This study aims to develop a reliable methodology for measuring the performance of equity schemes in South African agriculture. A spreadsheet using norms based on empirical evidence gathered from equity schemes in the Western Cape is used to assess the indicators. One of the largest equity schemes in the country was recently implemented in Ceres in May 2003 (West, 2003).
Equity schemes have the potential to promote black economic empowerment (BEE) in South African agriculture.
LITERATURE REVIEW
Institutional arrangements and governance
Therefore, public grants awarded under the SLAG and LRAD programs will play a key role in the creation and dissemination of these projects. In the latter case, the government aims to direct LRAD grants to farm workers who are considered to be the most precarious workers in the country (Adams et al., 1999). In most cases, equity share schemes are organized as private companies, with management concentrated in the hands of directors or employed experts, while shareholders participate through tradable voting and profit rights that are proportionate to individual investments.
In the basic model (panel a, Figure 1.1 overleaf), the original owner retains ownership of the land and leases it to a manager. The workers form a workers' fund, which finances the equity capital in the business entity mainly through donations to its worker-members. Both the original owner and the farm workers receive benefits from the operating entity in the form of dividends and capital gains.
This has also been achieved by 'New Generation' cooperatives in the USA, where cooperatives still enjoy tax, interest and informational advantages (Sykuta & Cook, 2001). Most financial ratios are calculated based on information presented in the income statement and balance sheet. It is important to note that assets on the balance sheet are normally valued at historical cost, whereas they should be valued at current market value in order to calculate meaningful ratios.
Apart from the direct financial benefits of acquiring shares in the company (such as dividends and capital gains), employees may be better able to influence their working conditions. This chapter describes the data collection process at seven established equity schemes in the Western Cape and a land reform project in the Midlands of KZN in 2004.
Equity-share schemes in the Western Cape
Interviews were conducted with the farm manager (often the previous farm owner), the chairman of the employee trust and ordinary employee shareholders. For these projects, land (including fixed improvements) accounted for more than 80 percent of the assets. The chairman of the Worker's Trust was asked much the same questions as the business manager, but these related specifically to the Worker's Trust.
In addition, the Chair of the Trust was asked questions about empowerment and participation. The following sections describe each of the seven equity share schemes in the Western Cape that were investigated during 2004. At registration, the previous farm owner owned 94 percent of the farm equity and worker trust six percent (Knight, 2003).
The Fan boss seemed enthusiastic about the share scheme and had a positive view of the project's future. An offshore investor owns 40 percent of the shares and the Workers' Trust the remaining five percent. The farm exports most of its wine, which has been rated as one of the best Sauvignon Blancs in the world.
The intention of the share share scheme is to empower the farm workers to manage their own farming to supply Lutouw Estates. Nietbegin harvested its first grape crop in 2004 and the farm manager was optimistic about the season.
Land reform project at Clipstone farm
Nietbegin operates as a partnership between the farm manager and his brother (50 percent) and the Workers' Trust (50 percent). Employees work on farms owned by the farm manager and his brother, as well as Nietbegin. An enrollment survey was conducted with all 38 beneficiary households residing in Clipstone in November 2002 and the same households were then screened during August 2004.
The 2002 survey was designed to capture information on symptoms and possible causes of poverty within the community, while the follow-up survey (Appendix 2) collected panel data on poverty symptoms only. Wealth was measured in terms of the estimated market value of livestock, the only significant undepreciated and liquid asset identified in the surveys. Health was measured as the number of family members sick enough to consult a doctor during the two months before the survey.
The quality of living was measured by the PC index, which represents the materials used for the construction of external walls, adequate sanitation and access to safe drinking water (Section 1.2.2). Sherwood is not yet an equity scheme, but is used in this study to test multi-. The purpose of Clipstone's poverty measurement is not to assess the performance of the current CPA, so no conclusions should be drawn from this study about the performance of this land reform project.
