Alec Hogg (00:02): Well, I've had some time... I come from a farming family and I've spent some time farming on my own account, but it's supposed to be a bet on the weather. Nobody warns you that it can also be a bet on bureaucrats. David Lupfya spent 25 years in American technology. Then he came home again to grow grain on a 1,300-hectare farm outside of Potch.

David Lupfya (00:17): That's correct.

Alec Hogg (00:32): He's one of a small group of black commercial farmers who operate at that scale. And that's exactly what the Land Bank was set up to back. It also said so, actually, in the opening lines of its own founding law. So David did what most serious farmers do. He planned ahead. He put down more than R5 million of his own money as deposits on tractors, a combine and implements. He expected the Land Bank's blended finance scheme to come up with most of the rest.

Well, the problem is, as he was planning and going ahead, this blended finance scheme has run out of money. A R325 million pot that was in the grants for this year from government is now fully committed, apparently. Parliament did warn about that back in June. But David has to plant in three weeks' time. Forecasters expect El Niño. And he says the bank now wants him off its books altogether.

We've been talking a lot about regulatory overreach on BizNews TV in recent times, and I'd like to know whether this is another example of where the bureaucrats are actually squashing, rather than supporting, those that really need it. David, thank you for coming on to BizNews TV. You've actually come a long way to be with us this morning. Potchefstroom is, well, it's outside of, I suppose, the strong connectivity area. Where are you talking to us from now?

David Lupfya (02:18): So I'm now actually talking to you from the Joburg house where we stay. My family actually stays in Joburg, and I work out at the farm and then come back on the weekends.

Alec Hogg (02:30): And you spent 25 years in US tech. Now, for many people that would be a dream occupation, and yet you came back to South Africa and you took on, as a fellow who's actually been in farming, a very, very tough profession or occupation. What brought you back?

David Lupfya (02:53): Look, it's funny, it was a combination of many things. I'm a product of a South African father and a Mozambican mother. I actually spent most of my formative years living in Zimbabwe, and then when I [was] 17, I went to the US, finished high school there, went off to college over there, and then I spent, like I said, a good 25 years working for AT&T, Microsoft, Lockheed Martin.

Then it was kind of a bit of an epiphany, because what ended up happening is I realised, talking to a lot of my fellow Africans, that there was a lot of intellectual capital in the Western world. But all of us are leaving, right? For a better life, which is what everybody wants. But then if we all leave, who's left behind? Right?

And I saw a lot of my fellow[s], Indians especially at Microsoft, and Chinese folks, spend five, ten, 15 years and then head back to their countries. And having also worked in China and in India, seeing what they were doing with their economy was just unbelievable, right? So they get all the operational experience and some of the advanced education, and then they bring it back. And then they try to have a go at it, whether they're building tech companies or whatever business it is, right?

And what I quickly realised in South Africa is that we are actually lacking a substantial amount of black intellectual capital. We have spots here and there, but we don't have enough to bring the country up to scale, right? To where we should be, having the country growing at 4%, having things like the administration work the way it is, the municipalities and so forth. So it was that drive, and seeing some of the commitments my folks made for me to be where I was. I just said, "Look, I've got to go back home." It wasn't an easy conversation, because my wife's American.

David Lupfya (04:53): It wasn't an easy conversation, but we came. The first four years, I actually came back and I was an executive at MTN, and that was great. It helped me land on my feet to have a steady job. But the first farm I had actually acquired when I was here before, in 2010. So I said, "Well, you know what? Look, I sort of grew up in a farming background. Let me give it a go." Not realising the level of capital commitment that you need on a personal level, and the patient capital that's required from the banks, right?

And I think as you talk to me or many other emerging farmers, and by the way, this is regardless of whether you're white or black, trying to get into commercial farming, because of the capital requirement, it is very, very, very difficult.

