AgriSETA
MOTIVATION FOR ADITIONAL FUNDS AND/OR AN ALTERNATIVE TRAINING FUNDING MODEL FOR
THE AGRICULTURAL SECTOR
1. INTRODUCTION
This document has as aim and objective to demonstrate
and motivate the need for additional funding and/or a more suitable funding
model to generate sufficient funds in meeting the training needs of the primary
agricultural sector.
Whilst the current skills levy/grant system or model introduced by the SA
Government as a means of generating revenue to fund training in South Africa
has proved to be generally effective and meets the needs and requirements of
the majority of sectors, this is not the case for the primary agricultural
sector. Having functioned and operated under the system for some years it is
now evident that the structural base of the levy system, coupled to the unique
profile and requirements of the primary agricultural sector in SA, do not
generate sufficient revenue to effectively address the training needs and
challenges of this sector. Given the important socioeconomic role of
agriculture within the South African society it is believed that such
under-sourcing holds detrimental implications for the country as a whole and an
urgent need thus exists to establish means of generating more funds via
alternative sources or to alternatively develop a new funding model which is
aligned to the unique needs, profile, circumstances and requirements of the
farming component of the agricultural sector.
2. AGRICULTURAL SECTOR PERSPECTIVE
A profiling of the agricultural sector reflects the
following major categories or target groups to be served:
·
The secondary agricultural sub-sector (upstream and downstream enterprises) with approximately 300000 employees.
·
The primary agricultural
sub-sector comprising of:
-
Commercial farming
enterprises - approximately
45 000 farming enterprises with an estimated 925
000 employees - of
whom a considerable percentage (350 000) are employment on a temporary basis
(seasonal or contract workers).
-
Emerging farming enterprises - an estimated 650 000 people (many
of whom are Land Reform beneficiaries) needing support to improve their
efficiency and profitability to grow and expand their ventures into
commercially viable enterprises.
-
Subsistence farmers - an estimated 1 200 000 people
involved in some form of agricultural production on very small scale (for own
consumption and/or as a means or supplementing income)
However, for the purpose of this
document focus is given to the needs and requirements
of , the primary agricultural
sub-sector only.
More than 80% of the total land mass of South
Africa is suitable for agriculture and South Africa's agricultural sector uses
some 100 million hectares, of which about 85 million hectares is in the
commercial farming areas, and the rest under communal forms of land tenure. Of
the total agricultural land 12 million ha (14%) is deployed for arable farming; 84 million ha (84%) for extensive
grazing and 2 million ha for forestry and nature conservation. Only 1,35 million ha (less than 2%) of the agricultural land area
is irrigated.
More than 12 years of land reform have had
little effect on the profile of the agricultural sector and it is generally
still classified by racial, spatial and scale features. The stark contrast that
exists in the sector is evident from the following:
·
Approximately 45 000
commercial farmers who are predominantly white are found in almost 85% of the
total agricultural area that is highly developed and produces more than 95% of
the marketed output.
·
In contrast close to 2
million people (small scale and subsistence farmers with an average farm size
of less than 2 ha) form part of the 15 million black people who are mostly
settled in the communal areas that make up 15% of the agricultural land area.
Agricultural activities are of such small scale that farming only contributes
about 10% to their total annual household income.
The Commercial Farming Sector: Lame Commercial Farming Enterprises:
Whilst little is known about the distribution of farm sizes in South
Africa's commercial agricultural sector, the Census of 2002 nevertheless
provided some data in this regard and indicated that the 2 330 largest farming
enterprises (representing 5 percent of the commercial farmers) produced 52
percent of gross farm income and in the process used 47 percent of the capital
in agriculture. These farmers earned around R25 for every
Smaller Commercial Farming Enterprises:
However, the picture looks quite different at the other end of the spectrum
of commercial farmers. The 2002 statistics revealed that more than 50 percent
of the commercial farming enterprises have a turnover of less than R300 000 per
year, and they are responsible for only some 15 percent of gross farm income,
using 28.5 percent of the capital assets in agriculture. These farmers pay less
than the average cash wage, and produce less than R10 for every
Table 1 below provides a good summary of
critical statistics in the commercial farming sector:
|
Income (R per year) |
No of farms |
Cum Wage per (%) employee (R year
per |
|
Gross income farm (R000 (year) per |
Cum (%) |
GFI per R100 of capex) |
Market value of assets (R000 year)
per |
Cum (%) |
|
> 10000000 |
673 |
1.5 |
10503 |
17 850 383 |
33.5 |
27.59 |
16257 953 |
16.5 |
|
4 000 000 - 9 999 999 |
1657 |
5.1 |
7758 |
10330424 |
52.8 |
23.48 |
14188233 |
30.9 |
|
2 000 000 - 3 999 999 |
