Best Practice and Participation in Best Practice and Participation in Sustainable & Economically Viable Sustainable & Economically Viable Land Reform – FSA’s Experiences & Land Reform – FSA’s Experiences &

RecommendationsRecommendations

Roger Godsmark: Forestry South AfricaRoger Godsmark: Forestry South AfricaJoint AgriSA Commodity Chamber / Transformation Committee MeetingJoint AgriSA Commodity Chamber / Transformation Committee Meeting

Centurion, 10Centurion, 10thth February 2014 February 2014

Presentation OutlinePresentation Outline

Background: Background:

Best Practice: RestitutionBest Practice: Restitution Corporate Timber CompaniesCorporate Timber Companies Private Timber FarmersPrivate Timber Farmers

Best Practice: New Afforestation on Communal LandBest Practice: New Afforestation on Communal Land

Lessons LearntLessons Learnt

RecommendationsRecommendations

Section 1 Section 1 Background Background

The Forestry Industry’s Characteristics The Forestry Industry’s Characteristics

Industry Structure & Ownership: Industry Structure & Ownership: – Of the 1.27 million ha of forestry in SA, 884 000 ha (69%) is owned by 9 Of the 1.27 million ha of forestry in SA, 884 000 ha (69%) is owned by 9

corporate entities - 306 000 ha by 1 100 private commercial farmers corporate entities - 306 000 ha by 1 100 private commercial farmers and 50 000 ha by 25 000 small scale growers. and 50 000 ha by 25 000 small scale growers.

– All the corporate entities are also involved in timber processingAll the corporate entities are also involved in timber processing

Institutional Arrangements:Institutional Arrangements:– The Forestry Industry has its own Charter Council and SETAThe Forestry Industry has its own Charter Council and SETA– It was only incorporated into DAFF 5 years ago (DWAF prior to that)It was only incorporated into DAFF 5 years ago (DWAF prior to that)– It does not belong to the ARC and it not within the funding ambit of It does not belong to the ARC and it not within the funding ambit of

various Govt. agencies.various Govt. agencies.

Long Rotations –(leading to financing problems):Long Rotations –(leading to financing problems):– 7 to 35 year – thus cash flow and financial problems for new growers / 7 to 35 year – thus cash flow and financial problems for new growers /

beneficiariesbeneficiaries

In order to understand the context in which the Forestry Industry In order to understand the context in which the Forestry Industry has made decisions regarding land reform, the following points has made decisions regarding land reform, the following points

need to be made……need to be made……

Current Land Reform Situation: Forestry IndustryCurrent Land Reform Situation: Forestry IndustryThe Forestry Industry’s strategy is based on ensuring restituted The Forestry Industry’s strategy is based on ensuring restituted

land remains sustainable and that any new forestry land remains sustainable and that any new forestry development takes place on communal land. development takes place on communal land.

RESTITUTION RESTITUTION

REDISTRIBUTIONREDISTRIBUTION

It is estimated that over 60% of the plantation area in SA is under claimIt is estimated that over 60% of the plantation area in SA is under claim– Market value (including trees) – R16bn Market value (including trees) – R16bn – Potential production from these areas – 12m tons p.a.Potential production from these areas – 12m tons p.a.

Very few claims have been settled and the process itself has Very few claims have been settled and the process itself has come to a grinding halt.come to a grinding halt.

The LCC will, unless small farms, only buy the land and not trees.The LCC will, unless small farms, only buy the land and not trees.

No initiatives are underway to transfer existing plantations to No initiatives are underway to transfer existing plantations to new owners new owners (grower / processors want to protect their mills)(grower / processors want to protect their mills)

The focus is to develop new plantations on communal land.The focus is to develop new plantations on communal land.

Support Received by Forestry Industry for Land ReformSupport Received by Forestry Industry for Land ReformDepartment of Agriculture, Forestry and FisheriesDepartment of Agriculture, Forestry and Fisheries– Have still not established Forest Enterprise Development FundHave still not established Forest Enterprise Development Fund– Have still to implement Integrated Small Enterprise Devt. StrategyHave still to implement Integrated Small Enterprise Devt. Strategy

Department of Rural Development & Land ReformDepartment of Rural Development & Land Reform– Other than purchasing farms, nothingOther than purchasing farms, nothing

Land BankLand Bank– Interest rates not appropriateInterest rates not appropriate

Agricultural Research Council Agricultural Research Council – Forestry not in its ambit so no supportForestry not in its ambit so no support