This chapter uses empirical data collected at the research sites described in Chapter 2 to identify a subset of feasible performance indicators, compared to those proposed in Chapter 1, to measure aspects of: poverty reduction; empowerment and participation; institutional arrangements and governance; and financial performance.
Poverty alleviation
The first PC was the only component with an eigenvalue greater than one, and it explained 44 percent of the total variation in the three housing variables. Only two t-tests applied to the group means in Table 3.2 showed significant differences between 2002 and 2004. The total score therefore naively assigns equal weight to each category in the table.
More than half of study schemes fall short of Agri BEE's proposed worker shareholding target. The proportion of employees of directors in the administration of a business entity was over 33 percent in five of the seven schemes, and 14 and 20 percent in the remaining two, respectively. Training quality was measured by workers' understanding of the scheme and certification of the courses.
Schemas with less than 50 percent scored zero on the dummy variable used to assess schema comprehension. In these cases, the proportion of women should be at least proportional to their representation in the company's workforce. In the remaining five schemes, the share of unskilled workers was proportional to their share of the company's workforce.
Five of the seven research projects indicated that employee absenteeism was at or below five percent. Divestments were not used in the scorecard (Table 3.3) because all study programs imposed a five-year moratorium on the sale of shares by employee shareholders.
Financial performance
The use of the leverage ratio is therefore limited to (established) companies with positive equity. As a result, the current ratio calculated at the end of 2003 is far below the recommended norm. None of the projects had declared dividends or paid interest to the workers (interest earned on the SAWn loan accrued to SAWn and not the workers).
In three of the four projects discussed in this dissertation, the employee share exceeded 40 percent of total equity. Financial ratios are a useful means of objectively measuring the financial performance of equity schemes over time. Employee shareholders (including the chairman of the employee trust) were asked questions about skills transfer, the benefits of the share sharing scheme, trust and participation.
The manager and president of the fund were asked questions about institutional arrangements and management in relation to. The total score therefore assigns equal weight to each category in the table. A score of at least 50 percent is recommended if at least half of the indicators are present.
A study of the impact of share capital schemes on beneficiaries in the Western Cape and Mpumalanga. Proceedings of the mini-conference Establishing farm-based equity-share schemes in KwaZulu-Natal: Lessons from USAID's BASIS Research Program, 26 July 2004, Pietermaritzburg, South Africa. Proceedings of Land Redistribution Options Conference, Land and Agriculture Policy Centre, 12-15 October 1993, Johannesburg, South Africa.
Paper presented at the Jubilee Conference of the Economic Association of South Africa, 13-14 September 2001, Johannesburg, South Africa.
QUESTIONNAIRE FOR EQUITY-SHARE SCHEMES
Level of Decisions taken by Board and Manager
Gross operating expenses Total interest paid on debt Total income tax paid Dividends paid on stock Retained earnings. Have there been any major improvements to the farm property since the land was last valued. A workshop was held with prospective shareholders to select a suitable legal entity to represent the workers.
Were worker-shareholders instructed in any of the following topics since the share scheme was first discussed (and/or implemented) with the workers. Please rate the quality of the training received and the last year in which this was carried out. Basic math skills Basic banking skills Training as civil servants Minute skills Basic business management.
Benefits
Ability to influence wages Ability to influence working conditions Secure employment Property ownership Access to electricity Access to health services Building schools Improved roads Access to telephones Paid vacation leave Paid sick leave. Medical fund contributions made by company Unemployment benefits through company contributions to WVF Pension benefits Improved sanitation Access to safe drinking water. Have there been any unexpected downsides for worker shareholders or has any aspect of the scheme worsened over time?
HOUSEHOLD POVERTY QUESTIONNAIRE 2004 - CLIPSTONE FARM
Family The member of the family The number of the member of the duration of the person visited during the last month. Yes No) doctor/clinic in the past month. Has any adult member of the family engaged in paid work, earned a pension or received other social benefits during the period January - July 2004.
