1. COORDINATED DEVELOPMENT AND PURPOSE SPECIFIC FINANCING
DATE: 28 February 2017
INSPIRING GROWTH AND INCLUSIVITY: in Agriculture
Presentation by: TP Nchocho
CEO: Land Bank

2. Strategy for Comprehensive Development Financing for Agriculture
CONTENT
Strategy for Comprehensive Development Financing for Agriculture

3. Problem Statement
Unlocking the potential of the sector for new entrants has significant challenges across the entire Agri-Value Chain
Key Challenges affecting emerging farmers …
Agriculture Value Chain
Land Acquisition
Inputs
Farming
Processing
Storage
Logistics / Distribution
Insurance
Infrastructure: Water, Energy, Transport …
Complex land ownership
Affordability
Lack of capital
Lack of security
Inadequate operating history
Inadequate financial & insurance products
High cost of capital
Lack of security
Lack of technical Unable to access inputs at commercial rates
Lack of funding & insurance products
Lack of technical expertise to apply inputs on best practice basis
Significant skills shortage covering farming, business & technical skills
Market access
Capital & cash flow
Produce suite typically short term
Inadequate & costly insurance products
Offtake agreements favour larger operations
Financial products focused on corporates due to their strong balance sheet
Lack of business & technical skills
Very specialised and highly capital intensive
Lack of equity
Access to markets
Stable end off taker
Inadequate & insurance products
Challenge Summary: Emerging Farmers
Access to Land
Lack of equity / security
Inadequate Technical Services support
Loan facilities not suitable for EF
Lack of capital and cash flow to grow
Market Access
Inadequate Insurance Products & Cover

4. Comprehensive Development Financing for Emerging Farmers
The Starting Point: Foundation Principles
Differentiation between:
Farming for livelihood
Farming for commercial purpose
Land Bank’s perspective and focus is on the Emerging farmers whose intent is commercial scale farming for profit
Question: Where and how should subsistence farming be supported (i.e. families farming for livelihood)?
Embracing the fundamentals of Business Finance (How does Business Finance work?)
Life Cycle view of (any) business
The reality of the Experience Curve
Differentiated needs (Financing & Support) at the different phases of the Life Cycle
Differences in the Risk Profiles at the different phases of the Life Cycle
The relevance of the Industry Economics

5. MED COMMERCIAL & EMERGING
Segmentation of the Sector
Target Market Profile
Value Proposition – Emerging Commercial Farmers
AGRI BUSINESS
Provide agri-inputs and services to farmers, use agri-produce as inputs (market for farmers) or on-lending.
Includes: Large Agriculture; Corporates; Specialised Agriculture; On-lenders (intermediaries).
LARGE FARMERS
Operate on large agricultural land; capacity to influence/dominate the market; agro-processing capability.
Asset value: >R100m
Turnover: >R500m – R1b
Hectares: > ha
MED COMMERCIAL & EMERGING
Established in commercial farming with skills and access to markets.
Asset value: R10m – R100
Turnover: R5m–R500m
Hectares: 100 – ha
EMERGING FARMERS
New to commercial farming with some access to markets.
Weak financial security (collateral)
Asset value:<R10m
Turnover: <R5m
Hectares: 10 – 100 ha
SUBISTENCE FARMERS
Subsistence farmers do not form part of the Land Bank’s target market –they are serviced by DAFF / DRDLR
Operate small allotment and own few livestock mainly for own consumption
Hectares: < 10 ha
Deep understanding of the sector
Detailed on-farm risk analysis and advice
End-to-end support through value chain progression
Meaningful partnership through development cycle
Sector specific financing solutions
Provision of appropriate funding mechanisms
Provision of affordable insurance products
Appetite for innovation
Intermediary bringing Government / NGO’s / Private sector together
Co-ops & Agri Business
Large Farmers
Target Market
Medium Commercial
Emerging Farmers
Subsistence Farmers

6. Development Finance is Growth Finance
Core Principles: Financing for Growth & Inclusion
Development Finance is Growth Finance
Core Principles:
Drive for Sector Growth, Productivity & Inclusivity
Strategic Framework: Alignment and Tailoring of Financing to Business Needs
Acknowledgement of the need for “Special Support” measures to the Emerging Sector
Comprehensive = (1) Land + (2) Infrastructure + (3) Funding + (4) Technical Support + (5) Market Access + (6) Risk Mitigation
Development Financing = Fiscal Support + DFI + Private Sector
Monitoring & Evaluation through robust Information Systems
Critical Success Factors: Innovation + Partnerships + Cross-sector Synergies