Commercial BanksCommercial Banks– Are willing to finance projects but interest rates & rotations a problemAre willing to finance projects but interest rates & rotations a problem

The Bottom Line: No support received from Govt. - all support The Bottom Line: No support received from Govt. - all support provided by the Industry itself & limited amount from banksprovided by the Industry itself & limited amount from banks

Section 2 Section 2 Best Practice - RestitutionBest Practice - Restitution

Best Practice Best Practice Development of Post-Settlement Support ModelsDevelopment of Post-Settlement Support ModelsThe Forestry Industry realised at an early stage that land reform The Forestry Industry realised at an early stage that land reform could have a devastating effect not only on the Forestry Industry could have a devastating effect not only on the Forestry Industry but also on the Forest Products Industry to whom we supply the but also on the Forest Products Industry to whom we supply the

feedstock. It was thus essential that post-settlement models feedstock. It was thus essential that post-settlement models were agreed upon and had the buy in from Government to were agreed upon and had the buy in from Government to

ensure that any transfers to new beneficiaries were sustainable ensure that any transfers to new beneficiaries were sustainable businesses and continued to supply our mills with fibre. businesses and continued to supply our mills with fibre.

FSA thus developed 2 sets of post-settlement support models for FSA thus developed 2 sets of post-settlement support models for restitution claims:restitution claims:

1. for Corporate growers1. for Corporate growers2.2. For private timber farmers For private timber farmers

Models - Basic Principles (1)Models - Basic Principles (1)

Where Models involve leases being entered into with beneficiaries, Where Models involve leases being entered into with beneficiaries, these must be for a minimum period of two rotations these must be for a minimum period of two rotations (according to (according to crop grown)crop grown)

Models only apply to forestry landModels only apply to forestry land (e.g. excludes mills) (e.g. excludes mills)

FSA should act as the development agent i.t.o. the Charter Framework FSA should act as the development agent i.t.o. the Charter Framework Agreement that was signed with DWAF (now DAFF) i.r.o. expediting Agreement that was signed with DWAF (now DAFF) i.r.o. expediting land claims land claims (to retain control)(to retain control)

Where claims cover multiple owners and land uses, the principle of Where claims cover multiple owners and land uses, the principle of “one size fits all” must not apply. Different PSS Models must be “one size fits all” must not apply. Different PSS Models must be allowed to be implemented allowed to be implemented (to take into account individual needs and (to take into account individual needs and circumstances) circumstances)

Importantly, the Models we developed were based on certain basic Importantly, the Models we developed were based on certain basic principles – these were as follows……. principles – these were as follows…….

Basic Principles (2)Basic Principles (2)Any compensation paid must be based on valuation of property at date Any compensation paid must be based on valuation of property at date of transfer of transfer (trees and land need to be valued / revalued immediately (trees and land need to be valued / revalued immediately prior to sale)prior to sale)

In Models where owner sells trees, proceeds should be free of taxIn Models where owner sells trees, proceeds should be free of tax (LCC to (LCC to get tax directive from SARS)get tax directive from SARS)

Choice of Model must be driven by financial viability and be that of Choice of Model must be driven by financial viability and be that of beneficiary communitybeneficiary community (i.e. not ex-owner, DRDLR, LCC) (i.e. not ex-owner, DRDLR, LCC)

Any agreement signed with DRDLR / LCC must be adhered to by all Any agreement signed with DRDLR / LCC must be adhered to by all officials officials (right down to Project Manager level)(right down to Project Manager level)

A “Forestry Tribunal”, containing specialist staff, be established to A “Forestry Tribunal”, containing specialist staff, be established to adjudicate forestry claimsadjudicate forestry claims

Outstanding Issues:Outstanding Issues:Tax IssueTax Issue

Establishment of Forestry TribunalEstablishment of Forestry Tribunal

Corporate Timber Company Restitution ModelCorporate Timber Company Restitution ModelGiven the resources available to a Corporate Timber Company (as Given the resources available to a Corporate Timber Company (as

opposed to a private grower), this Model is more demanding. opposed to a private grower), this Model is more demanding.

