ANNUAL REPORT 2004/05

TITLE OF PROJECT

Development of Small-Scale Aquaculture Farming Systems: Western Cape

to

Technology for Poverty Reduction Programme Department of Science & Technology (DST)

by Division of Aquaculture, University of Stellenbosch

Hands-

on behalf of

on Fish Farmers Co-operative

May 2005

2

1. TITLE OF PROJECT Development of Small-Scale Aquaculture Farming Systems: Western Cape

2. EXECUTIVE SUMMARY 3. INTRODUCTION The rural communities are often characterised by factors such as poverty, malnutrition, low levels of education and rising unemployment. Although these communities form the basis of the agricultural labour force, high levels of unemployment (35-40%) prevail amongst them. The labour requirements of the agricultural sector are often seasonal in nature and therefore offer mainly temporary employment to these communities. This contributes to the social instability and lack of development amongst these communities. The initiative to establish sustainable small scale fish farming units in rural areas of the Western Cape was launched during 2004/05 by the Division of Aquaculture, Stellenbosch University, with the assistance from the Department of Science and Technology and the Private Sector.

The objectives of the Project are: • the improvement of the standards of living in rural communities with regard to the per

capita income, the nutritional status and human resource (skills) development; • the provision of opportunities to participate in the regional and national economy

through the creation of jobs and access to small scale business enterprises; • the sustainable supply of affordable high quality animal protein to rural communities; • the sustainable utilisation of resources such as human, water, raw materials and

infrastructure to the benefit of these communities. The project is targeting in particular unemployed women and youth.

4. OVERVIEW OF PROJECT (ENTIRE) South Africa possesses a well-developed agricultural infrastructure network in terms of roads, electricity- and communication networks, irrigation systems, organisational capacity and support services. Various communities have however been denied the opportunity for participation in the agricultural economies of South Africa during the previous political dispensation. This was mainly due to a policy and economic framework that has limited access to land and capital, as well as the development of human skills amongst these communities. The current socio-political redress of this situation is complicated by the capital requirements in order to obtain significant land reform and ownership by these disadvantaged rural communities.

Aquaculture does however provide an opportunity to these communities to participate in the local and regional economies, without the ownership of land being a primary prerequisite. This refers to the establishment of small-scale fish farming units on existing irrigation dams, without land transfer or ownership being required. In this event though, farming rights are to be secured by legal agreement.

3

South Africa enjoys variable patterns of rainfall over different regions of the country, such as the winter rainfall of the Southwest and the summer rainfall of the Central, Eastern and Northern regions. This has necessitated the development of an elaborate network of irrigation systems, in terms of storage and distribution, throughout the country. For example, more than 3000 private and state owned dams with a minimum capacity of 50 000m3 and a depth of 5m, are currently registered with the Department of Water Affairs and Forestry. This represents a total of more than 60 000 hectares of water of which a high percentage could be used for aquaculture. Many more dams that do not require registration are also suitable for aquaculture.

These dams can be utilised for the intensive production of a wide range of fish species including trout, catfish, carp and tilapia. For example, the number of registered dams (>2000) in the Western Cape Province, constitute a combined sustainable potential production capacity of 8 000 tons of fish per annum. This amounts to the per capita fish consumption of 2.5 million South Africans. The initial objective is to establish a network of 30 small-scale fish farmers in this area producing food and additional income for their respective local communities. The potential is there to extend this concept into other provinces of S.A. as well as into neighbouring countries of the Southern African region. 4.1 OPERATIONAL STRUCTURE The following operational structure has been established to facilitate the development, implementation and management of the Small Farmer Program:

Operational Structure of Small-Scale Aquaculture Farming Project

P P P P

Hands-On Fish Farmers Co-operative Limited

Hatchery and Fingerling Supplies Division of Aquaculture + Three Streams Trout Hatchery

ManagementExtension

and Training Services Division of

Aquaculture &

Linge Lethu Business Support

Small Farmer roduction

Units (6 tons)

Th

Small Farmer roduction

Units (6 tons)

Processing & Maree Streams Smokeh

Small Farmer roduction

Units (6 tons)

rketing ouse Pty Ltd

Small Farmer roduction

Units (6 tons)

Financial & Admin

Services NewFarmers

& IFAMA

Board of Directors (x7)

Executive Committee (x3)

4

4.2 PARTIES INVOLVED / OPERATING PARTNERS The Division of Aquaculture, NewFarmers and IFAMA (Independent Financial and Management Accountants) have taken the lead to initially structure and help Hands-on become operational.

