PRESENTATION ON THE AGRIBEE FUND

TO

POTATOES SOUTH AFRICA TRANSFORMATION

SYMPOSIUM

EAST LONDON INTERNATIONAL CONVENTION CENTRE, EASTERN CAPE

09 JUNE 2016

CONTENT

1. BACKGROUND

2. DESCRIPTION OF THE FUND

3. KEY OBJECTIVES OF THE AGRIBEE FUND

4. THE AGRIBEE FUND PRODUCTS

5. DIFFERENCE BETWEEN THE AGRIBEE FUND AND OTHER FUNDING

PROGRAMMES OF DAFF

6. CRITERIA AND PRE-REQUISITES FOR FUNDING

7. CONDITIONS FOR FUNDING

8. EXCLUSIONS

9. PROCESS FLOW

10.CHECKLISTS

11.CASE STUDY

12.CONCLUSION

2

BACKGROUND

With the dawn of democracy in 1994, government had a clear mandate of redressing

the inequalities of the past in every sphere ( political, social or economic)

Comprehensive programme to provide legislative framework for the transformation of

the economy

Broad-Based Black Economic Empowerment Strategy was published in 2003

Broad-Based Black Economic Empowerment Act, No.53 of 2003 (Amendment Act, No

46 of 2013)

The objective is to advance economic transformation and enhance the economic

participation of black people in the South African economy

In order to promote the purposes of the Act, the Minister may by notice in the

Government Gazette issue codes of good practice on black economic empowerment in

terms of Section 9 (1) of the Act,

3

BACKGROUND CONT………

The AgriBEE Sector code was gazetted in 2012 as per section 9(1) of the Broad Based

Black Economic Empowerment (B-BBEE) Act 53 of 2003

Objectives of the AgriBEE Sector Code are to facilitate Broad Based Black Economic

Empowerment in the agricultural sector.

Government has committed to making available funds to facilitate empowerment in the

sector (this is in the form of the AgriBEE Fund)

4

DESCRIPTION OF THE FUND

AGRI-BEE Fund is a support intervention emanating from the empowerment

framework to enable participation of businesses owned by Black People, previously

excluded from mainstream economic activities.

The Department of Agriculture, Forestry and Fisheries (DAFF) has appointed the

Land Bank to manage the Fund. This includes economic and financial analysis and

evaluation of recommended proposals.

The relationship between the two institutions is governed by a Memorandum of

Agreement (MoA) and Addendum to the MoA signed in 2011 and 2012 respectively.

The Fund is supported through annual allocations from the National Revenue Fund.

5

KEY OBJECTIVES OF THE FUND

To support the economic empowerment and successful entry of black people into the

Agriculture, Forestry and Fisheries Sectors:

Ensure an increase in the number of black people who own, manage and

control sustainable enterprises within the sector.

Ensure improved participation by designated groups in the sector.

Promote entry and participation of black people in the entire Agriculture, Forestry and

Fisheries value chain through provision of funding for:

Equity acquisition

Enterprise development

» Agro-processing and Value addition

6

THE AGRIBEE FUND PRODUCTS

7

AgriBEE Fund Products

Equity

New Equity DealsIncreasing Equity

Ownership

Agro-processing /Value Adding

Start-up processing / value adding businesses

Clusters

Niche export products

Existing processing / value adding

businesses requiring expansionary capital

Up-scaling operations

DIFFERENTIATION OF FUNDING PROGRAMMES

• ILIMA/

• LETSEMA

• MAFISA

• CASP• AgriBEE Fund

Equity & Agro

processing/Value

addition

On and Off farm

infrastructure

Production inputs

Production inputs

Revitalization of irrigation

scheme

Production loans

8

CRITERIA AND PRE-REQUISITES FOR FUNDING

Applicants must :

Be black South Africans with valid identity documents

Be a legal entity (Certificate for registration/incorporation is required).

Have own contribution of 10%

Provide a financially and economically viable business proposal.

Complete and submit the AgriBEE Fund application form to the relevant Provincial

Department of Agriculture point of contact.

