Agricultural Research CouncilAnnual Report 2003 - 2004

Presentation to the Parliamentary Portfolio Committee for Agriculture and Land Affairs

2nd November 2004

• MISSION

– Promote agricultural and related sectors through research, technology development and technology transfer

• VISION

– To be a nationally and internationally recognized center of excellence in agricultural science and innovation

OUR STRATEGY 2000-2003

– Sustainable use of natural resource base and environment

– Competitive agricultural economy– Ensure high quality food– Informed society– Growth and development of South Africa

OUR STRATEGY 2004-2008To form alliances within public-private partnership model; To broaden such alliances; and undertake to contribute to:– Enhance technologies support to sustainable use of

natural resource base and environment– Enhance technologies support to sustaining competitive

agricultural economy– Enhance technologies support to new agribusiness

opportunities especially for resource poor groupings– Enhance technologies support for high quality food– Enhance information delivery to and adoption by our

society– Enhance technologies that support national growth and

development of South Africa

Our contributions for the year 2003/2004Our contributions for the year 2003/2004

Technologies to enhance sustainable use of natural resources.

• The ARC has developed an integrated technology for land capability, use and monitoring that was piloted as management tool in the OR Tambo and Umkhanyakude nodes of the Integrated Sustainable Rural Development Strategy. These tool will be rolled out to other ISRDS nodes, and is provided as support for development planning by local and provincial government.

• Two biological control agents for the control of alien invasive weeds (rooikrans and chromoleana) were approved for release this reporting year.

• Our work on reduced tillage systems has resulted in the publication of guidelines for the production of small grains in the winter rainfall areas that provide firm recommendations on the use of this resource saving technology whilst maintaining yields.

• New fertilizer guidelines for maize on specific soils, that employs new methods of taking soil samples have been published.

Technologies to enhance sustainable use of natural resources.

• The collection of germplasm resources continues to be expanded, and a database of indigenous legumes has been established. This widens the source of material that can used to develop new crops and forages.

• A new participatory impact monitoring tool empowers farmers to manage their natural resources and evaluate their Land Care projects with minimal external assistance

Technologies to sustain a competitive agricultural economy.

Significant breakthroughs have been achieved by the ARC in enabling South African produce to compete on world markets, and these include:

• The accreditation by the USDA of the reliability of a methodology to identify mealybug species that prohibit the importation of citrus products to the US market.

• The release of a technology (Smartfresh™) to increase the shelf life of avocados for export.

• The establishment of a dedicated laboratory to screen cattle for the presence of transmissible bovine spongiform encephalopathy (BSE or mad cow disease). This support enables the continued export of meat to the European Union and other countries that are concerned about the possible spread of BSE

Technologies to sustain a competitive agricultural economy.

At a domestic level, the ARC continues to provide South African farmers with improved materials for primary production in the form of advanced food and forage crop varieties, advice on the superior breeding lines for livestock improvement programmes.

In the year under review the ARC acquired 27 plant breeders rights for products developed under its programmes, and released 26 cultivars.

The ARC continues to develop its capacity to utilize the techniques of modern biotechnology to provide rapid avenues for the resolution of technical challenges that conventional methods cannot match. We are active participants in the BRICS established by the DST, and contributed extensively to the Agricultural Biotechnology Strategy developed by the DoA during this reporting year.

Technologies to support new Agribusiness opportunities – especially amongst the resource poor.

We have applied great effort to align the outputs of our programmes to the needs of resource poor farmers.

Our primary focus has been the provision of support to the Integrated Rural Development Programme driven by local and provincial governments, and conducted through making data and information available to stakeholders. These activities include:

1. The provision of planning and monitoring information on the use of the resource base.

2. The enhancement of the technology transfer activities of the ARC in terms of interactions with farmers who were previously ignored by state funded R&D agricultural research programmes.

3. The delivery of products that take into account the constraints faced by emerging commercial farmers – but provides the base material for their growth and development

Technologies to support new Agribusiness opportunities – especially amongst the resource poor.

Highlights of delivery 2003/41. The Grain and Industrial Crops Division has experienced the first rewards of

a conscious acceleration of the development of open pollinated maize varieties developed in an empowerment framework that recognizes and protects local knowledge, and adds the resources of globally funded public research knowledge. Through this action a group of rural women in Mbaella (Limpopo Province), have developed a maize variety (that out-performed their neighbours in a dry year), and the capacity to produce quality seed for the area.

2. The Public Support Services Division is providing technical support to the Government of the Limpopo Province for the re-habilitation and transfer of five state owned irrigation schemes to farmers from previously disadvantaged communities.

3. The Livestock Services Division is contributing to the implementation of an integrated livestock and crop production programme in the Eastern Cape that is recording significant advances in the quality of wool produced – through the application of relatively simple management actions.

Technologies to support new Agribusiness opportunities – especially amongst the resource poor.