A crucial aspect of the programme is that a qualified individual is employed to manage Hands-On and to provide support and technical advice to the projects. Mr Henk Stander, Trout Programme Manager of the Division Aquaculture, has been seconded since 2004, to Hands-On as its CEO and to provide the required support and extension services. Mr Stander has extensive experience in aquaculture and also holds an M.Phil degree in aquaculture.

4.2.1 Division Aquaculture of the University of Stellenbosch The Division of Aquaculture is responsible for:

Technical identification, assessment and approval of sites. Training and technical assistance. Supply of fingerlings. Strategic advice, networking.

4.2.2 NewFarmers Development Company (Pty) Ltd NewFarmers is a private sector investor already involved in the aquaculture industry with a responsibility towards:

The provision of loan finance (R1.5million-R4.5mllion) to hands-on Fish Farmers Co-op.

The design BEE organisational and financial models. Strategic advice, networking.

4.2.3 Three Streams Three Stream Smokehouse is a leading processor of high value trout products with a responsibility towards:

Processing and marketing of products in accordance with a marketing off-take agreement for Hands-on.

Supply of fingerlings. Provision of quality control protocols and training.

4.2.4 AquaNutro AquaNutro is the leading manufacturer of aquafeeds in South Africa and responsible for the provision of fish feeds and technical services to the small farmers.

4.2.5 IFAMA (Independent Financial and Management Accountants) IFAMA is responsible for:

The design and implementation of financial and administrative systems for Hands-on.

The management the day-to-day financial administration. The provision of financial management information services to Hands-On Co-

op and its members.

5

4.2.6 Linge Lethu Business Support Linge Lethu is a local NGO specializing in business training and development, working in conjunction with Woord-en-Daad, a Dutch aid and development agency, with a responsibility towards:

Skills and business training. Provision of project finance to Small Farmers.

4.2.7 Hands-On Fish Farmers Co-operative Limited Hands-On Fish Farmers Co-operative has been established as an operational legal business entity, with a responsibility towards its members (small farmers) regarding:

The establishment and maintenance of sound and accountable administration, legal and management systems within Hands-on Co-op.

The provision of infrastructure to members in form of cage farming units and auxiliary equipment.

The procurement of loan finance and credit facilities for members to provide for operating costs.

The arrangement and administration of purchase agreements, marketing agreements and services on behalf of its members.

Hands-on Fish Farmers Co-operative is managed by: • A Board, seven members, with the chairperson and a majority of four

members being representatives of the small farmers themselves. • An Executive Committee, reporting to the Board, consisting of three

members, including the vice chairperson of the Board. • A full time Manager, who is also a member of the Executive Committee.

4.2.8 National, Provincial and Local government • National government is providing input through the Technology for Poverty

Reduction Programme, Department of Science & Technology. • The Provincial government that has been approach to support the project

through the Department of Agriculture Emerging Farmers Support Systems. • The Local authority, Cape Winelands District Municipality, that is supporting

the project through various initiatives, including the identification of new projects.

The operating structure has become fully functional during the 2004/05 financial year and all systems are in place to secure sound and accountable technical, administrative and business practices. All parties are making an essential contribution to the establishment and implementation of the Small Farmer Program. Business is conducted in accordance with free market principles and none of the business activities of small farmers are subsidized in any. The business model will ensure that a viable Co-op with sustainable members will be established during the initial three year period.

