. Sustainability as a going concern (with potential risk of loss of skilled personnel, inability to fulfil financial obliga-
tions that could have consequences for existence of the organisation); 2. Inability to fulfil mandates; 3. Increased risk of poor agricultural production and productivity as a consequence of frequent, uncontrollable out-
breaks of pests and diseases (e.g. FMD, Fall Armyworm, drought etc.); 4. Increased risk of lack of food insecurity (increased hunger and malnutrition); and
5. Increased risk failed agricultural enterprises, particularly commercial agriculture with concomitant unemployment, among others.
Noting that the consequences of a dysfunctional or liquidated ARC would be ghastly to contemplate for South Africa. As a key provider of solutions for the management of pests and diseases, mitigation and adaptation to climate change; a non- functional ARC would present a significant threat to food security, agriculture, economic growth, peace and development.
To avoid the failure of the ARC, management working with Council reviewed the operating business model. The outcome was the development and implementation during financial year 2019/20 of a financially sustainable business model that:
• Explores new and possibly expanded (outside agriculture sector) revenue streams; • Improves upon resource management in terms of effectiveness and efficiencies; • Organisational structure (e.g. optimum ratio of cost of employees to baseline operational parliamentary grant); • Resource mobilization through increased partnerships; and • Consolidation of cost-saving measures, including but not limited to reductions in the number of research and
development campuses, eliminating long-term insufficiently funded project, to mention a few.
2.2. ORGANISATIONAL ENVIRONMENT
Analysis of the ARC performance against pre-determined objectives, key performance indicators and targets as outlined in the five-year Strategic Plan for the period 2015/16 to 2019/20 was conducted. The ARC had 49 indicators that were assessed for performance. However, current analysis focused on key indicators that are representative of the Research and Development value chain, noting that the ARC has both a scientific and agricultural development mandate.
Generally, the ARC has surpassed its annual targets in a number of key performance indicators for the period under consideration. As reflected in the diagram below, the number of scientific publications increased from 363 to 459 between 2015/16 and 2019/20, a 26% increase. The ARC performance in terms of peer reviewed scientific publications suggests an organisation with high productivity, particularly as the information and knowledge were published in both local (South African) and international journals. A number of publications as measured in terms of the ISI rating had an impact factor above one - which suggests a greater number of users of the information published by ARC researchers. To enable effective utilization and innovation in the agricultural sector, the ARC disseminated scientific data and associated information mainly through popular publications, technical reports and manuals.
Although scientific publications serve as a critical means of determining and demonstrating the quality of the innovations and information developed by the ARC, there is a need to provide or transform such data into new technologies for use in agriculture. The ARC continues to serve as one of the leading sources of new agricultural technologies. Analysis indicates that the ARC transferred more than 240 technologies through licensing in the period 2015/16 to 2019/20, including cultivars that had obtained Plant Breeders’ Rights. These new cultivars enable the agricultural sector to increase yield, productivity and resilience to constantly changing production environment, particularly climate change - such as resistance to pest and diseases as well as drought tolerance.
As indicated above, the ARC operating environment was impacted by reductions in Parliamentary Grant allocations during the MTEF period 2016 to 2019. Reductions in the Parliamentary Grant limited the organisation’s ability to invest into critical scientific laboratory equipment for research services as well as inability to recruit highly skilled researchers. Further, reductions in the Parliamentary Grant limited the ARC ability to generate revenue from external clients, particularly the private sector.
Internally reduced financial resources had the following impact upon the organisation: • ARC scientists reduced their time conducting laboratory or field research, but instead focused on data analysis,
that in turn, resulted in scientific publications of high quality; • Reductions in field and laboratory research activities limited the outputs of technologies from ARC, which in turn
has resulted in significant reductions in the number of cultivars released or registered for Plant Breeders’ Rights; • During the same period, the ARC ceased or limited research on vaccine development; • Limited financial resources resulted in the ARC unable to provide inflation linked wage adjustments for researchers
and managers; • Under reduced financial resources, the ARC was subjected to unrest by employees (employee work strike) with
damage to some infrastructure and adverse impact on the reputation of the organisation as well as relations; and • In the same operating period, the ARC limited or delayed recruitment of highly skilled scientists essential for the
organisation to fulfil its mandate.
