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Citrus transformation programme presents a ‘good example’

Home Agriculture Citrus transformation programme presents a ‘good example’

AGRICULTURE is a capital-intensive activity, typically with years passing between initial investment and revenue. The primary challenge facing small scale farmers is access to reasonably priced, reasonably termed funding to drive capital investment in their enterprises.

The Economic Transformation of Black Citrus Growers (ETBCG) programme began with a proposal by the Citrus Growers Association (CGA) to the Jobs Fund – a National Treasury initiative addressing the challenge of unemployment in South Africa.

The purpose of the ETBCG programme was to create a model that would provide blended financing at favourable interest rates and payment terms to support orchard establishment, infrastructure development, capital equipment, and skills development. Ultimately, the goal was to create jobs and increase the number of hectares under black-grower management, and black growers’ share of domestic and international markets.

To achieve this, a programme was initiated to bring together like-minded public, private and civil-sector organisations. A key driver of the project was the Citrus Growers Association (CGA), a non-profit industry body that represents the interests of the producers of export citrus, with assistance from the CGA’s subsidiaries, the Grower Development Company and the Citrus Academy.

The ETBCG programme soon attracted other partners, notably the Department of Agriculture, Land Reform & Rural Development (DALRRD) who, along with the Jobs Fund, CGA itself, committed to providing grant and loan funding to the programme. AgriSETA came on board to fund the skills development component, and the LIMA Rural Development Foundation was engaged as project manager. Finally, FNB was engaged after a tender process to identify the most suitable commercial funding partner.

Pursuing a like-minded goal

Development finance manager at the Jobs Fund, Evelyn George, said, “The power of this programme emerges from assembling like-minded partners with a clear end goal in mind. The success of the ETBCG, in our view, has been largely a result of the fact that multiple stakeholders have been able to come together and create an innovative structure that involves a commitment to long-term, mutual benefit, that shares risk, and that ultimately supports the concrete transformation of the industry.”

Applications for funding from the programme opened in 2019. Applicants were selected from amongst emerging citrus growers around South Africa, in particular growers who were already actively farming citrus, and who were exporting or on the verge of exporting at the time of application. Enterprises were selected for inclusion based on their viability, potential employment, transformation and economic impact, and growth potential.

With the partners and beneficiaries in place, the programme was set to launch in 2020, but two factors immediately disrupted planning.

The first was the Covid-19 pandemic, which hampered engagement between stakeholders, especially the in-person training initiatives that had been planned. The second factor was the significantly altered economic and industry landscape facing citrus growers. In 2019 the industry was experiencing a boom, with strong harvests and exports. Over the next few years, the breakdown in international supply chains and economic headwinds in South Africa had impacted profitability, a trend which increased acutely in the wake of the conflict in Ukraine, which saw fertiliser costs increased by almost 300%.

Group financial manager at the CGA, Robert Miller, said, “It was a series of punches that we had to roll with. The fact that we were able to do so, speaks to the effectiveness of the partnerships we’d forged, and the commitment of all partners to the long-term success of the project. Our skills-development partners, FNB and the Jobs Fund were flexible in the face of changing conditions, and able to adjust their goals and outcomes in line with the dynamics playing out in the industry.”

Innovative funding

The key innovation of the ETBCG programme was the funding structure, which is split almost equally between grant and commercial funding. Farmers receive 36% of their funding as a pure grant (contributed from the CGA, DALRRD and Jobs Fund), which is seen as an equity contribution, thereby reducing debt levels and enhancing their ability to make repayments. The remaining 64% is structured as a blended loan at reduced interest rates from the Jobs Fund, CGA and FNB. The result is that the farmers ultimately receive a blended loan at lower-than-prime rates. The contribution from the CGA comes from industry levies, of which 20% is ring-fenced for transformation programmes.

Business development head at FNB,  Gert Breet, said, “The ETBCG programme unlocks grant access which is then matched with subsidised commercial funding in an innovative structure with great benefits for beneficiaries. The grant component completely changes the calculation for up-and-coming farmers. It is a massively substantial leg up in what is usually a prohibitively capital-intensive industry. The benefits are not just that the cost of capital is lowered, but that it’s patient capital, extended by people who understand the dynamics of the industry and who know that the risk is shared amongst our partners.”

Miller further adds, “We’ve been careful to keep the focus on enhancement as well as expansion, on sustainability as well as growth. This has informed both our focus on skills development and long-term support and the use of, for example, solar power in the capital investments the farmers have made.”

Skills development

Skills development was identified as a critical component of the ETBCG programme. It was important to develop the internal capacity of beneficiaries and make them less reliant on external technical specialists but also to develop skills in surrounding communities so that as the farms grew and their demand for labour increased there were people available who had training in citrus farming. AgriSETA invested R13 million in training, and the involvement of the CGA ensured there was good technical knowledge and support on the ground.

2023 marked the third year of ETBCG implementation. The programme has an established track record and is beginning to reach maturity. As of June 30, 2023, over R161 million in funding had been approved. Two hundred and eight hectares of new orchards have been planted and an additional 362 hectares are being supported for working capital. Furthermore, 78 new permanent jobs and nearly 625 seasonal jobs have been created. Five hundred and seventy-seven individuals have also been trained through skills development, learnerships and tertiary education bursaries.

Disbursed funds were used toward access roads, land preparation, irrigation infrastructure, farm equipment, vehicles, fencing, packhouse equipment, a de-greening room, generators, a solar system, and a substation.

But this is just the beginning. Citrus is a long-term crop, and the number of jobs created is expected to peak well after the ETBCG lifetime is completed, as orchards come into production and the returns on capital investment are realised. The deployment of funds is expected to continue until March 2024, at which point a monitoring period will extend for another two years.

George concluded, “We wanted to demonstrate that with the right kind of support measures, funders, and implementers this type of mutually beneficial framework is possible. All the ingredients came together for an impactful and symbiotic partnership. We would love for the success of this project to catalyse investment in other agricultural sectors. It’s a great example of how these partnerships can work when the transformation of the industry is the main driving force.”

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