Best Practice and Participation in Sustainable

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Best Practice and Participation in Sustainable
Economically Viable Land Reform FSAs
Experiences Recommendations
Roger Godsmark Forestry South Africa Joint
AgriSA Commodity Chamber / Transformation
Committee Meeting Centurion, 10th February 2014
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Presentation Outline

• Background
• Best Practice Restitution
• Corporate Timber Companies
• Private Timber Farmers
• Best Practice New Afforestation on Communal Land
• Lessons Learnt
• Recommendations

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Section 1 Background
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The Forestry Industrys Characteristics
In order to understand the context in which the
Forestry Industry has made decisions regarding
land reform, the following points need to be
made

• Industry Structure Ownership
• 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 and
  50 000 ha by 25 000 small scale growers.
• All the corporate entities are also involved in
  timber processing
• Institutional Arrangements
• The Forestry Industry has its own Charter Council
  and SETA
• 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 various Govt. agencies.
• Long Rotations (leading to financing problems)
• 7 to 35 year thus cash flow and financial
  problems for new growers / beneficiaries

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Current Land Reform Situation Forestry Industry
The Forestry Industrys strategy is based on
ensuring restituted land remains sustainable and
that any new forestry development takes place on
communal land.
RESTITUTION

• It is estimated that over 60 of the plantation
  area in SA is under claim
• Market value (including trees) R16bn
• Potential production from these areas 12m tons
  p.a.
• Very few claims have been settled and the process
  itself has come to a grinding halt.
• The LCC will, unless small farms, only buy the
  land and not trees.

REDISTRIBUTION

• No initiatives are underway to transfer existing
  plantations to new owners (grower / processors
  want to protect their mills)
• The focus is to develop new plantations on
  communal land.

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Support Received by Forestry Industry for Land
Reform

• Department of Agriculture, Forestry and Fisheries
• Have still not established Forest Enterprise
  Development Fund
• Have still to implement Integrated Small
  Enterprise Devt. Strategy
• Department of Rural Development Land Reform
• Other than purchasing farms, nothing
• Land Bank
• Interest rates not appropriate
• Agricultural Research Council
• Forestry not in its ambit so no support
• Commercial Banks
• Are willing to finance projects but interest
  rates rotations a problem

The Bottom Line No support received from Govt.
- all support provided by the Industry itself
limited amount from banks
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Section 2 Best Practice - Restitution
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Best Practice Development of Post-Settlement
Support Models
The Forestry Industry realised at an early stage
that land reform could have a devastating effect
not only on the Forestry Industry but also on the
Forest Products Industry to whom we supply the
feedstock. It was thus essential that
post-settlement models were agreed upon and had
the buy in from Government to ensure that any
transfers to new beneficiaries were sustainable
businesses and continued to supply our mills with
fibre.
FSA thus developed 2 sets of post-settlement
support models for restitution claims 1. for
Corporate growers 2. For private timber farmers
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Models - Basic Principles (1)
Importantly, the Models we developed were based
on certain basic principles these were as
follows.

• Where Models involve leases being entered into
  with beneficiaries, these must be for a minimum
  period of two rotations (according to crop grown)
• Models only apply to forestry land (e.g. excludes
  mills)
• 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 land
  claims (to retain control)
• Where claims cover multiple owners and land uses,
  the principle of one size fits all must not
  apply. Different PSS Models must be allowed to
  be implemented (to take into account individual
  needs and circumstances)

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Basic Principles (2)

• Any compensation paid must be based on valuation
  of property at date of transfer (trees and land
  need to be valued / revalued immediately prior
  to sale)
• In Models where owner sells trees, proceeds
  should be free of tax (LCC to get tax directive
  from SARS)
• Choice of Model must be driven by financial
  viability and be that of beneficiary community
  (i.e. not ex-owner, DRDLR, LCC)
• Any agreement signed with DRDLR / LCC must be
  adhered to by all officials (right down to
  Project Manager level)
• A Forestry Tribunal, containing specialist
  staff, be established to adjudicate forestry
  claims

Outstanding Issues Tax Issue Establishment of
Forestry Tribunal
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Corporate Timber Company Restitution Model
Given the resources available to a Corporate
Timber Company (as opposed to a private grower),
this Model is more demanding.
BASED ON LEASE BACK DEAL
Applicable when LCC buys the land but not the
trees.

