What are the Expectations of AGRIBEE

South Africa’s agricultural sector is by far the most sophisticated and advanced on the African continent. The sector

continues to play a vitally important role in the South African economy, despite the marginal contribution to GDP. It is an

essential component of the national economy, with strong ties to other economic sectors.

South Africa is currently the world’s leading producer of avocados, clementines and ostrich products. However, the

country’s position as a significant exporter is being challenged due to farming subsidies available in the European Union

and the United States, which are South Africa’s major export destinations.

Identified sector-specific challenges affecting SMEs include:

> Inconsistent cash flow;

> Adverse climatic conditions that impact production;

> Access to arable land;

> The high cost of agricultural inputs and machinery;

> Difficulty accessing target markets and supply chains;

> Shortage of technical skills and capacity;

> Difficulty adopting new methods of production;

> Poor quality of supporting infrastructure; and

> Competition from Large Enterprises.

However, there is a range of opportunities that could expand

the footprint of SMEs in the sector, which include:

> Agro-processing activities to produce products such as

fruit juice, essential oils, dried fruit, bio-composites,

bio-fuels and medicinal products;

> Packaging, transport, distribution and logistics services for

agricultural produce;

> Provision of warehousing and storage facilities and services;

and

> Production of organic foods

The AgriBEE Sector Code (AgriBEE) was published in Gazette

#41306 on 8th December 2017. This sector code intends to

remove barriers to entry and expedite transformation in the

sector. There was no transitional period allowed. Therefore,

compliance with the AgriBEE for all entities falling into the

scope of application is from the date of publication.

AgriBEE questions and answers

guide:

1 | Why do we need a sector code specific to the

Agricultural Sector?

It is imperative for the Agricultural Sector to address specific

challenges facing them. The AgriBEE Council was formed with

the objective of developing a sector-friendly set of codes to

address the challenges of the sector at large.

In developing this Sector Code, the AgriBEE Council had to

align its criteria to the 2013 Amended Codes of Good Practice

(Generic Codes), to include minimum requirements in terms of

criteria, targets and Weighting Points

2 | What are the objectives of AgriBEE?

To facilitate transformation in the sector by:

> Promoting equitable access to and participation of ‘Black’ People in the entire

agricultural value chain;

> De-racialising land and Ownership;

> Unlocking the full entrepreneurial skills and potential of ‘Black’ People in the Sector;

> Facilitating structural changes in agricultural support systems;

> Increasing access to economic activities, infrastructure and skills training;

> Empowering rural and local communities to have access to agricultural economic

activities, land, agricultural infrastructure, ownership and skills;

> Improve and promote the living and working conditions of farmworkers; and

> Improve protection and standards of land rights and tenure security for labour

tenants, farm workers and other vulnerable farm dwellers. This is in addition to

addressing the inherently paternalistic nature of relationships associated with insecure

tenure by promoting more permanent forms of tenure, with the emphasis being on the

transfer of ownership of land.

3 | What are the qualifying thresholds?

Annual turnover determines qualifying thresholds:

> Exempt Micro-Enterprises (EME) – revenue below R10m;

> Qualifying Small Enterprises (QSE) – between R10m and R50m; and

> Large Enterprises – above R50m.

A Start-up Enterprise must be measured as an EME under this statement for the first

year following its formation or incorporation. This provision applies regardless of the total

revenue expected. To qualify as a Start-up Enterprise, independent confirmation of this

status is necessary either in the form of an Affidavit or CIPC issued certificate.

However, in terms of a Start-up Enterprise tendering for any contract, or seeking any

other economic activity covered by Section 6 of the B-BBEE Amendment Act, contracts

valued between R10m and R50m must be measured on the QSE Scorecard. For

contracts valued at R50m or more, measurement on a Large Enterprise Scorecard is a

requirement.

4 | What is the AgriBEE Scorecard criteria?

As all sector codes must align to the Generic Codes, recent gazettes published will

ultimately result in amendments to the AgriBEE. The measurement criteria and Weighting

Points are outlined as follows:

5 | Does the Discounting Principle apply?

Does AgriBEE have identified Priority

Elements and Sub-minimum requirements?

