National Framework for the Commercialisation of Black Producers

1. National Framework for the Commercialisation of Black Producers Presentation to Portfolio Committee Workshop 6 March 2019

2. Introduction • The workshop with Portfolio Committee of Agriculture, Forestry and Fisheries and Portfolio Committee of Rural Development and Land Reform to discuss the new policy initiative to address challenges of Land Reform and development support for Land Reform beneficiaries and emerging commercial farmers in line with the black producers Commercialization Programme under DAFF.

3. Problem Statement • Fragmented and uncoordinated support which has not sufficiently focused on commercialising black producers • Lack of access to land regardless of constitutional provisions for equitable redistribution • Unaffordability of funding • Lack of access to markets • The DFI’s funding bias towards white commercial agriculture; • Commercial banks’ unwillingness to transform – risk averse particularly towards black producers • Untransformed sector

4. Goal • To support sustainable commercialization of black producer’s farming enterprises in meeting food security and wealth creation. • To support enhancement of production by Black Producers through deliberate, targeted and well defined interventions. • Address inequality, create sustainable jobs, grow the economy and eradicate poverty. • To transform the sector • Make Land Reform work– and Agriculture Productive.

5. Black Producers Commercialisation Program (BPCP) Framework • The approach to commercialise black producers is two fold: • The development phase for potential producers to operate at commercial level (Dynamic Business Model); • The provision of blended finance phase to commercialise black producers (Re-engineering of Agricultural Development Finance).

6. Categories of Producers and Support Black Producers Commercialisation Program Blended Finance (BPCP BF) consisting of loans and grants to commercialise black producers. >R20 million p/a Tenure rights: land tenure, restitution will fit into either of the four categories >R5million p/a >R500 000 p/a CASP and Ilima/Letsema still play a significant role in the development and support to these producers who will not qualifyfor blended funding Existing Food security Initiatives (CASP, Ilima/Letsema, 1 ha 1 hh etc. to prepare producer to be market ready.

7. Blended Finance (BF) Phase • Blended Funding is the provision of a loan and a grant to improve access and affordability of finance by black producers and reduce reliance on grants. • This initiative proposed that government should develop blended financial instruments (loan and grant), administered centrally. • The BPCP BF is the 1st blended instrument developed in partnership with DRDLR and Land Bank. • The target is to commercialise at least 450 black producers over 5 year period; and • The categorisation of these producers has been done, and the commercial producers will either be small, medium or large scale commercial producers along the agriculture, forestry and fisheries value chains.

8. BPCP BF to commercialise black producers Vision • Increased meaningful participation of black producers owning and controlling the agriculture, forestry and fisheries value chains. Objectives • Reduce reliance on grants and increase access and affordability of loans by black producers • Expand the agricultural base and inject new black entrepreneurs into the sector. • Shift the demographic composition of South Africa’s commercial agriculture, forestry and fisheries. and transform the sector.

9. BPCP BF to commercialise black producers Guiding Principles Own or long lease of land Mentorship Structuring fee, pre-financing grant (feasibility, due diligence etc.)of 1% of total grant Project management fee of 2.5% Black owned and managed farming enterprises that are commercially viable (100% or minimum 60% black owned). Youth, women and People with Disability Restitution farms / projects • Blended finance (grant and loan); • Focus on APAP commodities; • Focus on value chain financing; • Subsidize insurance; • Loan approval is the responsibility of financing institution; • Grant approval is the responsibility of DAFF and DRDLR, supported by DTI, DWS, DEA and National Treasury; • Steering Committee is chaired by DAFF to oversee implementation. • Promote inclusivity in the sector (women, youth, people with disabilities and farm workers). Targeted beneficiaries

10. Targeted Commodities in line with Agriculture Policy Action Plan

11. BPCP BF: Utilisation of funds The BPCP BF facility will be used by the parties to provide funding facilitation and/or grant financing to Black Commercial Producers for: • The acquisition of primary agricultural land parcels and/or commercially viable agricultural sector value chain operating entities. • Support existing operations for expansion in production on privately owned or land reform farms; • Support of land development for restitution projects; • The purchasing of capital equipment and infrastructure (“CAPEX”). • Working capital and/or production loan (“Production Facility”).; • Insurance pool provision for subsidisation of insurance cover for the applicable farmers (capped at 6% (six percent) of each total Grant Funding Facility amount).

