To: Portfolio Committee on Agriculture and Land Affairs

Submission: The Role of the Private Sector in Agricultural Development

By: Capespan Group Holdings Ltd

1. INTRODUCTION

This submission is prepared in response to the call for public submissions on this topic as published in the Mail & Guardian of May 23 to May 29 2003. It will briefly set out the activities of Capespan (Pty) Ltd, and thereafter detail the activities of the company in relation to land reform and rural development. Lastly, it will attempt to draw some general conclusions on the role of the private sector in agricultural development.

2. CAPESPAN (PTY) LTD

Capespan is the successor to Unifruco and Outspan, the two single exporters of deciduous fruit and citrus from South Africa during the time of regulated export markets. Since deregulation any person may export fruit, and there are currently hundreds of fruit exporters. However, Capespan remains the largest exporter, and focuses on the UK, EU, Middle East, Far East, North American and African markets to place South African fruit.

3. THE THANDI INITIATIVE

3.1 Background

During the course of the past few years Capespan realised that it had to intervene in support of land reform projects. This realisation came against the background of:

Concentration of international retail marketing in fewer and fewer multiple chains;
Low levels of return in agriculture;
The need to show quick positive return to beneficiaries of land reform projects; and
An expressed need for other private sector suppliers of agricultural goods and services to support land reform.

Noting that one land reform project, the Lebanon Fruit Farm Trust, had already made significant gains with its "Thandi" wine range, it was decided to obtain the rights to use this label for all fruit-producing farms with a significant Black empowerment shareholding. This label is housed in the Capespan Foundation, a not-for-profit trust funded by Capespan.

3.2 Thandi Principles

The goal of the project is to secure higher returns and lower costs to these projects, in order to support the process of black economic empowerment and land transformation within the fruit industry.

The overarching principles relating to the Capespan Empowerment Projects are as follows:

Fruit exported using the empowerment brand (THANDI);
The projects must be commercially viable;
The projects must be legitimate empowerment projects;
Projects span the entire fruit industry;
Supply chain-discounting benefits to empowerment group only;
Growers with a good management track record, and preferably with transformation experience to serve as mentors; and

The Thandi projects must have the following to be considered as part of Black Economic Empowerment:

Sharing in wealth;
Participation in decision making by empowerment group;
Black ownership; and
Transfer of skills.

In order to qualify for and participate in the Thandi project, farms need to meet the following basic criteria:

Be a emerging black commercial farmer in the fruit industry, or be an equity share scheme with at least 25% black ownership;
Projects with less than 25% black ownership may participate, provided that:
they have a programme in place to achieve that level of participation within 3 years; and
the institutional arrangements provide adequate minority protection and allow for empowerment partner decision-making at board level, particularly with regard to setting of wage levels;
Ownership in the project by the empowerment group can be either in the business (possibly an equity scheme), or in the land. The entry level of ownership is 10% with a programme to increase this to 25% or more. This is amount can be made up from land ownership, equity in the business, singularly or collectively, but for a specific project;
meet the Fairtrade Labelling Organisation's standards for hired labour (these reflect, and improve on, international labour standards set by the ILO); and
meet export quality criteria;
practice integrated crop management and be able to become Eurepgap (European God Agricultural Practice, an environmental standard) certified;
have a programme for the development of the staff generally, but specifically for management development of staff with management potential;
be commercially viable and sustainable in the longer term;
span the citrus and deciduous fruit industries, across all areas;
the Grower / Mentor to have a significant ownership portion in the project (minimum equity of 20% at the outset of the project), and preferably some experience with empowerment;
supply chain rebates are to benefit the empowerment group only. These funds are to be used for wealth creation, purchase of greater shareholding, and or the further development of the project.

3.3 Project operation

The Thandi project aims to improve returns to the farm gate by:

negotiating rebates from the suppliers of goods and services along the cost chain;
ensuring preferential access to lucrative markets; and
obtaining a premium in the market through Fairtrade certification.

These improved returns will be distributed as follows:

Rebates will be collected by the Capespan Foundation and paid to the empowerment partners in participating projects, with the condition that one third be paid in cash, the other two thirds to be utilised to improve the equity stake or to expand production;
premiums obtained in the market will be returned to projects to be allocated along the priorities set by farm-level joint bodies as required by the Fairtrade Foundation.

The Capespan Foundation will assist projects to meet these criteria, and would provide an internal auditing system to ensure that, where there are cases of non-compliance, they are identified and appropriate corrective actions undertaken.

Each participating project will be visited and audited annually by the Capespan Foundation. If a case of non-compliance is identified, the non-compliance will be classified as either a minor or a major non-compliance. In both cases, the project will be issued a corrective action request (CAR) and given a maximum of 6 months to correct the non-compliance. In the case of a minor corrective action request, further non-compliance will result in that minor CAR will be converted to a major CAR. In the case of a major CAR, further non-compliance after 6 months will lead to the suspension of participation in the Thandi project.

Any non-compliance with:

the Fairtrade generic standards; or
the minimum participation levels
will automatically result in a major CAR.

The Fairtrade Labelling Organisation will conduct an annual audit on all participating farms. Non-compliance with Fairtrade standards will result in automatic suspension of a project from the Thandi project.

3.4 Services

Capespan provides the following services to empowerment projects in the fruit industry:
assistance with project structuring;
assistance with obtaining Eurepgap accreditation;
assistance with obtaining Fairtrade certification;
extension services to meet export quality standards;
crop finance (particularly on communal land, where banks do not wish to provide finance, Capespan has assisted a number of projects by providing extension advice and taking the crop itself as collateral);
loan finance (Capespan has set aside an amount of R15 million) to use as bridging finance where projects have applied for, but are waiting for DLA funding);
assistance with obtaining other loan financing (commercial banks are less reluctant to lend to empowerment project when they know that the produce will be exported under the Thandi label);
marketing (Thandi products have preferential access to shelf space);
promotion in export markets; and
capacity building.


4. CONCLUSION

From the outline provided above, it is clear that the private sector has an important role to play in the establishment, support and provision of services to rural and agricultural development projects, and specifically those aimed at transforming land-holding patterns in the lucrative export sector.

The first Fairtrade certification round was conducted in March 2003, of which all three farms (Lebanon Fruit Farm, Misgund and Sun Orange) were certified. The next round takes place in June 2003. These are the first apple and pear farms anywhere in the world that has been Fairtrade certified.


Dated at Bellville on this the 2^nd day of June 2003


N W OOSTHUIZEN DR P F de V CLüVER
MANAGING DIRECTOR CHAIRMAN

The Thandi Project: Rebate and Premium System