Slide 1

Report
Land Bank
Agri Outlook Conference
“Land Bank committed to focus on setting the
benchmark in SA agriculture”
Content
1.
Introduction
2.
Government intervention
3.
SA Agri finance market
4.
Agricultural debt
5.
Land Bank Act (2002) objects
6.
Turnaround strategy
7.
Building the loan book
8.
Development
•
Initiatives
•
Target market niches
•
Development Impact Parameters
•
Growth in the development Loan book
9.
Land bank 2010 and beyond
2
1. Introduction

Land Bank has been the main driver of agriculture for over 90 years

Deregulation in the past within the Agricultural Sector

In 2002, the Land Bank Act was promulgated which provided clear mandate for the
Land Bank

Land bank has embarked on clean up, stabilisation and sustainability initiatives

The Land Bank has re-aligned its strategy with the objects of the Land Bank Act

The Land Bank has clearly define development as it is the main object of the bank

The loan book has started to show the signs of stabilising over the past months

Land banks intent to be the premium provider of Agricultural finance
3
2. GOVERNMENT HAS EFFECTIVELY STOPPED INTERVENING IN
THE MARKET TO PROTECT FARMERS FROM VOLATILITY
The Agriculture Credit Board (ACB) played an important supporting role in
•
enabling beginner farmers to graduate to commercial farmers
 The State provided the funding for activities of the ACB
 During 1997 Government disbanded the ACB and passed over the task of serving
• the emerging black farmer,
• small farmers and
• agribusinesses, to the Land Bank.
 Land Bank Act of 2002, transformed the Land Bank into a
• financial development institution with its main focus on
• facilitating the establishment of emerging farmers in agriculture
 The Land Bank was not properly equipped to perform this task and did not receive
(prior to 2008) any financial support from the state.
2. GOVERNMENT HAS EFFECTIVELY STOPPED INTERVENING
IN THE MARKET TO PROTECT FARMERS FROM VOLATILITY
Timeline of deregulation of SA’s agricultural sector
Historically

23 control
boards
determine
and execute
agricultural
marketing
policy

1980’s
1990
Reduction in
use of price
controls e.g.,
abolition of
consumer price
control on fresh
milk
Prohibition on
building of
grain silos
repealed
1991
Cane quota
system
reformed
Domestic
market
control of
citrus fruit
abolished
1992
Restrictions•
on
movement
of livestock
abolished.
Restrictive
registration
of
•
producers,
meat
industry
players
abolished
Bread price
subsidy phased
out together
with remaining
controls over
pricing
Registration of
millers and
bakers lifted
1993
1996
1997
Control
boards for
potatoes, dry
beans, eggs,
bananas and
chicory closed
down
Klein Karoo
Agri ’Coop’s
single channel
in ostrich
marketing
terminated
Marketing of
Agricultural
Products Act
–all
remaining
control
boards to be
closed by
end of 1997
National Agricultural
Marketing Council
established in
accordance with ’96
Act.
Advises minister and
stakeholders on
marketing issues in
agriculture and food
industry

Loan and subsidy assistance to farmers in SA by the Department of Agriculture
Rm
767
754
565
518
470
429
420
499
334
281
234
112
1986
1987
1988
1989
1990
1991
1992
1993
5
1994
Source: LAPC1993, ‘The deregulation of SA agriculture’, Abstract of Agricultural statistics, 2001
1995
1996
1997
78
1998
18
1999
Substitutes
and other
intervention
s have been
almost
completely
phased out
3. SA Agricultural finance market

Removal of government interventions
exposing agriculture to inherent volatility,
and creating need for risk management and
international trade
2


Agricultural profits declining
despite overall growth in
production
1
3
Increasing farm transactions
and corporate activity
leading to new
opportunities, such as land
brokerage and transaction
advisory
Land Bank


Increased political
pressure to accelerate
land reform and create
jobs, with few incumbents
achieving success
4
6
5

Growing agricultural debt market, with
commercial banks and agricompanies cherry-picking high-value
clients
6
Increased consolidation and
sophistication among
commercial farmers, and
emergence of distinct
customer segments with
segment-specific needs
4. The agricultural debt finance grew to R40 bill, and reflects outcome of competition
 Agricultural financing increased
even more since 2002
Private sector
reduces
exposure during
drought
Total Agricultural Debt in R million
45,000
 Most of the growth was
attributable to Private sector:
aggressive to take good clients
40,000
35,000
Land Bank
responding
to ‘new’
agric
mandate
30,000
 Land Bank increased its exposure
through LRAD and new products,
but most became bad. Coop
Finance
25,000
20,000
15,000
 DoA exposure declined, but
focusing on funding land
settlements
LB book
decline
cause of
comm banks
10,000
5,000
0
1990
1991
1992
1993
1994
1995
Land and Agricultural Bank
7
1996
1997
Commercial banks
1998
1999
2000
Agricultural co-operatives
2001
2002
2003
Department of Agriculture
2004
2005
Other debt
2006
2007
5. Land Bank Act (2002) objects
Land Bank Mandate
 Guided by the Land Bank Act, 15 of 2002
 Role is to Promote, Facilitate and Support agricultural
development in the following areas
– Land and agrarian reform
– Entrepreneurship, innovation, commercialisation and
growth
– Resource managements
– Social transformation and poverty alleviation
This is done by
– Providing financial services to the sector
– Facilitate and mobilise finance (incl private sector)
8
Land Bank measured against the objects of the Land Bank Act
Land Bank Act Objects