12. BPCP BF Status: Benefits • The application of BPCP BF funds provides black producers with the equity they do not have, but require, in order to sustainably enter the agriculture, forestry and fisheries sectors in South Africa. Through the application of BPCP BF programme rules, the black producers will simultaneously access loan funding and grow to such an extent that grant funding will no longer be required over time. • BPCP BF thus - • Supports sustainable commercialization of black producer’s farming enterprises in agriculture, forestry and fisheries sectors. • Supports sustainable participation of black producers in the agriculture, forestry and fisheries sectors • Supports sustainable investment that will unlock and enhance production by black producers through deliberate, targeted and well defined interventions. • Support inclusive growth, sustainable jobs, wealth creation, rural development and sector transformation.

13. BPCP BF: Economic Benefits Criteria

14. BPCP BF: Support Allocation Table • The ratio for support is 10 smallholder: 5 medium and 1 large commercial per province per annum; in order to meet the 450 smallholder farmers commercialised in five years; • Youth, women, people with disabilities, cooperatives and restitution projects will access the maximum grant in each class.

15. Blended Finance Value Chain SIGNING OF TERMS AND CONDITIONS FOR GRANTS

16. BPCP BF: Context Diagram

17. BPCP BF: Land Bank Internal Processes

18. Roles and Responsibilities of Parties

19. Role of DAFF • Providing the Grant Funding Facility to Land Bank in the amount of R370 000 000 (three hundred and seventy million Rand) which will be used as co-funding to de-risk Black Commercial Producers loan applications, provide technical support, insurance and related products; which amount shall be provided as follows: • R100 000 000 (one hundred million Rand) of the Grant Funding Facility to Land Bank for the 2017/18 financial year; • R120 000 000 (one hundred and twenty million Rand) of the Grant Funding Facility to Land Bank for the 2018/19 financial year; and a further allocation after the mid-term budget review as would be determined by National Treasury; and • R150 000 000 (one hundred and fifty million Rand) of the Grant Funding to the Land Bank for the 2019/20 financial year.

20. Role of DAFF (2) • Providing agricultural extension services or specialised technical support to the Black Commercial Producers as and when required; • Co-ordinating and chairing the BPCP Steering Committee and the Funding Forum; • Providing funding to the Grant Funding Facility beyond 2020/21 as would be determined with the National Treasury to cover the remaining contractual period of 10 (ten) years, and • Co-chairing Provincial Technical Committee (PTC) meetings which comprises of DRDLR, DAFF Provincial Departments of Agriculture and Land Bank Regional Offices for initial appraisal and selection of projects.

21. Role of DRDLR • Providing the Grant Funding Facility to Land Bank in the amount of R2 682 432 000 (two billion six hundred and eighty two million four hundred and thirty two thousand Rand) which will be used as co-funding to de-risk Black Commercial Producers loan applications for land acquisitions, production in restitution projects, insurance which amount shall be provided as follows: • R800 000 000 (eight hundred million Rand) of the Grant Funding Facility to Land Bank for the 2018/19 financial year; provided that, of this amount, R500 000 000 (five hundred million rand) is ring-fenced for support towards  restitution projects, while R300 000 000 (three hundred million rand) will be utilised for land acquisition and  development support of other land reform farms. However it should be noted R150 million will come from Curatorship Fund at already at Landbank • R910 153 000 (nine hundred and ten million one hundred and fifty three Rand) of the Grant Funding Facility to Land Bank for the 2019/20 financial year; and • R972 279 000 (nine hundred and seventy two million two hundred and seventy nine Rand) of the Grant Funding Facility to Land Bank for the 2020/2021 financial year.

22. Role of DRDLR (2) • Co-chairing the BPCP Steering Committee and the Funding Forum; • Chairing Provincial Technical Committee (PTC) meetings which comprises of DRDLR, DAFF – Provincial Departments of Agriculture and Land Bank Regional Offices for initial appraisal and selection of projects.