6

5. PROGRESS/ DEVELOPMENT OF PROJECT SINCE INCEPTION The Project has made significant progress during the course of 2004/05 that can be summarized in terms of:

5.1 BUSINESS DEVELOPMENT 5.1.1 A legal business structure has been established in the form of the Hands-on Fish

Farmers Co-operative Ltd (Reg.no. 2420) with 15 affiliated members (small farmers). 5.1.2 Detailed operational structures have been established within the Co-op in

accordance with its Statute, including: full time management (CEO), a Board of Directors, and Executive Committee, and procedures for the application of membership, loans, credit, purchase, sales, etc.

5.1.3 Loan Capital Agreements has been secured by Hands-on Co-op on behalf of its members, i.e. NewFarmers Development Company (R1.8million), Linge Lethu Business Support - NGO (R150 000).

5.1.4 A long term Market Uptake Agreement has been secured by Hands-on Co-op with Three Streams Smokehouse to the amount of 200 tons, i.e. R5.0 million per annum.

5.1.5 Statutory Approval for 18 small farmer units has been secured and appropriate legal business structures, i.e. farm worker trusts, lease agreements have been established.

5.1.6 A total of 14 Small Farmers will be operational in 2005, with an addition of 10 per year in 2006 and 2007.

5.1.7 An independent assessment of the operating structures of the Co-op has been concluded under the auspices of the World Bank, with a positive outcome and recommendations.

5.2 BUSINESS TRAINING 5.2.1 Comprehensive Technical Training Program has been developed an implemented –

28 small farmers have received first level technical training, 1st and 2nd level training will commence this year. SEDA accreditation will also be obtained during 2005.

5.2.2 Skills and Business Training has been outsourced to Linge Lethu Business Support NGO, at no additional costs and will commence this year.

5.2.3 Directors Training has also been provided to small farmers elected onto the Co-op’s Board.

5.3 BUSINESS SUPPORT 5.3.1 A comprehensive Extension Service Program have been implemented which include

regular visits to individual small farmer units and assistance with production planning, management, monitoring and training.

5.3.2 Legal and Administrative Services and Statutory Assistance are provided to the Co-op and small farmers.

5.3.3 Assistance with Marketing, Branding, Food Safety and Quality are provide to the Co-op/members. “Fair Trade” and “Home Grown” initiatives will be launched in 2005.

5.3.4 Assistance is provided with the Development of Infrastructure.

7

In general the Project is progressing well and is receiving good support from National, Provincial and District Council authorities, whilst the Private Sector is also engaging in constructive partnerships regarding finance, marketing and services. 5.4 ACHIEVEMENTS/MILESTONES (KEY DEVELOPMENTS)

The most important/significant milestones to date are: 5.4.2 The formation, structuring and operationalisation of Hands-on Fish Farmers Co-op:

This process entailed the preparation of a series of essential agreements and contract in order to secure operational rights, legal rights and financial securities, including: - Loan agreements between Hands-on and NewFarmers and Linge Lethu, - Loan/credit applications between Hands-on and individual members, - Lease agreement of equipment between Hands-on and individual members, - Formation of Legal/business entities to hold the rights of small farmers/communities, - Lease agreement for access to dams between land owner and small farmers, - Supply agreements between Hands-on and fingerling and feed suppliers, - Marketing agreements between Hands-on and preferential supplier/processor, etc.

5.4.2 The procurement of private sector funding for capital requirements of the Co-op and operational requirements of the members (Small Farmers): - NewFarmers Development Company is providing loan capital to Hands-on in the

amount of R685 000 (infrastructure) and R815 (operating finance) for 2005/06, with the option to extend.

- Woord-en-Daad/Linge Lethu Business Support is providing loan capital to Hands-on in the amount of R150 000 for 2005/06, with the option to extend.

- Cape Winelands District Municipality has made available an amount of R120 000 to Hands-on Co-op to provide essential farming equipment to the small farmers.

- Standard Bank, Agricultural Finance Division, is considering a co-finance arrangement with NewFarmers, in support of the project.

5.4.3 The conclusion of a long term preferential supplier/marketing agreement between Hands-on and Three Streams Smokehouse, in relation to the supply of 200 tons of trout per annum.