Now, of course, blended finance comes along. I sign up for the first tranches. But of course farming is a long lead, right? So literally the day you plant, you're starting to look at next season, right? And in our situation, you have to order a lot of the tractors. They're coming from Europe or they're coming from America. You have to put 25%, 30% down, because these are all custom-built machines, right? Six, seven, eight million rand machines. And then you have to order them so that they're here in time for the season.

So unfortunately, what ends up happening with us is I get a call Monday evening being told, "Hey, listen, blended finance is depleted. There's nothing," right? And I was basically hedging on 40% of the grant to cover what I've put in, and then the rest to be concessionary financing from Land Bank, so that I can be 100% self-sufficient.

Because what's actually happening right now is I'm using a combination of my own equipment, and I'm having contractors come out. Last year I had contractors walk away from me at the very last minute because they had to commit to other things. Of the 1,300 hectares, we were only able to plant 885. So that also now takes a hit on your cash flows, right?

David Lupfya (06:54): So this was that last push, to get this last tranche of equipment to make me whole, effectively, so that I can be 100% efficient. And getting this call three weeks before planting is a problem, because now the conversations that have subsequently happened are, "Hey, you know what? We're going to have to do your gearing based on standard finance." So effectively, what's going to end up happening is I'm only going to get half of what I need, right? And still be required to do all these other commitments.

And one of the other requirements for blended finance that a lot of folks don't understand is that at the commercial level, you have to commit to be farming 100%. So I can't have a second job in town and, you know, moonlight.

So in essence, what I try to explain to people is this situation is almost like saying, "Hey, listen, you are being given a bakkie. We're going to help you finance this bakkie, so that you can do whatever business you need to do with the bakkie. But we're taking half the wheels off, because you're not getting the blended finance. But we still hold you to the commitment to continue doing whatever you need to do."

So it puts myself and a lot of guys in a difficult position. And I really feel for the guys that are on the eastern side of the country, Ermelo and so forth, because they had to start planting on Monday. So imagine if you're waiting on equipment, or you're waiting on your production loans, and you're expecting to get 40% or 50% of that as a grant, and all of a sudden now you're in a position where, depending on what your balance sheet looks like, you may or may not be able to plant the full amount.

David Lupfya (08:39): So it's a very difficult situation. And from what I understand, there are conversations happening between the Department of Agriculture, who are the owners of the blended facility, and Land Bank. But there's been no commitment. What I've been told right now is, "You need to assume you're planting just with the conventional finance." I'm fortunate enough that on the production side I can take a conventional loan, but on the equipment finance side I cannot. The gearing will throw me off, just because of the capital intensity of it.

Alec Hogg (09:09): Yes, and it's quite interesting. I mean, you are a guy who's really worked at the top level of business science, so you'll be looking at the numbers very carefully. And for you, those numbers don't make sense any more. So what do you do in a case like this? Can you walk away?

David Lupfya (09:29): To be honest, no, you can't. You cannot walk away. If we're talking rands and cents, first of all, I will lose the deposits, right? So that's R5.2 million gone. That's the one piece you lose, on those deposits. And then there's all this additional equipment that I've already financed that, if I don't have that income, I'm still on the hook for, right?

But you have to remember, you take surety on the property, which is worth twenty-some million, right? You take surety on your individual self. So you, the farmer, are taking a double indemnity risk, but you're not really getting much back in terms of a safety net, right? So no, technically I cannot walk away.

Alec Hogg (10:17): Okay, so you can't walk away. But what assurances did you have that the blended finance was going to be available to you? Because I think that's the nub of the whole thing here. If there were guarantees that the Land Bank is not delivering on... And thank you, you've sent me financial statements, you've been completely transparent with me on all of that side. But were there guarantees from the Land Bank that they are now no longer committed to?

David Lupfya (10:52): So I think this is where things are getting a little grey, right? Because the announcement came out last week that, "Hey, the funds are depleted." I think what would have been helpful for me and other farmers was, "Hey, give us six months' notice," or something, right? You can't tell a guy, "Listen, you're about to board the plane and there's no aeroplane. And by the way, we don't know when the next aeroplane is coming. But you have to be at that destination. That's a fixed date."

