An act that encourages the inclusion of smaller agricultural businesses in the South African economy is making its way through the government for finalisation.
The South African government is in the process of finalising the release of the realigned AgriBEE Sector Codes to rate agricultural businesses’ level of compliance to the Broad-Based Black Economic Empowerment (B-BBEE) Amendment Act, which aims to facilitate the meaningful inclusion and participation of previously disadvantaged citizens in the country’s economy. This, in turn, should unlock new business and market opportunities for small-scale farmers and other enterprises in the value chain, according to independent economist, Ernst Janovsky.
“Enterprises supplying government agencies, such as prisons and hospitals, with food, might lose their contracts, if they do not meet satisfactory levels of compliance with the Act,” Janovsky said.
He added that the government might also use an enterprise’s level of compliance to grant access to certain export permits and quotas, or even water rights and land, in the future. The Regulation of Agricultural Land Holdings Bill is already heading this way. It proposes to prohibit foreign agricultural land ownership unless land is bought in partnership with a black South African, who should have the majority share in the land.
Enterprises with an annual turnover below R10 million are considered an exempted micro-enterprise and automatically obtain a level 4 compliance. However, other companies and market forces might pressure them to practice BEE to benefit their own ratings through the preferential procurement element. According to Janovsky, non-compliance (when a scorecard measures lower than level 8) might also negatively affect the public image of a company and result in consumers, who are becoming more aware of ethical and responsible business practices, buying their food elsewhere.
Dr. Mandala Buthelezi, deputy president of the African Farmers Association of South Africa (AFASA), said that black farmers were enthusiastic about the potential of the B-BBEE Act to enhance the livelihoods of small-scale farmers. Most of them struggle to make ends meet and lack access to formal market structures. The Act, however, will not make a difference overnight.
“It will take a long time to help small-scale farmers break out of the poverty trap,” he said. Through the incentive to score points on the preferential procurement element of the score card, companies are spending more on supplier development and enterprise development, which includes assistance to small-scale farmers and enterprises.
Buthelezi said their biggest struggles were to reach the three prerequisites to supply formal market structures, namely the right quality of produce, consistent supplies and sufficient volumes. “Farmers could work together to reach the volume target, but quality was a great obstacle,” he said.
He explained that many of these farmers did not have the skill or the financial resources to supply the market with the kind of produce that receive top prices.
“If we go to the fresh produce market, we simply have to take the price offered by the market. The cost of production and our low profit margins are not taken into account,” he said.
Supplying big retailers was also more difficult than supplying the fresh produce markets.
“We just hope to break into the fresh produce markets,” he said. “Formal retailers are pie in the sky, since regulations to supply this market is even more stringent than to supply fresh produce markets. The retail market is like the holy grail for most of us.”
Buthelezi said that the B-BBEE Act might help to salvage the situation in various ways because retailers and fresh produce markets are obliged to assist small-scale suppliers. They do so through training or mentoring to produce food that complies with their strict quality and food and safety standards. Big commercial farmers might also go into partnership with small-scale farmers to secure their markets, which, in effect, will unlock new markets for small-scale farmers. The collective spending requirement, as per the Skills development element of the score card, could also benefit the industry greatly in the respect.