5.4.5 The external assessment of the operating model and management systems of Hands-on Co-op by and independent assessor in association with the World Bank: - Dr. Henry Wiggins, and independent agricultural economics consultant, was

contracted by the World Bank, in consultation with Hands-on Co-op to assess the proposed operating model and management systems of the Co-op. A positive report was received of which all the recommendations have been accepted for implantation.

5.4.6 The implementation of the first 12 small farmer projects that involves a 9-step procedural protocol for each of the projects, starting with statutory approval of the project through to the structuring of beneficiation in a community trust.

8

5.5 DIFFICULTIES ENCOUNTERED AND SOLUTION The most common difficulties that were encountered can be summarized as:

5.5.1 Complex statutory, legal and financial arrangements that is required for each project/group of beneficiaries, which were the cause of costs and time delays. Solution: A standard series of procedures, contracts and agreements have been developed that meet the approval of all of the interested and affected parties, thereby reducing the effect on the implementation of new/additional projects.

5.5.2 Initial training levels and methodology might have been too high given the level of education of participating small farmers. Solution: The training objectives and methodology has been reviewed, whilst the entry requirements for trainees has been set at Grade 12.

5.5.3 Problems have been experienced with the primary processing and storage of fish through contracts with 3rd party service providers. Solution: A process has been initiated to develop the required pre-processing capacity within the ambit of the Co-op, in partnership with an experienced private sector partner.

5.5.4 The structuring of participating/beneficiary groups on the farms proved more complicated than expected. Solution: A model has been developed with the intervention of the World Bank that makes provision for the inclusion of essential components (land owner/farm management, workers/small farmers, communities) in an expectable and flexible model of beneficiation.

5.6 GROUPS (NUMBER OF SUB-PROJECTS). A summary of Small Farmer Projects that has been established during 2004/05:

No Project Name District Beneficiaries M F Y D Status 1 Golf Course Worcester Worcester Trout cc 2 1 Established 2 Cape Olive Paarl Unlimited Olive Peoples Trust 29 10 9 Established 3 Nitvoorbij Stellenbosch Akwa Trio cc 4 4 Established 4 Rustenberg Stellenbosch Rustenberg Farm Workers Tr 4 1 Established 5 Dennegeur – Remhoogte Grabouw Youngstars Fishy Trust 15 Established 6 Dennegeur – Linquenda Grabouw Youngstars Fishy Trust 15 1 Established 7 Dennegeur – Duiwelskloof Grabouw Youngstars Fishy Trust 15 Established 8 Dennegeur – Kromrivier Grabouw Youngstars Fishy Trust 4 5 6 Established 9 Applegarth Grabouw Applegarth Community Fisheries 14 15 3 Established 10 Glenelly Stellenbosch Glen Valley community Fisheries 7 5 3 Established

New Project (2005 -2006) 11 Koelenhof Stellenbosch To be finalized Applied 12 Graham Beck - 3 Franschoek To be finalized Applied 13 Wysserdrif Rawsonville To be finalized Applied 14 Applethwaite – Dam A Grabouw To be finalized Applied 15 Applethwaite – Dam B Grabouw To be finalized Applied 16 Applethwaite – Dam C Grabouw To be finalized Applied 17 Eikenhof - Grabouw To be finalized Applied 18 Koekedou - Ceres To be finalized Applied

9

19 Monteith – Transpalmiet Stellenbosch To be finalized Evaluated 20 Monteith – Dam 13 Stellenbosch To be finalized Evaluated 21 Montheith – Kromrivier Stellenbosch To be finalized Evaluated 22 Laastedrift Ceres To be finalized Evaluated 23 Kleinmêrewag - Klipheuwel To be finalized Evaluated 24 Plasir de Merle Drakenstein To be finalized Evaluated

M = male, F = female, Y= youth, D = disabled

6. PROJECT ACTIVITIES 6.1 TRAINING The first Technical Training Course (Level 1) was presented in August 2004. A total of 28 participants attended the course. The objective of the course was to equip the trainees with all the necessary skills and some hands-on experience of fish farming, to enable them to make a success of their respective projects. The course also provided an opportunity to transfer the skills and experiences of the Aquaculture Division on fish farming, to endow the participants with specialized knowledge of relevant subjects and practical techniques used in field through theoretical studies and practical training during the course. The course is multi-disciplinary in nature and covers all the essential technical aspects of fish farming. The approach is practical-oriented so as to provide participants with hands-on experiences. The course also deal with the main issue of the establishment of sustainable aquaculture systems with low input and high output which can achieve the long-term goal of economic sustainability. Completion of the course is also a prerequisite for farmers to participate in projects and to obtain finance from the Co-op. A second Level 1course will be presented from 19 to 21 July 2005for all new entrants.