Preference shall be given to project applicants whose membership consist mostly of

women, youth, people with disabilities, farm workers and whose proposal is linked to

commodity strategy of a specific commodity group.

9

CRITERIA AND PRE-REQUISITES FOR FUNDING CONT…

The applicant must have a market partner or identified market, market plan in order

and signed contract/ undertaking/off-taker agreement/s, preferably a long-term off-

taker agreement from partners to qualify for funding.

The applicant must have skills on the intended business operation it plans to buy into

(furnish proof thereof when required in a form acceptable to the Land Bank).

Preference shall be given to applicants who want to acquire equity in viable entities

or invest in viable agroprocessing / value adding operations that operate within their

line of commodity.

Viability studies will be conducted by the Land Bank as part of the Due Diligence

process. In this regard, the report of such studies shall form part of the evaluation.

10

CONDITIONS FOR FUNDING

The maximum fund per approved applicant is limited to R5 million and a minimum

own contribution of 10 percent is required. However, DAFF and the Land Bank may

exercise their discretion and consider and approve applications of more than

R5 million, 20% own contribution would be required for such cases.

For new equity deals, applicants must hold at least up to 49% in the initial

investment.

The applicant must source the portion required as own contribution from any funding

source of their choice

The applicant must provide reports, which include financial reports, status reports

(progress in regard to production) where applicable, the Balance Sheet, and all other

reports that may be required.

The applicant must have a clean credit record and be credit-worthy.

11

EXCLUSIONS

EXCLUSIONS

Land under claim

Government & Land Bank Employees and

Politicians

100% interest acquisition

Passive Investors (Speculators)

Purchasing of farms and infrastructure at

farm level

12

PRE-APPROVAL

LAND BANK

Receive from DAFF those applications that have gone through pre-screening

Screen applications and undertake due diligence assessments

Recommend to DAFF those applications that have met the Bank’s criteria

DAFF

Receive applications and/or proposals from PDA’s, screen them and forward to the Land Bank for consideration/due diligence

PDA

Assist farmers in project formulation and the preparation of

commercially viable business plans

Provide general agricultural information

and capacity to contribute to the success and sustainability of the

projects

Provide advisory services

Provide a letter of support

Submit those applications and/or proposals that fit the

criteria to DAFF

13

POST APPROVAL

LAND BANK

Receive the request for payments, verification reports (supporting documents) from PDA’s

Request authorisation from DAFF Disburse funds upon receipt of authority from

DAFF

DAFF

Confirm that a verification as in above has been conducted Authorise disbursement of funds as the request for payment

PDA

Receive invoices/quotations from the applicant

Conduct the necessary verifications (the costs are market related, items procured are from

reputable suppliers, any other issue that Land Bank need to be verified)

Submit the verification report and request for payment o the Land Bank

14

CHECK LIST FOR EQUITY DEALS

Completed and signed application form

Business plan of the identified partner where investment is intended, with the clear

indication of sustainability for a long term

CVs / profile of the applicants and identified partner(s)

Registration certificates for both applicants and identified partner(s)

Constitutional and / or founding documents must be provided. If it is a trust, trust

structure is required

Identity Documents for both applicants and identified partner(s)

Three (3) year consecutive audited financial statements (Balance Sheet, Income and

Cash Flow statements) for both applicants and identified partner(s)

15

CHECK LIST FOR EQUITY DEALS CONT...

Shareholder’s certificates

Tax Clearance certificates for both applicants and identified partner(s)

Letter of intent from the seller

Off take Agreements

Letter of support from the Provincial Department of Agriculture

Trust deed for employees organized into a Trust

16

CHECK LIST FOR AGRO-PROCESSING AND VALUE ADDITION

Completed and signed application form.

Business plan of the applicants with a clear indication of sustainability for a long term

Profile of the applicants

Registration certificates for applicants

CVs of the applicants

Identity Documents for applicants

Three (3) year consecutive audited financial statements (Balance Sheet, Income and

Cash Flow statements) for applicants

17

CHECK LIST FOR AGRO-PROCESSING AND VALUE ADDITION

CONT...