7. Life-Cycle based Growth Financing Approach
Strategic Framework:
Life-Cycle based Growth Financing Approach
Development Finance
Commercial Bank Debt
Private Equity Finance
Development
(Growth) Capital / Venture Capital
Revenue
Maturity
Start-Up Capital
Expansions & Consolidations
Seed Capital
Growth Phase
Early – Stage
Development
R & D
Feasibility
Business Plan
Idea / Concept
Launching
Own Equity / Grants
Risk Equity (Grants) / Venture Funding / Development Debt
Long Term Debt / DFI Funding / Commercial Bank Debt / M & A’s
Time
Land Bank: Growth Capital & Transformation Fund
Agri – BEE Fund (Land Mortgage Facilities)
Agri Seed Capital Fund
Agri Start – Up Fund
Land Bank Mortgage
Fund: Technical Support & Advisory Services

8. Tailoring Different “Fund Pools” for Different Business Phases
Support Area
Financing Instruments
Fiscal Support 1.
Foundation / Entry - Level
1.1 Seed Capital Fund
Annual allocation
Utilisation for:
Development Capital 2.
Growth Phase / Intermediate
2.1 Growth Capital Fund
Annual Allocation
Interest Rates Concession 3.
Consolidation & Expansion / Mature Stage
3.1 Land Bank Capital
Capital Formation
Land Mortgages
Working Capital
Where needed, general or specific Sovereign Guarantee for raising Long Dated Capital (World Bank / African Development Bank)
3.2 Agri – BEE Fund
(Empowerment)
Empowerment facility
Equity assistance
Transformation
Balancing Gearing in the capital structures 4.
Technical / Advisory Support Services
4.1 Structure Technical Support Programme:
Project Development Costs
Business Plans
Production Support Services
Programme Expenditure Support (OpEx)

9. Value Chain Financing (1/2)
Tailored solutions based on challenges identified in the Agriculture Value Chain
Agri Business Value Chain
Land Acquisition
Inputs
Farming
Processing
Storage
Distribution
Emerging farmer Insurance Products
Technical Assistance
Key Challenges affecting Emerging Farmers …
Long Term Mortgage Facility
Existing Facility
Working Capital Support / Revolving Facility
Access to Land
Asset Finance
New / Planned
Production Loan
Lack of security
Equity Support
Sale and Lease Back (Spec Fin)
Commodity Financing
Lack of skills and support
Risk Mitigated Financing (Structure Finance / Mezz and Equity products)
Term Loan Facility
Inappropriate loan facilities
Equity Support
Enablers:
Pricing
Government support for interest rate subsidisation funding, insurance, access to grant pool etc.
Equity support to enable ownership
Link to M&E via technical assistance and apply geo tech solutions
Development of affordable insurance solutions
Availability of suitable longer based terms (>25 years)
Flexible loan structures
Clear alignment between government agencies supporting emerging farmers – support across the agri value chain
Implement programmes / partnerships to extend post financing services (agri, commercial, logistics support, etc.)
Long Term Mortgage Loans
Market Access
Working Capital / Revolving Loans
Term Loan Facility
Adequate Insurance cover
Insurance
Technical Support

10. Value Chain Financing (2/2)
Tailored solutions based on challenges identified with regard to Land and ownership rights …
Government owned land
Communal land
Private land
Facilitate speedy granting of surface lease agreements
Implement funding solution that does not require security over land
Implement partnerships between communal land owners and stakeholders to allow for commercial farming of land
Incentivise commercial transactions that drive inclusivity
Focus on projects that drive economic growth and employment opportunities
Location and availability of government owned land to be analysed to determine best use of the land
Land clusters to be determined and long term projects (agri parks etc..) to be proposed
Key Challenges affecting Emerging Farmers …
Access to Land
Lack of security
Lack of skills and support
Inappropriate loan facilities
Pricing
Land Availability to EF
Enablers :
Determine best use of Government owned land in conjunction with Government agencies
Develop legal framework for the use of communal land – assist applicants to develop commercial scale projects
Commercialisation of land acquired under the Land Reform programme
Long term solution for lack of security via:
Government financial support
Uptake of relevant insurance products
Availability of suitable funding solutions (>25years)
Market Access
Legal Assistance for Land Development
Adequate Insurance cover
Long Term Mortgage Facility
Enhanced SLA with DRDLR
Communal Farming Fund

