ANDILE NTINGI: Banks should rethink approach to financing macadamia production in Eastern Cape

Macadamias are a high-value agricultural export described as “golden nuts” due to the insatiable global demand, fuelled by millions of health-conscious consumers who seemingly cannot get enough of them.

Demand for macadamias is so high that producers cannot meet global demand. Although the nut originally hails from Australia, SA has developed plantations that have made our country one of the leading macadamia exporters in the world, often competing with Australia for the number one spot.

Having seen the huge potential of macadamias as a lucrative agricultural commodity, a group of Eastern Cape-based emerging commercial farmers and a rural community got together 15 years ago to establish the Ncera macadamia project. This venture, along with the Amajingqi project in Willowvale, has enabled the Eastern Cape to join Limpopo, Mpumalanga, the  Western Cape and KwaZulu-Natal as macadamia-producing provinces.

Ncera is a 300ha macadamia plantation that is operated by a company that is 51% owned by the Vulindlela Community Trust, a community near East London. The remaining 49% interest is owned by a consortium of commercial farmers comprising Amadlelo Agri, Kula Macadamia and Nellfield Trust.

What sets the Eastern Cape apart from other macadamia-growing areas is that the province has come up with an innovative community-based farming business model that has positioned rural communities at the centre of the industry’s value chain. This model puts more emphasis on land access, with the communities leasing their land on long-term contract to farmers, who bring fundraising capital and macadamia farming skills to the communities.

In a province afflicted with high unemployment and an exodus of citizens to other provinces, Ncera has demonstrated that land occupied by traditional leaders and their communities can be turned into productive assets that unlock investment, jobs and procurement opportunities for local suppliers.

Along the province’s coastal belt, which is also home to the Wild Coast, there is plenty of arable land available for macadamia production. However, from Bhizana to Peddie there is little suitable infrastructure, such as roads, irrigation systems, fencing, electricity and telecommunications.

Despite macadamia’s huge potential, lenders tend to have less appetite for financing commercial farming projects on communal land because in many instances there are no title deeds. Commercial lenders are worried about lack of recourse in the event of a default on their loans. It is surely no coincidence that the community on the land where the Ncera plantation is situated has a title deed.

Yet there is a strong case for lenders to rethink their approach to financing macadamia production in the Eastern Cape. For starters, the projects are de-risked through emphasising land access for farmers, who are locked into long-term rental leases that provide certainty to both farmers and communities. Second, macadamia is a highly profitable high-end commodity export, generating a net profit of between R200,000 and R300,000 per hectare from mature plantations of 12 years and older. From growing seedlings in a nursery to transplanting them into an orchard the process takes about six years before the first harvest can be realised, but farmers then have a source of income for the next 100 years from the trees.

A study compiled in 2014 on the potential of macadamia farming in the Eastern Cape concluded that there is a potential to boost production over a 20-year period on 3,900ha of land. The study recommended that exports from the plantations be shipped to international markets from a state-of-the-art factory in East London, which could be built closer to the harbour. It projected that this investment expansion could cost about R1.6bn, potentially injecting R324m annually into participating communities and creating 6,100 long-term jobs. The 3,900ha could be implemented in blocks of 300ha per community, and each block could create 300 sustainable jobs.

However, this expansion will not be possible without communities, private investors, funders and government forging long-term partnerships. Each stakeholder has a role to play. Communities must make land available; government must provide plantations with infrastructure and regulatory support, while lenders must advance loans to companies operating the orchards. 

The government needs to take a decisive investment bet on Macadamia, particularly in the Eastern Cape where the province’s economy is in a poor state and struggling to create jobs. In addition to providing infrastructure for plantations, government can come in as a guarantor of loans to reduce the risk for commercial lenders.

But it must be efficient in dispersing funding. Erratic funding and delays in releasing funds extend the time it takes to reach breakeven point for the plantations, and poses a risk to profitability and the repayment of loans. Ideally, government funding should be on a declining scale with an emphasis on infrastructure and maintenance for the first four to five years. Beyond this point the projects are bankable and plantations should be able to secure funding from development funding institutions and commercial banks.

On the regulatory front, there is excessive red tape that must be lessened to unlock the full potential of the sector. Shortening the time it takes to issue water licences to 90 days has benefited the industry, but the time it takes to process environmental impact assessments (EIAs) and related costs remains a huge hindrance for rural communities wishing to develop their land. 

With jobs hard to come by and SA experiencing sluggish economic growth, macadamia is a financially viable platform that can be used to speed up wealth and employment creation in rural areas.

• Ntingi is founder of GetBiz.