6.2 WORKSHOPS A one-day Workshop on Processing & Product Quality together with Business Management is scheduled for the second half of 2005. This workshop will provide Level 2 training and is compulsory for all the existing farmers. 6.3 HANDOVER CEREMONIES Various handing over ceremonies were held during the year, including: 6.3.1 Handing over of certificates to students on completion of the Level 1 Training

Programme, during their effort in attending and completing the course was acknowledged (Appendix A). A total of 28 students completed the firs Technical Training Course in August 2004 and received their certificates at the ceremony. The course for this year is scheduled for 19 to 21 July 2005.

6.3.2 Hand-over ceremony of the financial support from Woord-en-Daad / Linge Lethu Business to Hands-on to the amount of R150 000 for 2005/06, with the option to extend (Appendix A).

6.3.3 Signing of the Loan Agreement between Hands-on and NewFarmers Development Company to the value of R1.5million rand.

10

6.3.4 Signing of the Supply Agreement between Hands-on and Three Streams Smokehouse to the value of R1.5million rand

6.3.5 Visitation from Mr. Derek Hanekom, the Deputy Minister, Department of Science and Technology in February 2005.

7. PROJECT OUTPUTS

7.1 HUMAN RESOURCE DEVELOPMENT

The following outcomes in terms of human resource development have been achieved during the year 2004/05.

Job description Status No. Project manager Full time/Contractual x1 Extension officer Full time/Contractual x1 Consultant (Statutory Approval) Part time x2 Administration Part time x1

Direct Jobs Small Farmers Full time/self employed x10 Small Farmers assistants/workers Part time/Employed x15

Indirect Jobs Fish processing Permanent/Full time/Part time x8 Contractor/Cages manufacturing Part time x8 Manufacturing/Nets & equipment Full time x1

In addition to this capacity has also been developed in terms of water quality monitoring, training and extension services, quality control and project management.

7.2 INFRASTRUCTURE AND EQUIPMENT In total 8 new cage farming systems to the value of R865 000 have been constructed and commission as new farming units. General fish farming equipment such as nets, graders, weighing apparatus, harvesting and transport containers to the value of R120 000 has also be acquired by the small farmers. In various instances the small farmers have participated in the construction and manufacturing of infrastructure and equipment in order to save on related expenses. Savings of up to R30 000 has been attained in some projects, to their own benefit.

8. PROJECT OUTPUTS 8.1 The objective of establishing an operational business entity, i.e. Hands-on Fish

Farmers Co-operative, capable of rendering efficient services and accountable administration has been achieved. A large amount of legal, organisational, structural and operational inputs were made in this regard, from which a lot of new projects and initiatives stand to benefit. In kind services to an estimated value of R100-R120 000 were rendered by various professional entities, i.e. attorneys, economists, financiers and business managers.

11

8.2 A total of 8 new projects have been established, close to the initial target of 10. The shortfall of 2 projects was caused mainly by a delay in the statutory approval of the projects by the Department of Environmental Affairs & Tourism as well as the late release of funding by NewFarmers due to legal requirements. Provision has been made to accommodate the backlog in the expansion of the programme in 2005/06.

8.3 A total 28 small farmers have been trained and obtained practical experience through the course of the year with regard to production and business management. A lot of flow up work in the sense of further training and business mentoring will be required over the next two years to prepare them for eventual independence. Apart from skills development and job creation on the human resource side, the Hands-on Co-op should market 50 tons more trout than the previous year, at the end of the production season if everything goes to plan.

