Out in a remote rural area of the Transkei last week an unusual cattle auction, held by a new black economic empowerment (BEE) auctioneering company, took place.
Buyers gathered near a school in the Peddie location, 100km by road from East London, in the Amatola district. They were bidding for animals that would otherwise end up being sold for ceremonial slaughter or to travelling smouse or speculators, middlemen who would profit from the farmers’ lack of participation in the formal market.
No ordinary auction, this was an attempt by the ComMark Trust and the USAid-funded Promoting Agribusiness Linkage to put into practice the oft-talked-about ”bridging the gap” between the first and second economies in South Africa.
This is a kind of empowerment that goes beyond the equity transfers that tend to grab the headlines, down to the dusty grassroots of places like Peddie. Here the pensioners who normally tend small numbers of cattle — five to 15 head — have been in the habit of getting what they regard as a pittance for their livestock when they are forced to sell. When they have had a windfall it has been in selling to households for ritual sacrifice, when price is less of an object.
There is more in it than the difference of a couple of hundred rands extra per cow. This is a multibillion-rand industry. In the Eastern Cape the cattle herd owned by black communal farmers is about 1,7-million and is theoretically worth about R4-billion. However, the farmers annual off-take is only 5% to 7%.
Having cattle on your property is a sign of wealth, and cultural reasons do militate against a commercial mindset, but this return on investment of 7% compares with 25%, or so, for the mostly white commercial farmers.
The project to get farmers a better deal involves two BEE entities specially set up for the purpose of benefiting from this market transformation.
The BEE auctioneer, Sinethemba Mafama, was founded in October last year with shareholding by Simunye of 51% and the Port Elizabeth-based brokers Cape Mohair and Wool (CMW) of 49%. Simunye comprises black woolgrowers of Ciskei and Transkei. With little capital outlay, this BEE company will make its money from commissions on wool and mohair sold through CMW, and from auctions such as the one held in Peddie, before moving on to other sources of income, such as providing shearing services in the area.
ComMark provides a kind of insurance against the risk of these auctions. And risks there are aplenty, because of the costs of operating in poorly served rural areas. For people working on this project, the government could aid empowerment by providing cattle pens and loading ramps — and crucially improving access roads.
The other BEE entity is Elangeni Animal Health. This too is a joint venture between the investment arm of the National Emerging Red Meat Producers’ Organisation (40%), black woolgrowers (40%) and veterinary supply company Virbac (20%).
Lack of access to formal markets is not the only reason for communal farmers getting low prices for their cattle. Poor health of the animals also stands in their way. To promote the use of veterinary products, Elangeni will sell products packed in quantities appropriate for those who own a few cattle, rather than in quantities it usually sells to commercial farmers, who have large herds. With 80% black ownership, Elangeni will also benefit from government contracts.
Channels such as general dealers will be used to sell these and supplementary feed products, since another problem is that the animals are not fed properly. The plan is also to train ”para-vets” to administer appropriate doses of animal medicine.
It is early days for this project. The first auction threw up unexpected logistical problems. Only 60 of the 100 animals put on auction were sold, with some of the farmers exercising their right to withdraw animals because they did not think the price they were getting was high enough. On the other hand, the animals were not of the standard commercial buyers might expect.
We are all transfixed by the big BEE deals that promise, in theory, to transfer billions of rand to a supposedly broad base of black shareholders. Mainly because of financing realities these often deliver much less than the stake announced with such fanfare. BEE entities can end up with, say, 5% of a company in which they nominally own 25% when they are forced by circumstance to sell 20% to pay for the 5%.
Using innovative approaches to empowerment, BEE deals can be done that do not rely on capital transfer, and empower ordinary black people.
Just as black people in theory own billions of rands in property, some of which could be released by the creation of a secondary market, communal farmers own billions of rands of cattle and they could tap some of that money more easily if formalised.
Reg Rumney is executive director of the BusinessMap Foundation