3041 |
11.7 |
4872 |
5 056 986 |
62.3 |
11.65 |
15132953 |
46.3 |
|
1 000 000 - 1 999 999 |
5214 |
23.1 |
6743 |
7351 291 |
76.1 |
20.28 |
13022084 |
59.5 |
|
300 000 - 999 999 |
11805 |
48.9 |
4729 |
5 335 646 |
86.1 |
17.13 |
11802362 |
71.5 |
|
< 300 000 |
23428 |
100 |
4266 |
7 404 322 |
100 |
9.85 |
28 024 669 |
100 |
|
Total |
45818 |
|
6298 |
53 329 052 |
|
18.1 |
98 428 255 |
|
Source: Statistics
Emerging Farmers (including land Reform Beneficiaries)
A further major farm enterprise grouping is the so-called emerging farmers
(which includes Land Reform and Agri BBBEE beneficiaries). It is assumed that a
certain portion of these farmers will fall into (or overlap with) the estimated
42000 smaller commercial farmers discussed above. Whilst the exact number of
emerging farming enterprises is not known, a consolidation of statistics from
various sources suggests that as many as 650 000 people fall within this
category
Given the profile as this category of farmers (namely many needing further
technical/production knowledge and expertise and the overwhelming majority
lacking farm management experience and expertise) the require considerable
training, development and capacity building services. This is particularly
important when considering that the collective aim of Land Reform is to ensure
the transfer of 30% of all agricultural land over a period of 15 years.
Estimates by the Department of Land Affairs suggest that LRAD costs (both land
grants and planning grants) to achieve the above target is in excess of R 20
billion. It is evident that considerable agricultural support services
(including training and capacity building) are needed to ensure that the above capital
investment is put to productive use and to secure such investments and food
security in the country.
3. NATURE OF THE CURRENT FUNDING MODEL AND ITS
APPROPRIATENESS IN MEETING FUNDING NEEDS/REQUIREMENTS
3.1 Basis for establishment of a Levy Grant Funding System
Following extensive research in the mid nineties (both internationally and
locally) regarding various models or approaches of generating revenue to fund
training in South Africa, the SA Government introduced a skills development
levy (via the Skills Development Levies Act, 1999). The levy system introduced
essentially follows a levy-grant scheme whereby employers contribute 1 % of
their payroll into a central fund and are eligible to claim back a portion
thereof for approved and accredited training initiatives and interventions (via
mandatory and discretionary grants). At large the levy has been effective and a
projected income for all the economic sectors amounting to approximately R 22
billion will be collected over the period 2005-2010 towards implementing and
attaining the vision, mission and principles/objectives of the National Skills
Development Strategy and meeting the national priority areas outlined in the
NSDS.
Whilst the various research studies undertaken
by and on behalf of the NTB (at the time when the levy was introduced)
recommended a levy-grant system as most suitable for South Africa, the research
also revealed there is no single "best" funding mechanism or model
for all and that whilst the introduction of a uniform levy system (introduced
for the country and economy as a whole) will facilitate the administration
thereof, it should be noted that it will not be equally suitable and effective
for all sectors. In this regard two important conclusions and recommendations
were made at that stage:
·
Where economic sectors
(SETAs) can not finance their training demands and obligations from levy income
only (for a variety of reasons), a need exists to supplement their revenue by
means of other financing forms or sources (e.g. via budgetary appropriations or
via allocations from the NSF). It was found that most countries use a plurality
of financing forms consisting mainly of budgetary appropriations, levy schemes,
tax incentives and private and donor expenditure. In countries such as
·
It was further concluded that
a levy based funding mechanism (especially if implemented on a uniform basis)
should be reviewed on a regular basis to establish if it is accommodating the
unique requirements of a sector and its constituents and/or to make adjustments
to address changing environments and circumstances. In this regard
international research for instance revealed that a levy-grant system is not
ideal for economies or sectors dominated by small enterprises and informal
sector operators, and that changes in the operating environment resulting from
shifts in political priorities and focus often demand additional or
complementary revenue sources to address needs. Both these conditions prevail
in the agricultural sector (as clearly. outlined in point 2 above
Having implemented the levy/grant
system for a period of more than 6 years it is now possible to evaluate and
assess its appropriateness and effectiveness as a funding model and its ability
to generate sufficient funds to effectively address the skills development
needs of the country. Whilst this aspect is dealt with in more detail in section 3.2.2 below, it can be stated that
a number of shortfalls and constraints are being experienced with the model -
necessitating a review thereof with a view to increasing the funding base
generally and to address specific problems experienced by particular economic
sectors and target group beneficiaries.