As outlined above, the ARC has initiated and implemented a Financial Sustainability and Turnaround Plan aimed at ensuring viability of the organisation. The impact of measures implemented under the Financial Sustainability and Turn- around plan are still unfolding and will become central to the success of the organisation.
2.3. KEY POLICY DEVELOPMENTS AND LEGISLATIVE CHANGES
Apart from that set out in the paragraph below relating to a heightened regulatory focus area on compliance, there have been no other significant South African national body of law and policy changes to the ARC mandate as set out in the approved Strategic Plan. The duty of the ARC as a public entity, must comply with all Constitutional law imperatives, National Legislation, Regulations, Municipal by-laws, other subordinate legislation and the common law, with suitable regard to the implications for the ARC business and its sustainability of the case law interpretation of the said parts of the national body of law, by the Higher Courts of the Country.
2.4. STRATEGIC OUTCOME-ORIENTED GOALS
For each of the six strategic goals and reflecting the aligned ARC Programmes, the strategic goals are unpacked into strategic objectives (higher order outputs) and then reflecting the performance indicators, baselines and annual targets for the 2019/20 financial year and MTEF.
The focus is on ensuring that the specified outputs are clear and measurable, in accordance with the “SMART” principle. In addition, at a level below the strategic goals and their related key outputs, the ARC employs a Council (Board) approved Programme structure against which the focus of the goal is described and prioritised. The Programme structure reflects nine Programmes, as described in the Strategic Plan 2015/16-2019/20.
In the sections below, the ARC 2019/20 performance information is packaged as follows:
Strategic Goal Responsible ARC Programme Research and/or Delivery Outputs
Goal 1: To generate knowledge and technologies that will enhance the efficiencies in crop based agriculture.
Programme 1: Crop Production, Improvement and Protection.
1) Generation of knowledge through research; 2) Development of new technologies; 3) Scientific services rendered; and 4) Information dissemination.
Goal 2: To generate knowledge and technologies that will enhance the efficiencies in livestock, wildlife and
aquaculture based agriculture.
Programme 2: Animal Health, Production and Improvement.
Goal 3: To generate knowledge and technologies for the conservation and
utilisation of natural resources.
_______________________________________
Programme 4: Mechanisation and Engineering.
Goal 4: To generate knowledge, solutions and technologies for food safety, quality and improved efficiencies in
the agriculture value chain.
Programme 5: Agro-Processing, Food Technology and Safety.
Goal 5: To generate and disseminate knowledge and technologies for decision-making and transforma-
tion of the agricultural sector.
Programme 6: Smallholder Agricultural Development.
_______________________________________
_______________________________________
1) Generation of knowledge through research; 2) Technologies released to agriculture sector; 3) Scientific services rendered; 4) Agriculture skills and capacity development; 5) Agriculture R&D information communicated/disseminated to stakeholders; and 6) Stakeholder management.
Goal 6: Apply best resource management practices, towards a high perform-
ing and visible organisation.
Programme 9: Administration and Corporate Affairs.
1) Improved post-graduate SET base; 2) Improved staff profile; 3) Optimal investment in training and development; 4) Funding and revenue generation; 5) Applied Information technologies; and 6) Optimal utilisation of assets.
3.1. PROGRAMME 1: CROP PRODUCTION, IMPROVEMENT AND PROTECTION
Strategic Goal 1 is delivered through ARC Programme 1: Crop Production, Improvement and Protection.
The focus of Goal 1 is to generate knowledge and technologies (intellectual property and tools) that will diversify, improve the quality and increase the value of crop-based agricultural production and related processes and products; enhance productivity towards food and nutrition security (both at national and household level); increase commercial exports and income for the agricultural sector and enable producers to combat challenges brought about by changes in climate.