Has the Land Bank
met its objects?
Equitable ownership of
land
Agrarian reform
Access to land
Agricultural
entrepreneurship
Removal of past racial &
gender discrimination
Enhancement of
productivity & profitability
Stimulation of growth and
better use of land
Environmental
sustainability
Rural development & job
creation
Commercial agriculture
Food security
9
Root causes for non adherence

Weak control environment
incl. breakdown in certain
processes and controls

Lack of appropriate risk
management

Lack of policies, procedures
and practices

Weak information systems
to support all control
components

Lack of appropriate
capacity, oversight and
internal control over
financial reporting
6. An appropriate turnaround strategy to respond to this context
Strategic
Intent
Development (mandate adherence)
Stop the
Bleeding
Legacy issues (Clean-up & Stabilisation)
Sustainability
The pillars which
will enable the Land
Bank to normalise
its operations &
move to
development
Make
development
core to
business
Secure
affordable
funds and
maintain
sustainability
Ensure
adequate
people & skills
Implement
systems &
drive
innovation
Improve
service
delivery
Governance, compliance & risk management
10
Ensure
partnership &
stakeholder
engagement
6. Phases of turnaround strategy
Effort
More
emphasis
on clean
up to
enhance
controls
Increasing
focus on
sustainability
Breakeven,
More focus
on
stabilisation
Sep 08
Mar 09
Sep 09
Mar 10
Sep 10
Mar 11
Sep 11
Mar 12
Time
Clean-up
Stabilisation
Sustainability
11
6. Phases of turnaround strategy (cont’d)
CLEANUP





STABILISATION
2008 Audit report matters
(qualifications & other
matters)

Improve staff capacity

Information technology
Management letters of the
auditors

Funding dynamics

Balance sheet

LDFU

Cost to income ratio
SCOPA resolutions &
portfolio committee
undertakings
Government guarantee
conditions
SUSTAINABILITY
Forensic investigations
12

Building the book

Development
Turnaround strategy - SUSTAINABILITY
1. Building the book
2. Development
13
7. Building the loan book – Retail customer profile
1.

Description
Micro-scale /
subsistence
farmers (HDI)
3.
2.
Small scale
farmers (HDI)
New
commercial
farmers
(mainly HDI)
4.
Established
commercial
farmers (incl.
HDI)
• Predominately
subsistence scale
• Typically very small
piece of tribal land
• Individuals or group
projects
• Small-medium pieces of
land (bought or PTO*)
• HDIs in commercially
significant operations,
little experience
• Existing commercial
farmers. Medium to
large scale operations
• Input grants (seed,
fertiliser, pesticide, etc.)
• Micro-finance
• Production credit
• Land loans (secured
and unsecured)
• Buffer financing to
under-write risk
• Infrastructure grants
• Holistic offering incl.
debt products and
financial services
• Additional equity to
reduce gearing to
manageable levels
• Holistic offering incl.
debt products and
financial services

Financial
support
needs

Technical
support
needs
• Primary level extension
services support
• Basic livestock and
crop lifecycle
management
• Mentorship for groups
of farmers
• Specialist extension
and advisory services
support
• Regular mentorship to
individual farmers
• Specialist technical
services
• Little or no training
required

Business
training
support
needs
• Very basic business
• Training in cash flow
management,
budgeting, etc.
• Marketing assistance
• Business and farm
mgmt training, incl.
marketing mgmt,
negotiation and deal
making
• Little or no business
skills training
skills training (savings,
etc.)
14
7. Building the loan book – CFU customer profile
Small agri-business
‘start-ups’
Description
Financial
needs
Technical
support needs
Business
training
support needs
• Small start up agri-businesses
• Typically sell products to local
community
• Could be one person or a group
Medium agri-business
• Medium sized agri-processors
• They sell their products to the
main stream market
• Employs 30 to 150 employees
Large agri-business
• Existing large agri-processors
• Currently serviced through CFU
• Employees of +150
• Start up capital
• Working capital
• Loans between R5 000 and
R200 000
• Working capital
• Capital expenditure for
expansion
• Typically ranges from
R200 000 up to R20m
• Working capital (stock and
debtors)
• Capital expenditure (plant and
equipment)
• CFU currently lends between
R10m to R1 billion
• Basic commodity training
• Mentorships for individuals and
groups
• Specialised commodity training
• Limited mentorship
• No training required
• Business planning training
• Training in cash flow
management, budgeting etc.
• Very little or no business training
required
• No business training required
• CFU currently serves the large established agri-businesses
• LB gearing retail network to fund Small and medium size agribusinesses are not currently served
Source:Team analysis
15
7. Results of sustainability – Building the loan book
Initiative
Achievements