Highlights of delivery 2003/4

4. The Horticulture Division continues to provide this sector with supporting research, and materials that support the utilization of indigenous plants for commercial opportunities.

In all of these endeavours, the management of the ARC works as team and has utilized the Sustainable Rural Livelihoods Division for the purpose of establishing and strengthening our contact with previously unheard stakeholders that require our input and support.

Technologies to support the availability of high quality food.

The globalization of the supply of food has brought about concerns related to the safety and nutritional value of the food consumed by our people – from the perspective of direct imports and from the perspective of enabling the proper storage of locally produced surpluses that need to be stored.

The ARC has – within the year being reported on – been proactively engaged with, and delivered on the following:

1. Developed appropriate technologies to reduce the moisture content of grain crops stored in traditional drying huts used by farmers in the Lusikisiki district of the Eastern Cape Province. This technology reduces the opportunities for the development of fungal growths on the grain that may have a causal effect on the development of various cancers that are prevalent in that part of the country

2. The further development of tests that detect the presence of viral/bacterial pathogens in meat and milk products – that can ultimately infect human beings.

Technologies to support the availability of high quality food.

Apart from the prevention of infective diseases that can affect human beings, the ARC is actively involved in projects that are aimed at improving the nutritional quality of available food, and expanding the base of affordable foods available to our people.

Delivered products include:

a. The availing of “clean” - yellow fleshed sweet potato varieties that contain significantly enhanced levels of vitamin A and iron in their leaves – that can be used as a nutritional supplement for pregnant and/or lactating mothers.

b. Nutritional supplements that improve the ability of the human gut to absorb basic food substances that have been “denatured” through processes of refinement to meet taste and/or preparation requirements.

Developments in the pipeline include a contribution to the implementation of the traceability, and the labeling of food products.

Technologies to support the availability of high quality food.

Apart from the prevention of infective diseases that can affect human beings, the ARC is actively involved in projects that are aimed at improving the nutritional quality of available food, and expanding the base of affordable foods available to our people.

Delivered products include:

a. The availing of “clean” - yellow fleshed sweet potato varieties that contain significantly enhanced levels of vitamin A and iron in their leaves – that can be used as a nutritional supplement for pregnant and/or lactating mothers.

b. Nutritional supplements that improve the ability of the human gut to absorb basic food substances that have been “denatured” through processes of refinement to meet taste and/or preparation requirements.

Developments in the pipeline include a contribution to the implementation of the traceability, and the labeling of food products.

Technologies to support national growth and development.

We in the ARC see our future as being inextricably linked with the broader development of inter-regional trade within the continent of Africa, and the maintenance of the ability of this continent to deal with artificial barriers to extended trade.

1. It is for this reason that we continue to maintain a capacity for, and a commitment to research and technology development capacity that enables South Africa’s agricultural sector to deal with outbreaks of new diseases – or new variants thereof – that are not endemic to South Africa, but can affect the ability of the agricultural sector to provide a platform for economic growth.

2. We work towards this objective in concert with the DST and the DoA, towards the achievement of this objective, and have been pro-active in establishing the necessary, dedicated capacity within the ARC to build future income streams for the organization, that will enable the ARC to do more.

3. The newly established - Business Development and International Relations Division – has been instrumental in the development of formal contracts and/or memoranda that ensure that the business of the ARC is protected

Technologies to support national growth and development.

Within the reporting period – reviewed – this Division has enabled the conclusion of Memoranda of Agreement between the ARC and the Development Bank of South Africa, and the Provincial Department of Agriculture – Limpopo Province, that establishes the nature of future interactions between the ARC and its stakeholders

The contribution of the support services –, Human Resources and Development

• Organizational Architecture

• The ARC transformed their business into eight Business Divisions.

• ARC commenced with a process to align its organizational design to this newly formed Business Division.

• Involved processes of consultation and communication with clients, internal staff and organized labour.

• A strong focus in 2003/4 was the conclusion of the various management layers in the Business Division.

The contribution of the support services –, Human Resources and Development

• Employment Equity• Marginal progress towards positioning the ARC as a truly South

African organization, due to financial constraints and limited opportunities to capitalize on diversity.

• Primary challenges still remain, Middle-management and core-business levels (Researchers/Technicians).

• ARC succeeded in maintaining positive appointment patterns with 75% appointments black and 60% female.

• The Dept. of Labour have also Gazetted the ARC as an organization who submitted and complied with Employment Equity Legislation.

Agricultural Research Council

An Overview of Financial Performance

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Highlights 2004 2003

Total Income (Rmillions) 507.8 516.6

Total Expenses (Rmillions) 501.4 479.2

Debtors Collection period (days) 80 77

Current ratio 1.11 : 1 1.48 : 1

Total Assets (Rmillions) 546.7 542.0

Employees (number) 2525 2652

Debtors Collection period: The debtors collection period has remained stable and is reasonable for the agricultural industry which is seasonal.