The goal focuses on improving the productivity, competitiveness and sustainability of both commercial and smallholder crop-based agriculture through research and development in three areas namely, field crops, horticultural crops and industrial crops. Crops research and development includes a wide range of grains, vegetables, indigenous ornamental plants, medicinal plants, deciduous fruit and grapes, tropical and subtropical fruits and niche crops, such as herbal teas. Industrial crops research and development focus on fibre crops, such as cotton and hemp.
As defined in the Strategic Plan, the research and development priorities of Goal 1, which includes Programme 1, are as follows:
1. Crop cultivar development through genetic improvement and modification; 2. Characterising and evaluating crops in terms of quality, nutritional composition, shelf life and suitability for pro-
cessing; 3. Disease and pest control by means of enhanced genetic diversity; 4. Provision of strategies for management of pests, diseases and alien invaders; 5. Bio-control of pests and diseases; 6. The improvement of agricultural productivity and profitability through adaptive and innovative crop management
and production systems, such as conservation agriculture; 7. Development of crop production practices and systems, including crop rotation, intercropping, irrigation, fertiga-
tion, weed management, plant densities and general crop practices; 8. Optimisation of water use and nutrition uptake; 9. Lowering of input costs; 10. Broadening the food base in order to enhance food and nutrition security; 11. Production systems for low input, low decision-making and marginal production areas; 12. Training of crop growers and extension staff to ensure sustainable production; and 13. Provision of scientific services to farmers and clients of the ARC.
3. PERFORMANCE INFORMATION BY PROGRAMME
Key performance indicators, planned targets and actual achievements:
GOAL 1: TO GENERATE KNOWLEDGE AND TECHNOLOGIES THAT WILL ENHANCE THE EFFICIENCIES IN CROP BASED AGRICULTURE
Programme 1: Crop Production, Improvement and Protection
Key Output Performance Indicator
Comment on deviations
proceedings; and
119 84 118 34 Publications accepted fast- er than anticipated.
Technologies Developed Number of Cultivars registered. 9 12 8 (4) Registration of cultivars
beyond control of ARC.
Scientific Services rendered
Number of Diagnostic and Analytical services rendered. 644 756 626 (130) Fewer diagnostic services
requested by clients.
Information disseminated
Number of technical reports and manuals. 516 329 442 113 Higher number of reports generated for ARC clients.
Number of field trial sites. 356 588 541 (47) Fewer field trials due to high rainfall season.
Basic and applied research conducted within the Crop Sciences Division contributes significantly towards attainment of the ARC strategic outcomes-oriented goals as a Science Council and agricultural development organisation. Specifically, plant breeding research and development through the disciplines of breeding, physiology, and genetics enables the development of improved food, feed and fibre cultivars. The new cultivars ensure higher profitability and food and nutrition security, as well as resilience of the agriculture sector. A case in point is the registration of three (3) new wheat cultivars developed at the ARC Small Grains campus, which are expected to increase the production and productivity of wheat in South Africa. The new wheat varieties are (i) Steenbok, (ii) Tredoux and (iii) Umzumbe; and their performance in the National Cultivar Evaluation Programme (NCEP) is summarised below:
• Steenbok is a new dryland wheat cultivar for the winter rainfall region. Steenbok performed very well in the Nation- al Cultivar Evaluation Programme (NCEP) for the winter rainfall region (Western Cape) in the 2019 season; and achieved high grain yield and hectoliter mass in both the combined Swartland regions and Eastern Ruens regions.
• Tredoux is a new variety that was only included in the NCEP trials for the first time in 2019 and seems to be better adapted for the Eastern and Southern Ruens production regions. Grain yield, protein content and hectoliter mass of this new variety are acceptable but the true value and potential production regions will only be determined in the coming seasons.
• Umzumbe is a new variety that has good grain yield and quality potential in the cooler irrigation regions and particularly the Vaalharts area. In a 4-year average (2015 to 2018) for grain yield, Umzumbe outperformed the older ARC commercial irrigation varieties such as ‘Sabie’ and ‘Renoster’. It was however decided not to advance Um- zumbe for commercialisation as new candidates with better yield and quality potential were becoming available. Umzumbe was therefore also not included in the NCEP trials for the irrigation regions.