Stabilise the loan book
R 20.00
R 18.32
R 18.00
R 16.43
Loan book has stabilised
 Retail book showing signs of
growth
 CFU migrate customers returning
R 17.39
R 16.05
R 16.00
R 14.20
R 14.00
FY09
July09
R 14.00
R'bn
R 12.00
R 10.00
R 8.00
R 6.00
R 4.00
R 2.00
R 0.00
FY05
FY06
FY07
FY08
16
- Seasonality
- Recovery of
NPLs i.e.
YTD –
R550m
7. Results of sustainability – Building the loan book
Initiative
Achievements
Stabilise the loan book …
 Recent months show loan book is
stabilising
Gross Loan Book January 2009 to July 2009
R 17.00
R 15.00
R 14.85
R 14.35
R 14.28
R 14.16
Jan'09
Feb'09
Mar'09
R 14.16
R 14.30
May'09
Jun'09
R 14.00
R'bn
R 13.00
R 11.00
R 9.00
R 7.00
R 5.00
Apr'09
17
Jul'09
8. Results of sustainability – Development (Dynamics)
Agricultural dynamics
Challenges

Profit margins declining

Increased volatility and
risks due to
deregulation


Export earnings
dampened by strong
rand


Unfavourable
commodity prices and
global economics


Increasing
consolidation and
sophistication of
commercial farmers
High rates of default
among HDI farmers
Source:Team analysis



Social imperatives

HDI’s do not have sufficient
security leading to high
interest rates
HDI’s lack equity capital
leading to unsustainable
debt levels
HDI’s lack technical
farming expertise
HDI’s lack of access to
markets
Risk management
–
Business
management
18
–
Land Bank Act
of 2002
–
Agri-BEE
charter
–
Socio-political
pressures
–
HDI’s lack appropriate
management skills
–
Increasing pressure to
meet land reform
objectives
30% of
commercial
agricultural
land to be
transferred
to HDI’s by
2014

Increased pressure on
agriculture to provide
employment

Food security
8. Results of sustainability – Development (cont’d)
Initiative
Achievements
Make development core to business  Development policy approved which formalised:

- Definition of development

Developmental impact of lending
measured

Development impact parameters
formalised
- Identification, quantification & monitoring
- Mainstreaming of development
- Implementation plan
- Funding approach

Improved mechanisms to fund
development
- Post disbursement support (aftercare)

Government inter-departmental body
established
- Partnerships established with various Agri
stakeholders

Co-operatives

Agricultural Unions

Developmental funding institutions

Financial institutions

Governmental Departments
Pilot projects
19
8. Results of sustainability – Development (cont’d)
Development Impact Parameter (DIP)
The bank has developed the following parameters to measure the effect of funding on
development
Development Impact Parameter
% contribution
Development of Emerging Entrepreneurs
Generation of Employment opportunities
Facilitation of Successful PDP Access to Land
Creation of PDP ownership
Creation of PDP Management
Creation of WYD Participation
Alleviation of poverty in High Priority Regions
15%
15%
15%
10%
10%
10%
10%
Contribution to Food Security at National level
10%
Introduction of innovative ideas in Agriculture
5%
Total
100%
20
8. Results of sustainability – Development (cont’d)
Mechanisms to finance Development
1.
Indirect funding of emerging and non-HDP entrepreneurs via large corporate clients
such as existing co-operatives and other entities
2.
Indirect funding of emerging entrepreneurs via newly established co-operatives and
existing commercial infrastructure, including banks
3.
Direct funding of emerging entrepreneurs in expanding agricultural enterprises
4.
Direct funding of emerging entrepreneurs via enterprises that utilise land now
available through the national land reform initiative
5.
Direct funding of the participation by emerging entrepreneurs in commercial
agriculture (primary & secondary) enterprises
6.
Direct funding of the acquisition by emerging entrepreneurs of shares in existing of
expanding enterprises
7.
Direct funding of focused rural development enterprises, projects or initiatives
21
8. Results of sustainability – Development (cont’d)
Growth in the development loan book
Target
March 2010
R450 million
March 2011
R1.1 billion
March 2012
R1.7 billion
22
9. Land Bank 2010 and beyond
 Moving up the value chain
• Provision of tailor made finance solutions
 Premium provider of Agri-finance solutions
• Capture lost market share
 Improved customer service: Client centric approach
• Credit and sales perspective
 Provide more client driven products
• Revision of current product portfolio
• Introduction of new products
 Review the pricing and credit policy
 Report comprehensively on development impact of lending
23
In summary
 Land Bank becoming a normalised institution moving towards
development in compliance with the Land Bank Act objects.
 Land Bank continuing to provide financial solutions to
commercial farmers
 Land bank’s role will go beyond financial activities but into the
realm of providing strategic advice and policy support in the
agricultural space, in partnership with:
• National Treasury
• Department of Agriculture
• Department of Rural Development and Land Reform
• Private sector (leveraging of partnerships)
 Land bank will provide innovative solutions that will guide and
lead the sector into a greater future
24

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