23. Role of Land Bank – Fund Administrator • Creating a separate interest bearing account for the Grant Funding Facility; provided that any interest accrued shall remain in the Grant Funding Facility and be used in the programme to benefit black producers to be commercialised; • Receiving the Grant Funding Facility funds paid by DAFF and DRDLR into the interest bearing account; • Disbursing the approved grant to the participating bank or a Development Funding Institution only upon receipt of the grant approval form and the instruction to disburse form from the Funding Forum, • Providing the Funding Forum with monthly fund facility reports; • Providing the BPCP Steering Committee with monthly fund facility reports.

24. Role of Land Bank – Participating Financier • Receiving applications for support directly from applicants and/or from DRDLR; • Conducting pre–screening assessments in order to determine if the Black commercial producers meet qualifying criteria as contemplated in the BPCP, potential business case, test viability and affordability including soft issues such as verify land availability of farmers, farm workers, farm dwellers currently occupying it; etc. • Appraising qualifying applicants in relation to cash flow projections and determining the funding structure suitable to the application (loan/ advance/ grant) and recommending the grant amount to the Funding Forum.

25. Role of Land Bank – Participating Financier • Using of its existing infrastructure to consider loan applications from Black Commercial Producers; • Providing the BPCP Steering Committees with monthly loan performance reports; • Providing the BPCP Steering Committees with monthly development outcomes reports; and • Participating in Provincial Technical Committees (PTC) which comprises of DRDLR, DAFF – Provincial Departments of Agriculture and Land Bank Regional Offices for initial appraisal and selection of land to be acquired by DRDLR for agricultural development.

26. Role of Land Bank – Participating Financier • Facilitating the provision of agricultural insurance to support approved transactions/projects (the provision of such insurance shall be open to all interested agricultural insurance service providers, not only limited to Land Bank Life Insurance Company (SOC) Limited (LBIC) provided those comply with the scheme developed by LBIC for this programme). • Making available such information, relating to its duties and obligations in terms of this MOA, as may be requested by DAFF and DRDLR.

27. BPCP BF: Roles & Responsibilities of Participants Programme Governance System Landscape Records Management Farmer Register Implementation Oversight Consolidation Access Additional Funds External Programme Comms Programme Risk Management Programme Standardisation & Updates Define Criteria for Success Track, Measure & Evaluate Progress Vetting Outsourced Service Providers Stakeholder / Participant On Boarding Stakeholder Relationships Performance Management Capacitation (Central BPCP Office) Programme Branding / Identity Programme MI & Reporting Quality Control Broad Programme Comms Central Control / Co-Ordination Monitoring & Evaluation Policy Quality Assurance Agric Extension Services Overall Framework & Execution Support Market Access Operational Management Process Definition Define Conditions of Grants (Fund Pools) Governance & Decision Making Participation Internal Black Commercial Producer Strategy Internal Comms Internal Governance Implementation Management Monitor & Evaluate Achievement of Objectives Policy Adherence Approval of Policy and Process Pre-Investment Support Provision of Grants Individual Fund Pool MI and Reporting Report on Grant Funds Monitor grant fund facilities Receive and Pay into/from bank accounts Program enhancement Recommendation MI & Reporting Report on outstanding g facilities available for either disbursement or approvals Adhere to corporate governance Disburse of grant funding Opening and Managing bank accounts External Comms aligned with DRDL and DAFF Receive, assess and Process BPCP BF Loan Applications Development Impact Reporting Capability Management Adherence corporate Governance Policy and Process MI and Reporting Internal Comms Loan Disbursement Loan Performance, monitoring and evaluation Program enhancement recommendations Enquiries management Internal training Complaints management Identify Black Commercial Producers Create secure email boxes Legislation & Compliance Transactional Comms Provision pf Capacity Loan Performance Reporting Technical Expertise and Support Skills Transfer – Technical & Business Capacity & Capability Management Assist Application Completion Pre and Post Investment Support PFI Comms Business Plan Support Farm Profiling Farmer Development Market Access Production Support Extension Support Services Identify BPCP Internal Comms Target Training & Mentorship Quality Control Monitor & Correct MI & Reporting Facilitate the Provision of Agric Insurance Internal Comms Policy Provision Capability Management Claim Processing Governance Capacitation *Disclaimer: Save for the Fund administrator and Land Bank as a participating Financial institution roles as outlined above. The roles and responsibilities has not yet been finalised and agreed up on.*