As South Africa strives to become less dependent on wheat imports, currently estimated at an average of 1.57 million tonnes per annum over the past five years, the ARC continues to render research to support the wheat industry. The ARC pre-breeding for enhanced resistance/quality traits has released 2 021 wheat lines over the past five years for exploitation by all South African wheat breeding companies. On the other hand, the ARC wheat cultivar development programme has released eight dryland and four irrigation wheat cultivars over the past 4 years, while one oats cultivar is in the process of being released. A metadata analysis published in 2018 on wheat breeding research conducted by ARC has revealed a return on investment (ROI) ratio of 5.1:1. Although seemingly lucrative, there is reluctance to invest in cultivar development research as wheat is a self-pollinating crop with farmers retaining seed from season to season. The ARC therefore places high importance on international research partnerships for research and development outcomes.
A notable partner, amongst others, is the International Maize and Wheat Improvement Center (CIMMYT), with regard to the Programme on International Wheat Yield Partnership. In further support of local wheat cultivar development, ARC has the mandate to conduct the National Cultivar Evaluation Programme (NCEP) in all major production areas in South Africa. This is done to supply reliable, independent guidelines for the choice of adapted cultivars to small grain producers and policy makers. On average, 55 cultivars are evaluated in the NCEP per annum.
Other achievements in cultivar development include the awarding of Plant Variety Rights in New Zealand for the ARC African Sunset ‘ARCCIT1519’, a late maturing mandarin, selected for its attractive appearance and excellent flavour, that will be marketed in New Zealand by an ARC designated commercialisation partner. The ARC Tropical and Subtropical Crops, as part of its mandate, undertakes citrus breeding research with significant contribution to the citrus industry. Two ARC mandarins were granted Plant Breeders’ Rights certificates in Mexico, and this is expected to be beneficial to the ARC in terms of potential royalties. A Plant Breeders’ Rights certificate was awarded for a grape cultivar called Sundown- er. This is a new, white seedless grape for the production of raisins, developed in the ARC Infruitec-Nietvoorbij’s grape breeding Programme and extensively evaluated in the Western and Northern Cape. The ARC Grain Crops successfully registered soybean variety ‘ARC-Soy 01’. Performance on cultivar development is subject to external dependencies outside the control of the ARC and the Crop Sciences Division. The annual target was to develop and register 12 cultivars, and ARC received feedback on 8 cultivars. There is outstanding feedback for another 8 cultivars for which applications for Plant Breeders’ Rights were submitted; which include:
• 4 maize varieties; • 1 soybean variety; and • 3 fruit cultivars for apple, peach and pear.
It is expected that outstanding feedback will be received in the subsequent year. Linkages on Crop Sciences performance and high level imperatives such as food and nutrition security and performance of the agriculture sector, highlights the importance of continual dissemination of research outputs and outcomes to the scientific fraternity, farming community and society at large.
Scientific publications are an important platform to disseminate research findings, and enhance visibility and stature of research organisations and the calibre of scientists who are at the forefront of the reported performance. Scientific publications are also an area where the performance of the Division continues to report above set targets, and this is largely attributed to acceptance of manuscripts being outside the control of researchers.
Technical reports and manuals produced by ARC researchers and technicians disseminate information directly to the agriculture sector on demand by agricultural organisations and farming communities that collaborate directly with the ARC, and the demand for this service in many instances exceeds set targets. The long-term nature of research conducted at the ARC and in Crop Sciences is invariably impacted by seasonal variation in climatic conditions, resulting in performance trends that are directly correlated to such seasonal variation. For instance, open field trials are subject to the onset of the rainy season, and this could result in delayed planting due to continuous heavy rainfall leading to waterlogged fields. The unpredictability of demand-driven services such as diagnostic and analytical services, requires closer monitoring. Generally, targets are increased annually on an incremental basis, informed by perform

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