Current ratio: This is an indication of the ARC liquidity, and shows that our current assets cover the current liabilities 1.11 (2003: 1.48) times.

Report of the Auditor-General for the year ended 31 March 2004

• Audit Opinion– Audit of financial statements – Unqualified– Audit of performance information – Qualified -

the measure of performance against predetermined objectives.

The Balanced Scorecard was finalised too late in the financial year to be audited. (extract attached)

Balanced Scorecard ExtractAgricultural Research Council

Balanced Scorecard 2004-2005MANAGING OUR FINANCES TO MEET OUR MANDATES

 Measurable

ObjectiveCritical Success

FactorKPI

Benchmark OR 2003/4

projected actual if greater

Target

F1-F5

To ensure that the ARC is sustainable

Contract Income funding

(Key target # 6.2.a)

Amount of Contract income generated

R222million R 253million

F6

% coverage of the Total Costs through contract income

41% 42%

F8

Continued financial

support from the

government

% Allocation of funds to projects in support of national priorities

Not measured 70%

F7 Grant funding

Amount of unencumbered grants attracted to ARC

Not Measured R25 million

F9

Collection of fees and grants due to the

ARC

% not transferred or not paid Not measured 5%

Income

2004(Rmillions)

2003(Rmillions)

Parliamentary Grant 276.140 267.552

External earnings 212.252 233.445

Deferred income 5.170 5.607

Interest received 13.955 9.568

Profit on sale of property, plant and equipment

0.267 0.461

TOTAL INCOME 507.784 516.633

Expenses

2004(Rmillions)

% 2003(Rmillions)

Total Salary cost 284.228 7.8 263.630

Other operating costs 199.001 2.2 194.694

Depreciation 18.193 -13.1 20.957

TOTAL EXPENSES 501.422 4.6 479.281

Income Sources

0

50

100

150

200

250

300

Income source

R'millions

2004

2003

Parliamentary grant vs External earnings 2004

External Earnings, 43%

Parliametary grant, 57%

Parliamentary grantExternal Earnings

Parliamentary grant vs External earnings 2003

Parliamentary grant53%

External Earnings47%

Parliamentary grantExternal Earnings

Balance Sheet

2004 2003

Assets– Non-Current

– Current

376.5

170.1

386.0

156.0

Total Assets 546.6 542.0

Liabilities– Non-Current

– Current

215.3

152.8

264.5

105.4

Total Liabilities 368.1 369.9

Capital and Reserves 178.5 172.1

Total Equity and Liabilities 546.6 542.0

Assets

Land & buildings94%

Motor vehicles0%Computer equipment

1%

Plant & equipment5%

The ARC Asset base consists of:

Land and Buildings R354 790 827

Plant and Equipment R17 683 800

Motor vehicles R633 880

Computer Equipment R2 574 711

The limitation of funds has unfortunately had a negative impact on our capital expenditure planning with a result that the majority of our assets are past their useful lives and the maintenance costs are putting our maintenance planning under strain.

Application of Financial Resources to the ARC goals

ARC Goals

Parliamentary AllocationR million

External IncomeR million

ARC Total R million

Actual 2004

Actual 2003

Actual 2004

Actual 2003

Actual 2004

Actual 2003

Natural Resource Use and Management

71 62 56 49 127 111

Quality of life 42 44 33 39 75 83

Competitiveness 95 96 80 93 175 189

Informed Society 23 25 15 25 38 49

Integrated Rural Development

45 41 28 29 73 69

Total 276 268 212 234 488 502

Total Income vs Infrastructure

Use of infrastructure

2004

ActualR million

2003 2002 2001 2000

ActualR million

ActualR million

ActualR million

ActualR million

Total Income (excluding deferred income)

503 511 477 451 432

Productive infrastructure 463 466 468 544 545

Land and buildings at cost 442 442 439 512 510

Moveable assets at book value 21 24 29 32 35

Relationship 108.6% 109.6% 101.9% 83.9% 79.3%

The relationship between income and infrastructure shows how the infrastructure invested has not shown any growth and is steadily declining as the infrastructure is aging. This poses a problem as it is becoming progressively more difficult to utilise the old infrastructure to generate and grow our income.

Audit Report Performance

Matters emphasised in the Auditor-General report 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004

Legislative compliance x x   x x

Forensic investigations x        

Internal control x x x    

Provision for post-retirement medical aid benefits x x      

Pension fund contributions x        

Transfer of land and buildings from the state x x      

Going concern x x x    

Depreciation and impairment of land and buildings   x      

Performance information     x x x

 

Financial statements - unqualified opinion yes yes yes yes yes

Review of the matters raised in the Auditor-General Reportsfrom 1999 till 2004

Thank You

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