3.2 REVIEW OF THE LEVY/GRANT SYSTEM AS FUNDING MODEL
3.2.1 General Review and Problems with the Funding Model
Following its recognition that a need exists to review the levy based funding
mechanism on a regular basis to establish its suitability in meeting the needs
of all constituencies, the Department of Labour (with the support of GTZ) recently commissioned consultants to
develop a Briefing Paper for the NSA on Funding (May 2007).
A key finding stated in this Paper is that internationally the trend is towards
using a levy grant system and tax incentives to generate funding for training
of the employed, and budget votes to finance training
of other stakeholders such as the unemployed or under-employed. This is equitable in
that workplace training is funded by employers, and employers do not
cross-subsidise other stakeholders such as the unemployed - with the fiscus
looking after these groups through the tax pool and thereby politically ring
fences corporate funding from what is seen as welfare or macro socio-political
issues.
The paper further states that in contrast with
the above international trend, in
Proposed Solutions:
Following the conclusion that greater financing is required (especially by the
NSF) to undertake skills development, the Paper offers the following
suggestions as means of how more revenue could be generated to address the
skills needs of especially non levy paying groups:
·
Through targeted budget votes
(from the central fiscus)
·
Through cost savings (achieved
primarily via consolidation of SETAs and centralisation
of certain functions)
·
Through a reduction of the
mandatory grants - thus
freeing more funds for discretionary grants - targeted
at such vulnerable groups
3.2.2 Review of the current funding
model from an Agricultural Sector perspective.
Against the above profile of the primary agricultural sector (and the key
target groups to be served with agricultural education and training services),
an analysis and evaluation of the skills development funding model revealed the
following as specific problems, shortfalls and constraints:
·
The sector is complex in that
it consists of a large and fragmented number of stakeholders (e.g. more than 70
commodity groups/organizations; 9 Provincial Departments of Agriculture) and it
is highly diversified in terms of clientele each with unique needs and requirements (ranging from commercial farmers
to emerging AgriBEE farmers), which makes service rendering complicated.
·
It has an insufficient
revenue base as a result of the small number of employers that are paying the
skills development levy and who are thus contributing to the revenue pool (as
little as 3 500 employers are currently contributing - of whom 2 700 are from the primary
agricultural sector). The problem is further compounded in that more than 70%
of those that are contributing are classified as small enterprises (with less
than 50 employees and who thus contribute relatively small amounts when
compared to many of the other sectors). In addition the majority of the
estimated 650000 emerging farmers are at present informal or unregistered
enterprises who also do not pay the skills levy and
thus do not contribute to the revenue pool. They are however in dire need of
skills development and capacity building services. At present the AgriSET A (as
the authority mandated to facilitate, guide and direct training in the
agricultural sector) primarily utilizes its discretionary funds to address the
needs of. the employed target group. Limited funds are
available to be allocated to the unemployed or under-resourced - as a result
these funds fall dismally short of the demand.
The above lack of financial
resources result in an inability of the primary agricultural sector and its
stakeholders to effectively address and meet the skills development needs and
demands of the sector. This inability manifests itself as follows:
-
Service rendering is
primarily focused on (and limited to) servicing the needs of levy payers - with the remainder of the sector
being neglected. Of particular importance is the inability of the Department of
Agriculture (and other implementing agencies such as AgriSETA) to render
services to Land Reform Beneficiaries (emerging farmers) and thus facilitate
and enhance the land reform process in the country (through securing the
investments made in land reform by providing beneficiaries
with the necessary skills to make a success of their farming ventures).
-
Despite the above indicated
narrowing of focus in service delivery (Le. servicing levy payers only), the
AgriSET A is still not in a financial position to effectively and
comprehensively address the needs of this relatively small levy paying target
group (examples of shortfalls and constraints as a result of limited funding
resources are that in 2007/2008 only 10% of the Learnership applications could
be accommodated whilst less than 5% of the applications for enrollment on
Skills Programmes could be embarked upon).
-
The demand for ABET is so
large and overwhelming (an estimated 30% of the total agricultural workforce is
illiterate) that the SETA can not cope with the demand from own resources and
will have to rely on the Department of Education and Training to address this
training need.
