“My business supplies fresh produce to a large retail food chain, who expects us to remain BEE compliant at all times. What impact will the recently amended Agri-BEE Sector Code have on my business and my ability to remain BEE compliant?”
The Amended Agri-BEE Sector Code of Good Practice (“Agri-BEE Code”) was gazetted on 8 December 2017 and is effective immediately. The Agri-BEE Code expressly states that its targets are based on those contained in the Amended B-BBEE Codes of Good Practice (“Amended BEE Codes”), as well as on stakeholder inputs, comments and recommendations. Where no substantive reasons for deviation from targets contained in the Amended BEE Codes were put forward by stakeholders, targets have mostly remained aligned with those contained in the Amended BEE Codes. Here are some important deviations by the Agri-BEE Code from the Amended BEE Codes:
The entity classifications remain the same as in the Amended BEE Codes. An enterprise with an annual turnover of less than R10 million is classified as an EME, an enterprise with an annual turnover of more than R50 million is classified as a Generic entity, and entities in between are classified as QSE’s. EME’s and QSE’s which are at least 51% black owned automatically qualify as Level 2 contributors. However, where the Amended BEE Codes provides for the automatic elevation of an entity with 100% black ownership to a Level 1 contributor status, the Agri-BEE Code has reduced this threshold to allow entities with 75% or more black ownership to automatically qualify as a Level 1 contributor. Such Level 1 or 2 status can be obtained through a sworn affidavit confirming annual total revenue and percentage black ownership.
The targets and point allocation of the first three scorecard elements under the Agri-BEE Code, namely Ownership, Management Control, and Skills Development are essentially identical to those in the Amended BEE Codes. The Ownership target remained at 25% + 1 vote and 10% respectively for black ownership and black women ownership. The Skills Development element does however contain the additional requirement that at least 85% of the total recognised skills development expenditure must be on scarce and critical skills.
The priority elements are also identical to the Amended BEE Codes, with Generic entities having to comply with all three priority elements, and QSE entities having to comply with the Ownership element and either the Skills Development or Enterprise and Supplier Development element in order to avoid being discounted by one level.
There have been appeals that the Department of Trade and Industry should be more flexible with compliance with the three priority elements and also the Socio-Economic Development as a fourth criterion, to allow QSE’s to choose any three out of these four elements.
Despite the Socio-Economic Development not being a priority element, it has received additional emphasis under the Agri-BEE Code. Unlike the target of 1% of an entity’s net profit after tax contained in the Amended BEE Codes, the Agri-BEE Code has a higher target of 1.5% of the entity’s net profit after tax. This element also counts for 15 points on the Agri entity’s BEE scorecard as opposed to only 5 points under the Amended BEE Codes scorecard.
A major change relates to the target for Supplier Development, which has been increased to 3% of the entity’s net profit after tax. The Minister of Trade and Industry has indicated that the aim hereof is to create a pipeline of black suppliers and black industrialists within the value chain of the South African agricultural industry.
Because of the higher target for Supplier Development, which aims at creating black suppliers, the target on the Procurement sub-element allocated to procurement expenditure from 51% black owned and 30% black women owned suppliers is targeted to be gradually phased in over five years, ranging from 10% for the first year up to 40% for the fifth year for procurement from 51% black owned suppliers. For 30% black women owned suppliers the Procurement target is set at 6% for years one to four, and then 12% from year five onwards.
The target for Enterprise Development is also slightly higher at 1,5% of the entity’s net profit after tax.
Given the scope of the Agri-BEE Code and the importance of developing your own supply chain to meet the supplier development and procurement targets set under the code, it is advisable to enlist the help of a BEE consultant to update your planning and look at ways you can prepare your business to meet the targets set under the Agri-BEE Code.