Tax Clearance certificates for applicants

Off take Agreements

Letter of support from the Provincial Department of Agriculture

Constitutional and / or founding documents must be provided

EIA report may be required.

Quotations

18

CASE STUDY (FUNDED POTATO PRODUCER)

BACKGROUND

100% black owned potato producer farm in Limpopo Province

Produces potatoes on 1430 hectares farm and leases an additional 446 hectares

Potatoes are cultivated under irrigation which are planted in rotation with tomatoes,

dry beans, pumpkin and maize

Contributes about 12,480 tons of potatoes per annum

Has created 48 permanent jobs and further employs 150 seasonal workers during

harvesting period

Has more than 28 years of experience in potato farming.

19

SWOT ANALYSIS

Strengths

Adequate production land

Availability of water (drilled and equipped bore hole)

Vast experience and expertise in farming

Reliable markets

Hard work, commitment and determination

Threats

High infrastructure cost for potato production

Increasing input costs

Natural disasters (floods, hail and drought) which are difficult to predict

HIV/AIDS affecting human resources

Weaknesses

Limited arable land for expansion

Limited funds for construction of a pack house for washing, sorting, storage, grading and packaging of produce

Opportunities

Well known producer in most markets

Strong relationship with commercial farmers and other stakeholders

Availability of labour

Favourable climatic conditions

20

MARKETS & TURNOVER

Supplies various fresh produce markets which include the Johannesburg Fresh

Produce Market and local Fresh Produce Market

Retailers such as Pick-n-Pay and other supermarkets.

Also sell to the hawkers who buy from the farm gate to various distribution channels.

Export Eight percent (8%) of the produce to neighbouring countries such as

Mozambique and Botswana.

Package potatoes in 10kg and 7 kg bags according to the market specifications

The average annual turnover was R17,000,000 over the period of three (3) years

21

CHALLENGES

Post-harvest losses owing to the dilapidated and ancient packing facilities

Required manual labour to sort especially the small sizes

The machines could not pack the bags according to the required standards and the can

only sort and pack approximately 6000 kg (6 tons) of potatoes per day respectively.

Loses about 2 pallets/tons in the process (one pallet contains 100 x 10kg) of potatoes

per day which cost around R8 000.00.

To remedy the situation they needed to construct a new pack shed and packing

equipment’s that will comply with all the requirements of Good Manufacturing Practices

(GMP).

22

PICTURES OF THE OLD PACKHOUSE

PICTURES OF THE OLD PACKHOUSE

SUPPORT PROVIDED

An application for financial assistance under the AgriBEE Fund was submitted to DAFF

and subsequently approved

DAFF supported the potato producer through the AgriBEE Fund with infrastructure

upgrades and acquisition of packline machines to the value of R 8, 196 million.

(80%) R6 556 000 was approved and the producer made own contribution of

R1 639 000 (20%) as per the provision of the Fund’s Ops Manual

25

PICTURES OF THE NEW PACKHOUSE

PICTURES OF THE NEW PACKHOUSE

IMPACT

With the construction of a new pack house the business will be able handle

approximately 180 tons per day as opposed to the current 6 tons per day

This will allow for the expansion of the operations resulting in more hectares planted

Employment and market opportunities will increase as more land will be planted to meet

the demand of the facility

Revenue is also expected to increase

Approximately 38 to 40 more permanent jobs and 183 seasonal employments will be

created after the construction of the pack house

The business will be able to comply with the requirements of Good Manufacturing

Practices (GMP) and certification for adherence to food safety and quality standards

such as HACCP, ISO, Global GAP and SA GAP to access export markets

28

CONCLUSION

The Fund supports previously disadvantaged individuals to acquire equity from

existing financially and economically viable enterprises and also to establish or

upscale operations for agro processing and value adding projects.

The Fund compliments CASP and Mafisa but may not be used as a substitute for

these funding programmes.

Only proposals that fit the criteria may be recommended for funding.

DAFF will not accept any applications directly from applicants. Applications should

be submitted via the Provincial Departments of Agriculture.

29

THANK YOU

30