BASED ON LEASE BACK DEALBASED ON LEASE BACK DEAL

Beneficiary Input: Beneficiary Input: LandLand

Ex Corporate Owner Input: Ex Corporate Owner Input: TreesTrees

Ex Corporate Involvement:Ex Corporate Involvement: Rental of at least 5% on productive landRental of at least 5% on productive land Rental of at least 2% on unproductive (conservation) landRental of at least 2% on unproductive (conservation) land Social Development Contribution of at least 4% (1% CSI – 3% enterprise devt.) of net profit after tax Social Development Contribution of at least 4% (1% CSI – 3% enterprise devt.) of net profit after tax

(NPAT) OR 4% of annual rental, whichever higher(NPAT) OR 4% of annual rental, whichever higher Management of plantationsManagement of plantations Guarantee to buy timber at current price when felledGuarantee to buy timber at current price when felled Opportunity to get involved with value chainOpportunity to get involved with value chain

Applicable when LCC buys the land but not the trees. Applicable when LCC buys the land but not the trees.

Private Timber Grower Restitution ModelPrivate Timber Grower Restitution Model

Option 1: LCC Buys Land Only Lease-Back – 2 rotationsFarmer pays a lease rental to beneficiaries (% negotiated but

min of 5%) In addition to this, farmer provides mentorship; andFarmer makes a skills development commitment (higher of

R20 000 or 1% NPAT)

Option 2: LCC Buys Land & Trees Lease-Back – 1 rotationFarmer pays a lease rental to beneficiaries (% negotiated but

minimum of 5%) + Rental deposit of 3 month’s operational exp. In addition to this, farmer provides mentorship; andFarmer pays beneficiaries a share of NPAT (% to be negotiated)

Option 3: LCC Buys Land & Trees Management AgreementFarmer is paid a management fee by beneficiaries (negotiated) In addition to this, farmer provides mentorship; andFarmer receives a profit share (minimum 10% NPAT) 

Three options are available – 2 lease back, the other management Three options are available – 2 lease back, the other management

Advantages of ModelsAdvantages of Models

Allows for gradual transfer of ownership as option given to beneficiaries Allows for gradual transfer of ownership as option given to beneficiaries to replant felled areas at their own expense. to replant felled areas at their own expense. Opportunity for involvement in downstream value-chainOpportunity for involvement in downstream value-chainEnterprise development opportunities Enterprise development opportunities (e.g. contracting)(e.g. contracting)

Because the State does not, as a rule, buy the trees on a timber Because the State does not, as a rule, buy the trees on a timber farm, the ex-owner and new beneficiaries have to enter into farm, the ex-owner and new beneficiaries have to enter into

some form of partnership to sustain the business. some form of partnership to sustain the business.

FINANCING / FUNDINGFINANCING / FUNDING

New beneficiaries do not have to raise working capitalNew beneficiaries do not have to raise working capitalBeneficiaries get regular and guaranteed incomeBeneficiaries get regular and guaranteed incomeBeneficiaries benefit from “social development” fundingBeneficiaries benefit from “social development” funding

Because have to form a partnership, ex landowner still involved in Because have to form a partnership, ex landowner still involved in management of business management of business (ensures sustainability)(ensures sustainability)Market access guaranteedMarket access guaranteed

EMPOWERMENTEMPOWERMENT

MANAGEMENTMANAGEMENT

Section 3 Section 3 Best Practice – New Afforestation on Best Practice – New Afforestation on

Communal LandCommunal Land

Forestry Development InitiativesForestry Development InitiativesThe Forestry Industry realises that its current “traditional The Forestry Industry realises that its current “traditional

"footprint cannot expand - the only opportunity for expansion is "footprint cannot expand - the only opportunity for expansion is in Zululand and the Eastern Cape (i.e. communal areas). What in Zululand and the Eastern Cape (i.e. communal areas). What

are the role players doing?are the role players doing?

Forestry South Africa Forestry South Africa

Corporate Timber CompaniesCorporate Timber Companies

Has established a “Business Development Unit” to organize and train existing growers and facilitate the expansion of the Has established a “Business Development Unit” to organize and train existing growers and facilitate the expansion of the Industry in the areas mentioned above.Industry in the areas mentioned above.

Have actively sought out individuals and communities eager to enter the Industry to supply them with timber in both Have actively sought out individuals and communities eager to enter the Industry to supply them with timber in both regions, thus expanding the footprint of the Industry.regions, thus expanding the footprint of the Industry.

Government Government

Not only nothing but the Dept. Water Affairs is actually hindering these developments!Not only nothing but the Dept. Water Affairs is actually hindering these developments!

