Recapitalization and Development Policy (As approved: 23 May 2014) PRESENTATION AT THE SUB-TROPICAL CONFERENCE IN TZANEEN Date: 17 MAY

1.Policy Rationale 2.Background 3.Policy Perspective 4.Strategic Partnership Models 5.Direct sourcing 6.Institutional Controls 7.Institutional management 8.Funding Model 9.Policy Emphasis PRESENTATION OUTLINE 2

POLICY RATIONALE (Motivation, Reasoning or Justification) Since the introduction of the land reform programme in 1994, the sustainability of land reform farms has come under critical review both within and outside of government. The focus of land reform before has been driven by achieving equitable land ownership amongst SA citizens. As a result of this, redistributed farms were characterized by a decline in productivity and lack of suitable markets, which meant that few land reform projects were progressing into sustainable farming enterprises. The Department of Rural Development and Land Reform (DRDLR) introduced the Comprehensive Rural Development Programme (CRDP) which amongst other things is committed to improve the livelihoods of people on rural areas and agrarian transformation. In order to ensure realization of some of the CRDP objectives, the Department introduced the Recapitalization and Development Programme (RADP) in

BACKGROUND The Recapitalization and Development Programme was launched in November 2010 in all 9 provinces. The policy focuses on land reform farms that have received either limited or no agricultural support, since 1994 but have the potential to grow if the necessary support is provided. Selection of the farms and properties for support under the RADP are conducted in line of the strategic objectives of the policy which are: –That all land reforms are 100% productive; that the class of black fledgling (inexperienced) commercial farmers which was destroyed by the 1913 Natives Land Act is rekindled (renewed, reawaken, resuscitate); and that the rural urban population flow is significantly reduced. 4

POLICY PERSPECTIVE 5 The policy seeks to:  Provide black emerging farmers with the social and economic infrastructure and basic resources required;  Combat poverty, unemployment and income inequality;  Reduce tide of rural-urban migration;  Complements agricultural development programs of the Department of Agriculture, Forestry and Fisheries (DAFF). The policy is not meant to:  Substitute for, or compete with the agricultural development programs of the DAFF.  Create a welfare program meant to provide support to so-called beneficiaries.

Continue… 6 The policy is particularly against the following practices which, have come to be associated with the existing Recapitalization Program: Supporting people who have means to develop their land; Promote proxy farmers - people who run their own businesses in towns and cities, but employ managers to run their farms and Failed commercial farmers who want to make a fortune from disbursements meant to fairly compensate strategic partners for work done.

STRATEGIC PARTNERSHIP MODELS Mentorship This may be in the form of free support from neighbouring or local farmers. In other cases the mentor is paid a salary until such time that the project is able to sustain the cost. Mentorship aims to equip the mentees with training, marketing, finance, networking and other related skills. Contract farming and concessions Contract farming is an agreement between farmers (generally small scale) and processors or marketing firms, the basis of which is “a commitment on the part of the farmer to provide a specific commodity in quantities and at quality standards determined by the purchaser and a commitment on the part of the company to support the farmers production and to purchase the commodity” 7

Continue… Co- management Co-management is an arrangement where two or more parties define and guarantee amongst themselves a fair sharing of the management functions, entitlements and responsibilities for a given territory or set of natural resources. In land redistribution and restitution co-management is applicable only in the business or operations on the land, and not on the ownership of the land. Where land is not restorable (instances where public interest supersedes the right to restoration or where restoration is prohibited by legislation) the strategy is used as a means to provide access and beneficiation. 8

Continue… Share equity arrangements Partners acquire shares in an existing agricultural farm or other enterprises across the value chain with farmers or entrepreneurs. The key elements of these equity arrangements are as follows:  Profit and risk sharing based on shareholding components;  Management development;  Beneficiation and  Off take agreements and market development. Farmers in this model should always retain controlling interest -have majority voting rights and be participate on board of directors. 9

DIRECT SOURCING In cases where a partnership is not in place, and the intervention is deemed urgent and the value required is less than R which is the maximum intervention allowed per project. The Department’s normal procurement process will be followed in line with a Business Plan. Certain projects may not require a partnership, but may qualify for direct support if they illustrate sustainable financial and enterprise development based on audited financial statements and due diligence. 10

INSTITUTIONAL CONTROLS Financial Controls Accounts must be registered in the name of the newly formed project’s legal entity or the new farm business account. Both the accountant and grant recipient shall have co-signing rights on the business account during the contractual period. Approved funds (inclusive of share equity partner in case of share equity arrangements) will be deposited into the business account Assets acquired through RADP or other programme of DRDLR will be transferred to the legal entities, if the entities meets the required conditions. 11

INSTITUTIONAL CONTROLS Administrative controls All applicants must have legal entities that comply with South African Revenue Service (SARS) requirements. The form of legal entity to be established will be determined by the nature of the enterprise and the group of farmers. A Tax Clearance certificate must be provided on an Annual basis. Trading on the project must be through the entity’s bank account and interest generated from investment or bank account must be accounted and invested into the project. A comprehensive BP will be used as a guiding tool to finance projects. Any deviations should be in writing and approved by delegated authority. 12

INSTITUTIONAL MANAGEMENT Political control Department’s Executive Management Committee chaired by the Minister and of top management provides policy and strategic direction. National Land Allocation and Recapitalisation Control Committee (NLARCC) is chaired by Deputy Minister deputised by the Deputy Director General: Land Reform. NLARCC meets monthly to provide implementation support and make recommendations for funding, allocation and recapitalization to the Minister’s Coordinating Committee for concurrence and eventual approval by the Deputy Director General: Land Reform as the delegated officer. 13

FUNDING MODEL 14

EMPHASIS ON POLICY IMPLEMETATION In the revised policy emphasis is placed on: Assessing capability of emerging farmer Asses farm needs with regard to RECAP Use outcome of the above to determine kind of partnership appropriate Enter into milestone based performance agreement with termination clause Deploy partner and monitor performance Analyse social and economic impact Close out report at the end of five years  The above will determine the lease termination or continuation 15

THANK YOU 16