So the issue here is we weren't given enough warning. For instance, for me to try and find contractors to perhaps try to help me, it's too late now, because guys have already committed for the season, right?

Alec Hogg (11:44): Okay. So in essence, if you were given notice, you would have been able to make a different plan to the one that you have made, given what you're anticipating.

David Lupfya (11:57): Absolutely. Absolutely. Or at least come up with maybe 80% of the solution, right? But right now it's almost difficult. Because, for instance, what am I going to do?

Alec Hogg (12:14): Who does the fault lie with? Farmers like yourself who've been encouraged... I mean, let's realise, it's a national priority that we have black farmers. We know that it's [unclear]. Pretoria and Washington are fighting over farms and land and farmers. And so it's very important that, as a nation, people like you are supported. What are you guys supposed to do? Or, sorry, not what you're supposed to do. Where does the fault lie in all of this?

David Lupfya (12:44): I'm not sure. I'm going to be honest with you. I don't know whether this is a Department of Agriculture issue, because they're the owners of blended finance, right? Or is it a Land Bank issue, where they were issuing too many approvals? And what happened? Did they go back and say, "Listen, you know what, we've approved 500 million, but we've only got 325"? Where was that rubber band saying, "Look, we've reached 250 million, maybe we need to stop"? What about the guys we gave money to last year, who've got some longer-term commitments like myself on equipment, right? Where do they fall into this?

So I think there's a lot of people talking over each other, and there isn't quite a bit of coordination here. I really don't know. Because on the other hand, you look at the notes in Parliament, and there have been people saying, "This is not going to work, right? You're running out of money." So I'm not so sure who's to blame. I honestly don't know.

And I can tell you from my personal experience, there are some extremely gifted people, and some people that are really committed to change, both in the Department of Agriculture and at Land Bank. But then there's also some people there that are just, you know, sucking up oxygen, right? So I don't have the answer for you. I really don't.

Alec Hogg (14:16): What about other emerging farmers, other black farmers like yourself? How many of them are in the situation that you find yourself in now, from the way you've described it, through no fault of your own?

David Lupfya (14:33): A lot. A lot. The exact number I think you'd have to get from Land Bank, right? The actual quantum, I don't know. And everybody's requirement is...

Alec Hogg (14:43): And what did the Land Bank official actually say to you? What was the reasoning? "Sorry, we've just run out of money. You're not getting it this year"?

David Lupfya (14:48): Yeah, they just said, look... Initially there was a call that came in last week saying, "Hey, listen, we're not 100% sure, but there's no more money." And I said, "Well, what do you mean there's no more money? Is that not the whole idea of having a financial controller? The whole controlling business is you need to know where the money is." And then he confirmed on the Monday: there's no money. And then I spoke to an even more senior official, and he said, "Listen, whatever financing we're going to be doing for you, once all your stuff is settled, is conventional. And that's what we're going to work on."

Alec Hogg (15:27): And that's too expensive for you, conventional financing.

David Lupfya (15:30): Well, it doesn't work. It just doesn't work. That was the whole idea of blended finance, right? Because if you think about it, if you look at the gearing ratios, purely from a cash flow point of view, for a bank to be able to finance you, you need to have at least a gross margin of 25%. Right. Now, if I look at the equipment that I need without blended finance, my gross margin drops down to 15%. Right? So I'm not fundable. But with blended finance, my gross margins jump up to 40%. Right. So what that does is it gives you time to build up some cushion in your balance sheet, right? So that when you have a tough year, you've still got enough money to be able to pay the bank. So the concept of blended finance is absolutely spot on, right? Because of the capex requirement.

I mean, I sent you the list. You've seen it. You're going to live a very nice life just buying the equipment, right? A guy on 1,000 hectares, just to give you an idea, in grain, you're probably going to need R35 million worth of equipment. And you're going to need somewhere in the region of, depending on what you're planting, R15 million to R20 million in production costs. So to have a first-generation farmer take on that hit...