11. Re-engineering Agricultural Development Finance (1/2)
Operation Phakisa
Re-engineering Agricultural Development Finance (1/2)
Initiative Summary
The development of blended financial instruments from public and private funds, administered centrally, in order to improve access and affordability of finance and lessen the current reliance on grants
Issues Addressed
The initiative addresses the issue around access to finance, especially small scale farmers, linked to the challenge of collateral and perceived risk, as well as affordability of finance due to mainly the high cost of finance
Loan affordability is often a problem for small scale producers where the farm’s production/income is insufficient to cover the required instalments

12. Re-engineering Agricultural Development Finance (2/2)
Operation Phakisa
Re-engineering Agricultural Development Finance (2/2)
Solution Design
The new blended financial instruments will consist of a grant component (from public sector, which will be ring-fenced) and a loan component (from commercial banks, DFI’s and other financiers)
The new blended financial instruments will be held in an interest-bearing account at a suitable bank (pooled fund holder)
The instrument is designed to cover both long and medium term loans (e.g. for buying a farm, assets, equipment and machinery) as well as short term loans (for production)
The respective contributions of grant vs. loan is allocated on set criteria, with the grant portion decreasing over time as beneficiaries become commercialised and are able to afford loans. For example:
Buyer
Small scale farmers can obtain funding consisting of a maximum 65% grant and 35% loan (or own contribution)
Medium scale farmers can obtain funding consisting of a maximum 50% grant and 50% loan (or own contribution)
The process is different for subsistence farmers who will apply for grant funding (maximum 90%) with 10% own contribution, through the department as per current process. The approval letter must be sent to the financier to disburse funding
Large
Commercial
Producer (Applicant)
Medium
Commercial
Financier
Grant
Max 50%
Loan/Own
Remainder
Small scale
Grant Fund
Grant
Max 65%
Loan/Own
Remainder
Subsistence Farmers
Grant
Max 90%
Loan/Own
Remainder

13. Current producer support is uncoordinated and is not comprehensive
Operation Phakisa
Dynamic Business Model for Producer Support (1/2)
Initiative Summary
Strengthening new and existing commodity groups to provide comprehensive producer support services to small scale producers enabling them to be productive, competitive and integrated across the value chain
Issues Addressed
Black farmers are largely not organised and remain excluded from the mainstream agricultural value chain
Black farmers have challenges in accessing markets, finance and technical support and to link with integrated value chains and lack the skill and capacity to be competitive
Current producer support is uncoordinated and is not comprehensive
Further challenges facing producers include poor production and market infrastructure

14. Commodity Organisation Funding, Personnel, Expertise
Operation Phakisa
Dynamic Business Model for Producer Support (2/2)
Solution Design
The initiative is a partnership between the government, community organisations and other stakeholders to develop and provide a commodity-specific comprehensive producer support package for each black producer participating in the initiative
DAFF Contribution:
Funding, Extension Personnel, MoA with partners
Commodity Organisation
Contribution:
Funding, Personnel, Expertise
Farm Assessment
Skills Audit
Market Needs Audit
Funding & Financial Audit
Assessment of Viable Economic Unit per Commodity & Area
DFIs and Commercial Banks
Services:
Loans, Grants, Insurance, etc.
ARC/NAMC/PPECB/OBP
Services:
Research, Market Information, Vaccines, Product Quality Assessment, etc.
Farm Producer Support
Business Model
Comprehensive producer support programme for commodity organisation participants
Academic Institutions
Services:
Research, Capacity Building, etc.
Services
PDAs/DSB/DRDLR/DWS/DEA
Services:
Water and Environmental Authorisation, Extension services, Farmer Training, Business Plan Development, etc.
Farm Profiling
Business Plan Development
Market Access Info & Negotiation
Specialist Extension Services
Mentorship
Accreditation
Export Support

15. THANK YOU!