• Beneficiary Input Land
• Ex Corporate Owner Input Trees
• Ex Corporate Involvement
• Rental of at least 5 on productive land
• Rental 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 (NPAT) OR 4 of annual rental,
  whichever higher
• Management of plantations
• Guarantee to buy timber at current price when
  felled
• Opportunity to get involved with value chain

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Private Timber Grower Restitution Model
Three options are available 2 lease back, the
other management

• Option 1 LCC Buys Land Only Lease-Back
  2 rotations
• Farmer pays a lease rental to beneficiaries (
  negotiated but min of 5)
• In addition to this, farmer provides mentorship
  and
• Farmer makes a skills development commitment
  (higher of R20 000 or 1 NPAT)
•  
• Option 2 LCC Buys Land Trees Lease-Back
  1 rotation
• Farmer pays a lease rental to beneficiaries (
  negotiated but minimum of 5) Rental deposit of
  3 months operational exp.
• In addition to this, farmer provides mentorship
  and
• Farmer pays beneficiaries a share of NPAT ( to
  be negotiated)
•  
• Option 3 LCC Buys Land Trees Management
  Agreement
• Farmer is paid a management fee by beneficiaries
  (negotiated)
• In addition to this, farmer provides mentorship
  and
• Farmer receives a profit share (minimum 10 NPAT) 

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Advantages of Models
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 some form of
partnership to sustain the business.
FINANCING / FUNDING

• New beneficiaries do not have to raise working
  capital
• Beneficiaries get regular and guaranteed income
• Beneficiaries benefit from social development
  funding

MANAGEMENT

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

EMPOWERMENT

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

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Section 3 Best Practice New Afforestation on
Communal Land
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Forestry Development Initiatives
The Forestry Industry realises that its current
traditional "footprint cannot expand - the only
opportunity for expansion is in Zululand and the
Eastern Cape (i.e. communal areas). What are the
role players doing?
Forestry South Africa

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

Corporate Timber Companies

• 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.

Government

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

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Selection of New Timber Growers
The Forestry Industry is not currently involved
in identifying land for transfer in terms of
Redistribution. What we are doing, however, is to
expand the footprint of the Industry into new
areas where water availability will allow no
land acquisition problems (as communal areas).
These are the following
ZULULAND

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

EASTERN CAPE

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

Section of Participants 1. Communities
individuals themselves 2. Timber Companies FSA
Business Development Unit Outgrower Codes
Developed to manage relationship
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Support Provided by Forestry Industry to New
Timber Farmers on Communal Land
The Private Sector has for a long time been
involved in developing the small-scale grower
sector through out-grower schemes.
Support varies from scheme to scheme but can
include.

• Technical and financial assistance
• Subsided loans
• Interim payments (i.e. voorskot) to ease cash
  flow problems
• Technical input
• Assistance with land preparation
• Seedlings, fertilizer other inputs
• Skills transfer
• Institutional assistance (community schemes)
• Establishment of CPAs / Trusts
• Marketing assistance
• Market for timber at prevailing market price when
  timber felled

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Section 4 Lessons Learnt
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Lessons Learnt
The Industry has been involved for a long time in
developing its land restitution and new
afforestation models. During this period we
have learnt lot.

• The best chances for success are where
  partnerships between beneficiaries and
  ex-landowners are entered into
• However, be prepared to dedicate considerably
  higher management resources to the new
  partnership
• CPAs are NOT the best way to go rather go the
  trust route
• First prize is to develop models which involve
  participation in downstream value-chain
• Ensure any agreement reached with DRDLR at
  national level is filtered down to Provincial
  level as this does not always happen
• Getting buy in from the DRDLR is essential

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Section 4 Recommendations
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Recommendations
A one size fits all approach to land reform
will not work due to the characteristics of each
commodity. It is thus essential that tailor made
approaches are developed by for each commodity

Recommended Steps to be Taken by each Commodity

• Establish a Land Reform Committee which
• Fully represents the sector
• Has a mandate from the sector to act on its
  behalf
• Set Basic Principles
• Develop Models tailored to suit characteristics
  of the sector
• Get buy-in from sector (through own Commodity
  Organisation)
• Get buy-in and full support from the DRDLR / LCC

AND MOST IMPORTANTLY