In a typical case, if I went to Absa or any of the big four banks, they would say, "Okay, fine, put 10%, 20% down. We want the [money] back in 36 to 48 months, to pay off that 35 million." You're not going to be able to do it. It just doesn't make sense. It's like taking a person in the city who earns R100,000 a year and telling them, "Go buy a R10 million house with 10% down, and then try to make the mortgage payment of, you know, 250,000." You're not going to be able to make it. And that's where we are now.

Alec Hogg (17:39): And your operation today, where did you find this farm, and why did you go there rather than perhaps another part of the country?

David Lupfya (17:45): So it had to do with a number of things. At the time, I was actually an exec at another... When I first came back in 2008, 2000, I was an exec here at Telkom at the time. And I needed a farm that was within a 90-minute radius of my work, so I could go and come back. And I needed something that had a good rainfall pattern, because it's cheaper to buy dry land than it is to buy irrigated land. And it had to fit within my budget. So it was that Potchefstroom area, or the Brits area, within a fairly close driving distance. So that's how I ended up in the Potchefstroom area.

So it was purely from the economics, and also to try to hedge as much of the weather as you can. The further you go into the eastern side of the country, land was two, three times more expensive, because they've got stronger rains and so forth. So that was the rationale behind that.

Alec Hogg (18:43): It does sound to me like perhaps somewhere, somebody didn't get the memo. Because if the priority for the nation is to have black farmers, and that appears to be the case, then surely you can't give them a guarantee with one hand and then remove it with the other. So what do you do from here? Who have you contacted? Who have you pleaded your case with?

David Lupfya (19:14): Look, I have spoken to the government, right, the Department of Agriculture, at the highest level. And they basically said to me, "Listen, you know what? We're in talks with Land Bank." And then when I pressed them and I said, "But in terms of when will that translate to additional funding?", I did not get a response.

Alec Hogg (19:41): So if I understand correctly, you've got a programme that has been approved, not this week, not last week, but last year. And you made commitments based on that, and those commitments have now been withdrawn. Is that correct?

David Lupfya (19:49): Yes. So I got the first tranche. Yes, because there are no funds, right?

So to me, I think the correct way would have been to say, "Look, here are the existing... Let's just say year one is last year. We've committed X amount to David and however many farmers there are. What are their needs for the next two, three years? Okay. We need to ring-fence that money, if they meet all the other criteria: they harvest, they pay the production loans back in time. We ring-fence that," right? So we know these guys are not in the lurch, because they've got long-lead items. They've told us, "Hey, he needs to order a combine, a tractor, whatever," right? So we need to ring-fence that amount. Let's just say that amount is 100 million out of the 325 million. Then any other new participants, give them the 225 million. That, to me, would have been the way to do it.

Because then at least it would have been okay for somebody like me to come in this year, and for them to say, "Okay, look, you know what? We're going to give you what you need, but there's nothing for you next year." Because then at least I know I've got what I've got for now, and I now need to make a plan, because they've given me a production loan in blended finance, they've given me equipment finance. So I'm a lot better off. And then maybe some of the stuff I can do in concessionary finance, right? Because now my gearing is a little bit better structured. But the cold turkey method, at the last minute, four weeks before planting, does nobody any good, to be honest.

Alec Hogg (21:35): So what happens now, for yourself and for other black emerging farmers, if the blended finance does not get sorted out, if there isn't an injection of capital? Because what you're saying makes complete sense to anyone who's been in business. It's like a bank giving you long-term commitments in running a manufacturing business. And then come next year, you've got to pay for the plant, your second instalment, and they say, "Sorry, it's not there any more. But we can give it to you at an interest rate that's going to put you out of business." What do you guys do now?

David Lupfya (22:18): Exactly. To be honest with you, I've sent them the same financials you have, and I said, "Look, based on what I've put down, what can I afford? What is your affordability model telling you I can afford?" We know the production is straightforward, right? Because it pays for itself, right? You take out X, you pay Y, you pay a little bit of interest, and then whatever's left, that cream, is what services your other debt. Right?