The Discounting Principle applies as a

consequence for not meeting Sub-minimum

requirements. Listed below are the three

identified Priority Elements, as well as the

Sub-minimum requirements for each.

> Ownership

The Sub-minimum requirement for ‘Black’

Ownership is 40% of Net Value based on the

Time Based Graduation Factor.

> Skills Development

The Sub-minimum requirement is 40% of

the total Weighting Points, excluding any

Bonus Points for Skills Development.

> Enterprise and Supplier Development

The Sub-minimum requirement is 40% for

each of the three categories, excluding any

Bonus Points. Included in the ESD element

are Preferential Procurement, Supplier

Development and Enterprise Development.

Compliance with Priority Elements applies as

follows:

1 A Large Enterprise must comply with all

three Priority Elements.

2 A QSE with <51% ‘Black’ Ownership

must comply with Ownership, Skills

Development or Enterprise and Supplier

Development.

6 | Who falls into the AgriBEE scope of

application?

The source of revenue determines which

code an organisation must be measured on.

If more than 50% of an organisation’s revenue

is generated from the following activities, the

AgriBEE must apply:

> Primary agricultural production;

> Provision of inputs and services to

enterprises engaged in the production of

agricultural products;

> Beneficiation of agricultural products; in a

primary or semi-beneficiated form; and

> Storage, distribution and/or trading, as well

as allied activities related to non-beneficiated

agricultural products.

An organisation that trades in more than one sector and therefore theoretically

falls under more than one sector code must be guided by the principles

embodied in the Generic Codes.

AgriBEE applies to multinationals whose business falls within the scope.

7 | What do AgriBEE measurements take into account?

> As per the Generic Codes, the points allocated and Status Level

determine the Preferential Procurement Recognition percentage. For

example, a Status Level 1 affords 135% recognition, while a Status Level

8 allows for 10%. The recognition percentage is what an organisation’s

client refers to for their B-BBEE recognition when calculating their scorecard.

> The measurement date for Ownership and Management Control is at the

time of verification.

> Skills Development, ESD and SED, which all carry financial implications, are

measured against the last completed fiscal period.

8 | Does Enhanced Recognition apply? How is this evidenced?

Enhanced recognition for EMEs with <51% ‘Black’ Ownership:

> Automatic Status Level 4.

> Affidavit required.

Enhanced recognition for all EMEs and QSEs with >51% ‘Black’ Ownership:

> Between 51% and 99%, provides for an automatic Status Level 2.

> Affidavit required.

Enhanced recognition for all EMEs and QSEs with 100% ‘Black’ Ownership:

> Automatic level 1 status.

> Affidavit required.

At the time of going to print, draft legislation was under review to consider

removing the limit on turnover for Enhanced Recognition. If gazetted, only

‘Black’ Ownership will count.

9 | What is the significance of Enhanced Recognition?

Enhanced Recognition ensures that >51% ‘Black’-owned or >30% ‘Black’

Woman-owned organisations automatically achieve a favourable Status Level

and favourable Preferential Procurement Recognition.

EMEs and QSEs that are >51% ‘Black’-owned qualify as Supplier Development

and Enterprise Development Beneficiaries and are not obligated to comply with

any other scorecard elements.

10 | How does land restitution influence the Ownership Scorecard?

Land restitution has two implications for the AgriBEE Scorecard:

> Enterprises (farms) with gazetted land claims are exempt from the

Ownership element. If only a percentage of the land is subject to a claim, the

exemption is proportional.

> The Sale of Assets vehicle may apply to land sold

to ‘Black’ Farmers in exchange for Ownership

points. An additional proviso is that a 30% target is

met instead of 25% as in all other instances where

Sale of Assets applies.

11 | How is Ownership measured?

Ownership as a Priority Element is subject to a 40%

Sub-minimum requirement.

The three components that measure Ownership are:

> Voting Rights; and

> Economic Value; and

> Net Value.

There is an allowance for the transfer of land ownership

to B-BBEE Beneficiaries, with or without compensation,

which can be used as the measurement criterion

for Ownership points. If 30% of land ownership is

transferred to ‘Black’ People, full recognition for

Ownership is possible under certain conditions.