28. The Development Phase

29. Black Producer Commercialization Programme (BPCP): Development Phase • DAFF, DRDLR and PDAs enter into partnerships with commodity organisations, SOEs (ARC, NAMC, PPECB) and Academic Institutions to support producers; • Conduct farm and farmer needs assessments of identified producers, • Skills and capacity building including record keeping; • Farm planning i.e. primary and secondary commodities; • Assistance with business plan development; • Accreditation e.g. Global GAP or SA GAP certification and facilitation of access to markets; • Infrastructural and input support to enable achievement of at least R500 000 turnover per annum. • Submission of bankable business plans to Financial Institutions

30. BPCP: Development Phase - Business Model 30

31. BPCP: Development Phase - Context • DAFF CASP conditional grants to provinces will ring-fence at least 20% of project allocation for the development of identified potential commercial producers in partnership with ARC, NAMC, PPECB and Commodity organisations; • Provinces have identified 50 potential producers to be commercialised, 10 supported annually; • The development include infrastructure, inputs, skilling and capacity building, record keeping, accreditation, market access, financial management, development of a bankable business plan and registration of a legal entity; • The bankable business plan is presented to the financial institution to access comprehensive blended funding.

32. Criteria used for selecting 50 per province Agriculture Specific Criteria Forestry Specific Criteria The grower/ producer should be in their second rotation if they are in a timber production enterprise; The grower/producer should have demonstrated practical knowledge and focused on a commodity in line with the Agricultural Policy Action Plan/ Forest sector transformation Charter Codes; Potential to achieve an annual turnover of R 250 000 to R 500 000 per rotation if they are small growers; Growers/producers to be within 300km radius of the mill, weigh bridge and/or processing plant; Growers must comply to legal/ authorisation and other cardinal prescripts; Those involved in intensive production must also be considered ( Nurseries, Charcoal producers, Non-Timber Forest Products, pole producers); Enterprises that combine forestry and alternative / complementary enterprise to promote multiple land use and associated benefits i.e. Agroforestry; • The farmer must have demonstrated practical knowledge and focused on a specific commodity in line with the APAP value chains and the Provincial Growth Development Plans (PGDP); • The farming enterprise has the potential to achieve R500 000 annual turn-over depending on the commodity under production; • Enterprise should preferably be within 100km radius from the identified Agri-parks Farmer Production Support Unit (FPSU) or have access to markets; • The business enterprise must have been in operation for at least 2 years;

33. BPCP BF Status: Key Milestones achieved • Macro Framework processes formalised 13 July 2018 • Internal Land Bank processes formalised 2 Oct 2018 • Exco approval by all Tripartite partners • Tripartite agreement signed 28 September 2018 • LB opened Bank accounts required • BPCP BF General Fund received first R220 mil from DAFF • LB reported to Steerco from Nov 2018 on funds in accounts • LB & DAFF created new secured email addresses required • LB internal communications plan completed • LB training facilitator- & assessors guides completed • LB & DAFF trained staff • Non-bankable deals referred to DAFF /PDAs / DRDLR • 14 Deals submitted by LB to FF (R355 mil) • 10 Deals approved by FF (R238 mil spread over 3 years)

34. BPCP BF Status: Next steps • Formal public launch and/or communications by the two Policy Departments and owners of the BPCP BF on how the programme works, who can benefit, rules, criteria, operations etc. • Currently still uncertainties in the market which cannot be cleared by Land Bank on its own, without the owners of the programme taking the lead for same. • DRDLR contribution of R800 mil • DAFF/DRDLR agreements with other Funders • LBIC final costing & workings

35. BPCP BF: Acronyms • APAP: Agriculture Policy Action Plan • BPCP: Black Producer Commercialization Programme • CASP: Comprehensive Agricultural Support Programme • DAFF: Department of Agriculture, Forestry and Fisheries • DEA: Department of Environmental Affairs • DRDLR: Department of Rural Development and Land Reform • DTI: Department of Trade and Industry • DWS: Department of Water and Sanitation • MOA: Memorandum of Agreement • NT: National Treasury • PDAs: Provincial Departments of Agriculture • TOR: Terms of Reference

36. Thank you