8.4 The first produce of 50 tons of trout, to the value of R1.25 million, were harvested by the small farmers and marketed by the Co-op, of which the proceeds have been disbursed to the respective small farming entities and their beneficiaries.

9. FINANCIAL REPORT

9.1 INPUT/EXPENDITURE (inception year – 2004/5) The respective inputs/expenditures for the year 2004/05 have been reported in detailed quarterly reports and can be summarized as:

Quarter Amount Quarter 1 R 97 000 Quarter 2 R 405 000 Quarter 3 R 306 000 Quarter 4 (projected) R 92 000

Total Actual Expenditure R 808 000 Total Projected Expenditure R 900 000 Total Expenditure R 900 000

10. OUTPUT/PROFIT A total of 52 tons of trout has been produced by the participating small farmers and harvested, processed and marketed by the Co-op on their behalf. An expected net profit in the range of R10 000 to R15 000 per project (after salaries, interest & taxes) is expected to be declared on final balancing of the individual project accounts. The profit margin is expected to increase to R40 – R50 000 from year two onwards due to capital repayment requirements of individual project in year one. The financial structure of the business (Co-op) has also been amended to reduce the initial capital commitment of projects from R70-R80 000 in year one, to R14-R15 000 per year over five years. Attention has also been given to differentiate between beneficiaries according to their respective inputs, for this purpose beneficiaries are broadly categorized in terms of “Direct beneficiaries”, i.e. those individuals that are contributing directly to the project in

12

term of responsibility, work management and administration and “Indirect beneficiaries”, i.e. those individuals that are contributing directly but are benefiting from the proceeds/profits. This was done to provide managerial incentives and to acknowledge disproportionate inputs, the application of which was done in full participation of the respective interest groups, also varying on a case by case basis. 11. CONCLUSION All role players have committed and applied themselves to the project in a manor that has contributed to the immense progress that has been made over the past year. Of particular interest is the development of operational, administrative and managerial structures and procedures that ensure efficient and transparent financial and managerial practices. Important experience have also been gained on all levels of operations an management, from the small farmers themselves through to the Board of Hands-on Co-op. Important levels of participation has also been secured from national, provincial to local government, as well as private sector partnerships in terms of services, marketing and finance.

Importance lessons have also been learned in relation to strategic and time management (statutory approval processes), financial management (in particular cash flow requirements), quality control and skills development. These issues have been addressed which should prevent a recurrence in future years. A good foundation is laid and the project should go from strength to strength in the next few years and build on all the hard work that was being done over the past 12 months.

Future business strategies have also been addressed and the development of pre-processing capacity by the Co-op has been identified as a priority over the short term, in order to add value and maintain control over product quality. Steps are already in place to put that in place for 2005/06. 12. ACKNOWLEDGEMENTS The Division Aquaculture would like to acknowledge, on behalf of Project, the contributions of the following project partners in particular: • Technology for Poverty Reduction Programme, Depart. of Science & Technology • Faculty of Agriculture and Forestry Sciences, Stellenbosch University • NewFarmers Development Company (Pty) Ltd • Three Stream Smokehouse Ltd • Woord-en Daad / Linge Lethu Business Support • Cape Winelands District Municipality • The Board, Hands-On Fish Farmers Co-operative Limited • Independent Financial and Management Accountants (IFAMA) • Participating Land Owners (Applegarth, Dennegeur, Graham Beck, Rustenberg,

ARC, Glen-Elley, Remhoogte, Cape Olive) • Local Councils (Worcester & Ceres Municipalities)

13

A t

A s

Pro

MeApp

APPENDIX A: Photo Essay of farming systems and activities

ypical small scale farming system Henk Stander during a workers training course

mall farmer attending to managerial tasks Fish farmers busy harvesting their first crop

cessing at Three Streams Smokehouse Premier. Ebrahim Rasool (Western Cape) and Minister

Fransman (Social Services & Poverty Alleviation) attending a harvest session with the Cape Olive People Trust project

mbers of the Management Committee of the Members of the Hands-on Board meeting with legarth Community Fisheries Trust the Dutch Agency, Woord-en-Daad