12 | What vehicles are available to drive Ownership?

‘Black’ Ownership is recognised through:

> Direct shareholding in the hands of ‘Black’ People;

> Private Equity Funds;

> Sale of Assets through qualifying transactions;

> Employee Ownership Schemes;

> Share Equity Schemes; and

> Joint Venture collaboration with ‘Black’ Farm

Workers and other ‘Black’ Entrepreneurs.

Upon meeting specific criteria, a multinational may apply

for an Equity Equivalent Programme.

13 | True or false – “I must give equity to ‘Black’

Shareholders in exchange for Ownership status

and points?”

This statement is false; the word ‘give’ does not appear

in any of the Codes. It is every organisation’s prerogative

to decide whether to donate or sell shares either at

market value or a discounted rate.

14 | How is Management Control measured?

Management Control targets should be achieved

within the ambit of the Employment Equity Act of

1998. The objective of this element is to increase the

representation of ‘Black’ People, ‘Black’ Women and

‘Black’ Designated Groups in the sector.

A Large Enterprise must use the overall demographic representation of ‘Black’

People as defined in the Regulations pertaining to the Employment Equity

Act and Commission on Employment Equity Report. Furthermore, a Large

Enterprise that has operations in one province must use the relevant provincial

demographic representation of ‘Black’ People. However, an enterprise that has

operations in more than one province must adhere to the national demographic

representation of ‘Black’ People.

The Management Control criteria are broken down as follows:

> Executive Management;

> ‘Black’ representation in Executive Management;

> ‘Black’ Women representation in Executive Management;

> ‘Black’ representation at Senior, Middle and Junior Management; and

> ‘Black’ Women representation at Senior, Middle and Junior Management.

All other key principles of Statement 200 of the Generic Codes not addressed in

this statement are applicable.

15 | How is Skills Development Measured?

Skills Development expenditure for either employed or unemployed ‘Black’

People is measured at 6% of the total payroll, with additional points allocated

for persons with a disability. A total of 40% of the points available are awarded

for ‘Black’ People entering learnerships, internships or apprenticeship

agreements.

Commercial viability in agriculture demands sustained productivity, high levels of

entrepreneurship, long-term commitment, resources and skills.

‘Black’ Designated Groups are targeted under this element. The focus must

be placed on the development of core identified scarce or critical skills as

determined by the SETA. Interventions that address identified skills shortages

must account for 85% of the value of the actual contribution.

All other key principles of Statement 300 of the Generic Codes not addressed in

this statement are applicable.

16 | How is Supplier Development and Enterprise Development measured?

The measurement for these sub-elements is based on how an organisation

supports Start-up Enterprises, EMEs or QSEs in becoming sustainable. Points

can be optimised through contributing 3,5% of NPAT by providing grants, loans

or other resources such as facilities and/or equipment.

Preferential Procurement targets may be phased in over a four-year period,

provided that an organisation is prepared to contribute 3% instead of 2%

towards Supplier Development for years one through to four.

The following non-exhaustive list outlines credible Supplier Development and

Enterprise Development contributions:

> Investments in Beneficiary entities;

> Guarantees given or securities provided on behalf of Beneficiaries;

> Facilities made available to Beneficiary entities;

> Grant contributions to a Beneficiary;

> Direct costs incurred through assisting and hastening the development

of a Beneficiary;

> Overhead costs directly attributable to contributions;

> Preferential credit terms granted to a Beneficiary ;

> Preferential terms issued in respect of supplying

goods and services to a Beneficiary;

> Contributions made to settle service costs relating

to operational or financial capacity or efficiency

levels of a Beneficiary;

> Discounts allowed for the acquisition and

maintenance costs associated with a grant to a

Beneficiary for franchise, license, agency,

distribution or other similar business rights;

> The creation or development of capacity and

expertise for a Beneficiary required to manufacture

or produce goods or services previously not

manufactured, produced or provided in South

Africa. However, this must have been accounted for

in Government’s economic growth and local

Supplier Development policies and initiatives;

> Facilitating access to credit for a Beneficiary without

access to similar credit facilities through traditional

means, owing to a lack of credit history or collateral;