Selection of New Timber GrowersSelection of New Timber GrowersThe Forestry Industry is not currently involved in identifying land The Forestry Industry is not currently involved in identifying land

for transfer in terms of Redistribution. What we are doing, for transfer in terms of Redistribution. What we are doing, however, is to expand the footprint of the Industry into new however, is to expand the footprint of the Industry into new

areas where water availability will allow & no land acquisition areas where water availability will allow & no land acquisition problems (as communal areas). These are the following:problems (as communal areas). These are the following:

ZULULAND ZULULAND

EASTERN CAPEEASTERN CAPE

40 000 ha on communal land (Individual tenure rights)40 000 ha on communal land (Individual tenure rights)

100 000 ha on communal land (Communal tenure rights)100 000 ha on communal land (Communal tenure rights)

Section of ParticipantsSection of Participants1. Communities & individuals themselves;1. Communities & individuals themselves;

2. Timber Companies & FSA Business Development Unit 2. Timber Companies & FSA Business Development Unit Outgrower Codes Developed to manage relationship Outgrower Codes Developed to manage relationship

Support Provided by Forestry Industry to New Timber Support Provided by Forestry Industry to New Timber Farmers on Communal Land Farmers on Communal Land

Technical and financial assistance:Technical and financial assistance: Subsided loans Subsided loans Interim payments (i.e. voorskot) to ease cash flow problemsInterim payments (i.e. voorskot) to ease cash flow problems Technical input Technical input Assistance with land preparationAssistance with land preparation Seedlings, fertilizer & other inputsSeedlings, fertilizer & other inputs Skills transferSkills transfer

Institutional assistance (community schemes):Institutional assistance (community schemes): Establishment of CPAs / TrustsEstablishment of CPAs / Trusts

Marketing assistance:Marketing assistance: Market for timber at prevailing market price when timber felledMarket for timber at prevailing market price when timber felled

The Private Sector has for a long time been involved in developing The Private Sector has for a long time been involved in developing the small-scale grower sector through “out-grower schemes”. the small-scale grower sector through “out-grower schemes”.

Support varies from scheme to scheme but can include….Support varies from scheme to scheme but can include….

Section 4Section 4Lessons LearntLessons Learnt

Lessons LearntLessons Learnt

The best chances for success are where partnerships between beneficiaries The best chances for success are where partnerships between beneficiaries and ex-landowners are entered intoand ex-landowners are entered into

However, be prepared to dedicate considerably higher management However, be prepared to dedicate considerably higher management resources to the new partnershipresources to the new partnership

CPAs are NOT the best way to go – rather go the trust routeCPAs are NOT the best way to go – rather go the trust route

First prize is to develop models which involve participation in downstream First prize is to develop models which involve participation in downstream value-chainvalue-chain

Ensure any agreement reached with DRDLR at national level is filtered down Ensure any agreement reached with DRDLR at national level is filtered down to Provincial level as this does not always happento Provincial level as this does not always happen

Getting buy in from the DRDLR is essential Getting buy in from the DRDLR is essential

The Industry has been involved for a long time in developing its The Industry has been involved for a long time in developing its land restitution and new afforestation models. During this land restitution and new afforestation models. During this

period we have learnt lot.period we have learnt lot.

Section 4Section 4RecommendationsRecommendations

RecommendationsRecommendations

1.1. Establish a Land Reform Committee which:Establish a Land Reform Committee which: Fully represents the sectorFully represents the sector Has a mandate from the sector to act on its behalfHas a mandate from the sector to act on its behalf

2.2. Set “Basic Principles”Set “Basic Principles”

3.3. Develop “Models” tailored to suit characteristics of the sectorDevelop “Models” tailored to suit characteristics of the sector

4.4. Get buy-in from sector (through own Commodity Organisation)Get buy-in from sector (through own Commodity Organisation)

5.5. Get buy-in and full support from the DRDLR / LCCGet buy-in and full support from the DRDLR / LCC

A “one size fits all approach” to land reform will not work due to A “one size fits all approach” to land reform will not work due to the characteristics of each commodity. It is thus essential that the characteristics of each commodity. It is thus essential that

tailor made approaches are developed by & for each tailor made approaches are developed by & for each commodity commodity

Recommended Steps to be Taken by each Commodity Recommended Steps to be Taken by each Commodity

AND MOST IMPORTANTLYAND MOST IMPORTANTLY