So the question I have, that I'm waiting to hear from them, is: "Hey, you know what, David? Of the original equipment, this is how much we can fund as a conventional loan." Then I'm going to have to go, "Well, you know what? I need six pieces of equipment, but now I can only afford three. Which three do I take?" That is the reality on the ground right now.

Alec Hogg (23:19): And how quickly do you need that answer?

David Lupfya (23:22): I mean, the sooner the better, right? What I'm hoping to do is fund the equipment that I've put non-refundable deposits on, because that is the sensible thing, right? If I can fund that, then at least I'm not going to lose the capital that I've put in. And then we can figure out the rest. I don't know what their gearing model is going to spit out, to say yes or no, you can do it.

The good thing about Land Bank, and this is why it is a potentially great programme, is if I buy a tractor from Wesbank, the longest I can finance that tractor is basically five years. With Land Bank, I can finance it over ten years. So it helps with your cash flow. So I'm hoping, based on that, maybe we can come back and figure it out.

But until they come back and tell me... And luckily, the executive who runs this particular group, I've worked with him for several years. He's very good. He's one of the shining stars at Land Bank. If he says he's going to get his team to look at something and come back, they will do that. So he will come back and tell me, "This is the quantum." Then, unfortunately, that's what I have to work with, right? Unless somewhere between now and the next three weeks the department comes back and says, "We have additional money that we've managed to get from Treasury." But with all the pressures that we're dealing with, with the war, I'm just not sure where that money's coming from, right, as a country.

Alec Hogg (25:04): So what do we need to look for as the outsiders, remembering that townies don't really understand farming, and they certainly don't understand the economics of farming in the way that you've now unpacked it really well for us? Why should it actually matter to people who are in cities that the Land Bank has, well, not been able to fulfil its side of the bargain?

David Lupfya (25:33): So I think one of the things that we in South Africa take for granted is food security. We are very fortunate. We're extremely fortunate. Food security. If you look at, say, Zimbabwe, for instance, the reason things came undone in Zimbabwe was, once the political system started to mess around with the food system, and kick farmers out and not bring in farmers with the ability, it pretty much destroyed the economy.

And if we don't have the ability to produce, and produce efficiently, and then also, after 32 years, have an actual sizeable amount of black commercial farmers, it's just going to amplify the situation that we're currently going through [with] the United States. It's a double-edged sword.

But what townies need to realise is that farming is a lot like mining. It's a very capital-intensive business and it has a long lead time. I often joke with my wife and say, "You know what, the person who's going to really benefit from all this madness, if we can get through the next couple of years, is our six-year-old son." Because he's going to walk into an established farm. He doesn't have to deal with this. He's going to be changing maybe one tractor every couple of years, as opposed to having to buy two tractors and a combine and this and that.

So that's why you see the third, fourth, fifth-generation farmers in South Africa are very successful, because the historical system, the original Land Bank mandate, unfortunately [was only] for white people, made sure it looked after these people, and it was very patient capital. It was 30 years, and there was a lot of support. And that's what we're missing. There's still a bit of a disconnect between the mandate for Land Bank, what the Department of Agriculture is trying to do, and access to capital in a meaningful and timely manner for black commercial farmers.

Alec Hogg (27:41): David Lupfya is an emerging farmer, and I'm sure that this conversation will have opened many eyes. We have these ideals, these decisions. We know that it has to happen, as he said earlier. The whole land and farm question historically, boy, it can get complex, and you can get into a terribly complicated argument, or even if you don't argue, you agree into a complex discussion. But the one thing that has to be on the table here is it doesn't matter who you are, where you are: if you make a commitment to somebody who's got to make a big commitment on their side, you can't pull the rug away from them. Let's hope that the Department of Agriculture doesn't blow this in the same way as it blew the foot and mouth disease debacle. And let's see if this challenge will be something that actually spurs the country forward rather than backwards. I'm Alec Hogg from BizNews.com.

David Lupafya: the Land Bank backed black farmers, then pulled the rug