> Providing training or mentoring by suitably qualified

individuals to Beneficiary entities, which will assist

the Beneficiary entities to increase their

operational or financial capacity;

> The maintenance of an Enterprise Development and

Supplier Development unit which focuses exclusively

on the support of a Beneficiary or candidate

Beneficiary;

> New projects promoting beneficiation for the

benefit of an Enterprise Development or Supplier

Development Beneficiary;

> The provision of preferential credit facilities to a

Beneficiary may constitute a contribution. Examples

include without limitation:

° Provision of finance to a Beneficiary at lower

than commercial rates of interest;

° Relaxed security requirements or absence of

security requirements for a Beneficiary unable to

provide security for loans;

° Settlement of Beneficiary accounts over a

shorter period. This addresses standard

payment terms and provided that the shorter

period is no longer than 15 days; and

° The training and mentoring of Beneficiary

communities. Such contributions are measured

by quantifying the cost of time, excluding travel,

spent in carrying out such initiatives.

16 | How is Preferential Procurement measured?

The majority of this element measures procurement

with ‘Black’-owned and ‘Black’ Women-owned

organisations, that are EMEs and QSEs. A phase-in

period is an option provided that additional resources

are allocated to Supplier Development.

The following must form part of an organisation’s Total Measured Procurement Spend (TMPS):

All goods and services procured are defined as:

> Cost of sales;

> Operational and capital expenditure;

> Monopolistic procurement;

> Third-party procurement;

> Labour brokers and independent contractors or any outsourced labour expenditure;

> Pension and medical aid contributions payments made to any post-retirement funding scheme or a medical aid or a similar medical insurer

by an organisation on behalf of an employee, excluding any portions of such payments which are a contribution to a capital investment of an

employee. The scheme or insurer must issue a certificate dividing between the capital investment portion and the balance to

establish the amount that is measurable in the Total Measured Procurement Spend;

> Trade commissions;

> Empowerment related expenditure; all goods and services procured in carrying out B-BBEE. The TMPS does not include the actual

contribution portion recognised under section 2 and 3 of statement 500, but does include any expenditure incurred in facilitating those

contributions;

> Imports; and

> Intra-group procurement goods and services procured from subsidiaries or holding entities. A B-BBEE Certificate or Affidavit must

represent the organisation supplying goods and/or services.

The following are permissible exclusions from the TMPS:

> Taxes;

> Salaries, wages, remunerations and emoluments; and

> Pass-through third-party procurement. All procurement from a third-party or a client that is recorded as an expense in the third-party’s or

client’s annual financial statements, but is not recorded as such in an organisation’s annual financial statements.

17 | How is Socio-Economic Development measured?

Unique to this sector code is the 15 points allocated for this element for spending 1.5% NPAT. This is the only sector code that deviates from the

Generic Codes.

Beneficiaries must be involved in the decision-making process and acknowledge that the assistance provided is, in fact, necessary and required.

A detailed agreement must be entered into and accepted by all parties. Proper records of all interactions and meetings must be kept.

To optimise the points on this element, priority should be given to implementing income-generating socio-economic initiatives that create a

sustainable livelihood for Beneficiaries.

Tips to remove the sting from B-BBEE compliance

Essential to a favourable B-BBEE outcome are strategy, planning and providing relevant evidence. Take the following pointers into account and

leave as little to chance as possible.

> Ensure that your chosen verification agency is accredited by SANAS, the only accredited body authorised to issue B-BBEE Certificates.

SANAS places a very high level of integrity on the verification analysts.

> Have a full comprehension of the requirements applicable to your organisation.

> Address ‘low-hanging fruits’ first, which are classified as :

° Spend with organisations that are >51% ‘Black’-owned; where possible allocate that spend to Enterprise Development or Supplier

Development Beneficiaries.

° Ensure supplier B-BBEE Certificates are presented in the correct format.

° Optimise the 15 points available for SED.

° Analyse the Skills Development spend. Ensure that people with disabilities are included.

° Ensure proper due diligence on complex transactions entered into, especially in terms of Ownership. Gain a second opinion for peace of

mind. Issues such as an Ownership transaction must be adequately planned, and professional advice must be obtained to ensure that a

smooth transition takes place.