·
The above insufficient
revenue pool generated via the Skills Development Levy thus implies that the
Agricultural Sector stakeholders must increase or supplement its financial
resources from other sources of funding. Whilst some additional funding
allocations have been received from the National Skills Fund (NSF) in the past,
such support has been rather small and disappointing to date. It is believed
that this poor access to the NSF is because the latter primarily evaluates
funding applications from an industrial development perspective and higher
order qualifications (whereas the agricultural sector, given the status of
education levels in the sector, more often than not requires learning
interventions to commence at the lowest levels of the NQF). In this regard it
is believed that the administrators of the NSF lack the necessary insight into
the socio-economic and political importance of the agricultural sector, and do
not comprehend the need for a different training approach (e.g. via mentorships
for emerging and AgriBEE farmers) towards meeting the particular skills
development needs, circumstances and unique funding requirements of the
agricultural sector)
International Research by AgriSET A
towards identifying possible solutions:
In an attempt to obtain solutions for the above indicated problems and
constraints experienced by the agricultural sector with the existing funding
model and mechanism, the agricultural sector, via its skills development
agency, the AgriSETA, commissioned research into alternative international
models or means of financing training. This research, undertaken by the
Department of Agricultural Economics at the
From the international experience of financing training it was established
that, similar to the South African situation, the mainstream financing models
and mechanisms are all biased towards the larger and industrial firms, with
those needing support. most, the small and medium
enterprises as well as the informal sector, not really reaping the benefits
from such mechanisms. Internationally a need for additional financing that is
focused on the needs and requirements of these groups were thus identified.
Whilst a single model perfectly suited to the South African environment (and
the agricultural sector in particular) was thus not forthcoming, some excellent
ideas and means of how income generated via a levy system could be further
complemented or supplemented were established. In this regard examples of
further direct funding support for specific sectors or target groups (e.g. for
the SMME and Informal Sectors) and which could possibly be applied in the South
African agricultural context include the cross-subsidy approach, the training
voucher scheme, supplementary government budgetary allocations, etc.
4. NEED FOR ADDITIONAL FUNDING AND/OR A MORE SUITABLE FUNDING MODEL TO
ADDRESS THE SKILLS DEVELOPMENT NEEDS OF THE PRIMARY AGRICULTURAL SECTOR
The earlier sections of this document clearly reflect the need for adjustments to
the existing funding model and/or mechanisms towards meeting the vast skills
development needs of the primary agricultural sector. It is believed that a
clear case has also been made regarding the unique needs and requirements of
the agricultural sector, and the enormous socio-economic and political impact
that a failure to address the training requirements of especially Land Reform
Beneficiaries will have on the country.
Whilst this document does not attempt to propose clear-cut solutions, it is
evident from the research undertaken by the DoL consultants (who developed the
Funding Paper), as well as the research undertaken by the Stellenbosch
University on behalf of the AgriSET A, that a potential solution exist and that
there is a need for such to be exploited further. From the knowledge gained
through the above research process, the following conclusive remarks on the
need for additional skills development funding for the agricultural sector's
vast under-resourced component, are made:
. The
levy/grant system as it is currently structured, is
successful for purposes of developing the employed worker (Le. to benefit the
levy payer). Irrespective of any possible shift in the ratio between mandatory
and discretionary funds (with a possible increase in the discretionary fund
pool in future), all discretionary funds should be retained to be used for
strategic interventions aimed at meeting critical and
scarce skills of employed workers (18.1 learners)
in the primary agricultural sector (Objective 2 of the NSDS II).
Thus, the AgriSET A discretionary fund does not generate any solutions for the
under-resourced sector (Mainly Objectives 3 and 4 of NSDS II). As stated
earlier in this paper, the sheer size of under-resourced sector (with specific
reference to agricultural land reform beneficiaries) is so large, that AgriSETA's discretionary fund cannot
be considered as an option to resolving the development
needs of thej said sub-sector.
·
Special budget votes (via the
central fiscus) and/or special and most importantly, stable, allocations from
the NSF to undertake strategic interventions aimed at meeting the training
needs of so-called 18.2 learners (for the purposes of this document including
Land Reform Beneficiaries, other emerging farmers and vulnerable groups)
towards meeting Objectives 3 and 4 of the NSDS II. The enormous responsibility
that exists in providing Land Reform Beneficiaries and other emerging farmers
with the required competencies to make a success of the land reform and
AgriBBBEE programmes is grossly neglected due to the lack of suitable funding
resources forthcoming from the current levy/grant system and it is clear that
the size and scope of training demand will necessitate additional special
budget votes and allocations.
·
It is further evident that
the unique nature and requirements of the primary agricultural sector (and the
above indicated vulnerable groups in particular) will demand long term funding
solutions since the challenge is of such a nature that it will not be solved
through a single or ad hoc injection of funds.
It is thus the purpose of this paper to engage the
Department of labour and National Treasury in intensive and urgent discussions
with the Department of Agriculture with regards to a way forward. The current
state of affairs of skills development in the agricultural sector is
unacceptable and need to be addressed as a matter of priority. If the national
imperative of agricultural land reform is to succeed, collectively, the State
and sectoral stakeholders have to prioritise the development needs of
beneficiaries and engage in high-level focused debate with the purpose of
finding solutions to the current dilemma