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B-BBEE Sector Code Analysis: Agricultural Sector (AgriBEE) – Ownership Element

1. Introduction and Applicability

  • 1.1 Sector Code Overview: The AgriBEE Sector Code provides a framework for measuring B-BBEE compliance specifically within the agricultural sector in South Africa. It aims to address the unique challenges and opportunities for transformation in this sector.
  • 1.2 Scope of Application: The AgriBEE Sector Code applies to a wide range of agricultural activities, including:
    • Primary production of agricultural products (crops, livestock, etc.)
    • Secondary agriculture (processing, packaging, and distribution of agricultural products)
    • Agri-tourism
    • Forestry (Note: There’s also a separate Forestry Sector Code, creating potential overlap – see below)
    • Aquaculture
    • Excludes activities covered by other sector codes (e.g., retail, transport) unless those activities are integral to the agricultural operation.
  • 1.3 Legal Basis: Section 9(1) of the Broad-Based Black Economic Empowerment Act (No. 53 of 2003, as amended) and the Amended AgriBEE Sector Code (Government Gazette No. 41287, 01 December 2017).
  • 1.4 Effective Date: 01 December 2017.
  • 1.5 Precedence: This Sector Code supersedes the Generic Codes for entities within its scope. However, there can be complexities regarding the overlap with the Forestry Sector Code (see below).

2. Ownership Scorecard and Thresholds

  • 2.1 Ownership Scorecard: Indicator Weighting Target Exercisable Voting Rights (Black People) 5 points 25% + 1 vote Exercisable Voting Rights (Black Women) 2 points 10% Economic Interest (Black People) 5 points 25% Economic Interest (Black Women) 2 points 10% Economic Interest (Black Designated Groups/Broad-based schemes) 4 points 10% Net Value 11 points See Below Total 29 points Net Value Target: Based on a phased-in approach linked to “years of recognition.” The target is expressed as a percentage of 25%.
  • 2.2 Priority Element Status: Ownership is a priority element.
  • 2.3 Subminimum Requirements: 40% of the Net Value points (i.e., 40% of 11 points = 4.4 points).
  • 2.4 Entity Size Thresholds:
    • EME Threshold: Annual Total Revenue of R10 million or less. (Same as the Generic Codes).
    • QSE Threshold: Annual Total Revenue between R10 million and R50 million. (Same as the Generic Codes).
    • Generic Threshold: Annual Total Revenue above R50 million. (Same as the Generic Codes).
  • 2.5 Automatic Recognition for EMEs/QSEs:
    • The usual automatic levels apply.

3. Specific Ownership Requirements and Interpretations

  • 3.1 Unique Ownership Targets: The AgriBEE Sector Code has slightly different weightings and a higher overall points allocation for ownership (29 points) compared to the Generic Codes (25 points). The targets for voting rights and economic interest are generally aligned with the Generic Codes (25% + 1 vote and 25%), but there’s a greater emphasis on broad-based ownership and participation by Black designated groups (4 points for 10%).
  • 3.2 Flow-Through and Modified Flow-Through: Standard Flow-Through and Modified Flow-Through Principles apply.
  • 3.3 Exclusion Principle: Standard Exclusion Principle applies.
  • 3.4 Treatment of Specific Entities: The AgriBEE Sector Code provides specific recognition criteria for:
    • Broad-Based Ownership Schemes (BBOS): Must meet the rules in Annexure A of the Code.
    • Trusts: Must meet the rules in Annexure B of the Code.
    • ESOPs: not specifically mentioned.
    • These annexures are broadly aligned with the principles of the Generic Codes but may have some sector-specific nuances.
  • 3.5 Multinationals: No specific provisions beyond the Generic Codes. Equity Equivalents would likely apply as usual.
  • 3.6 Qualified Professionals: Not a specific requirement.
  • 3.7 Sale of Assets: No specific deviations from the Generic Codes.
  • 3.8 Private Equity Funds: Ownership by B-BBEE compliant Private Equity Funds is possible under the AgriBEE Sector Code, provided the fund meets the requirements outlined in the Generic Codes (Statement 100, paragraph 3.10). No specific provisions prevent or modify this.
  • 3.9 Other Unique Provisions:
    • Land Ownership: The Code recognizes the historical context of land ownership in South Africa and emphasizes the importance of land reform. While not a direct ownership requirement on the scorecard, it’s a significant theme.
    • “Landless People”: Introduced a new defined term, although the impact on the ownership scorecard is indirect.

4. Areas of Uncertainty and Interpretation

  • 4.1 Ambiguities: As with the Generic Codes, valuation methodologies and the application of the Flow-Through Principle in complex structures can be areas of interpretation. The interaction with the Forestry Sector Code is a significant area of uncertainty.
  • 4.2 Industry Practice: Industry practice is still developing in some areas, particularly regarding the interpretation of the annexures for BBOS and Trusts.
  • 4.3 Potential Disputes: Valuation disputes, challenges to the legitimacy of ownership structures, and disputes over the scope of application (particularly with Forestry).

5. Deal Process, Parties, and Costs

  • 5.1 Typical Deal Structures: Direct ownership, trusts, BBOS (particularly community trusts in rural areas), and potentially ESOPs.
  • 5.2 Key Parties Involved: Agricultural businesses, Black investors, community trusts, legal advisors, financial advisors, B-BBEE verification agencies.
  • 5.3 Deal Process Overview: Similar to the Generic Codes: due diligence, valuation, negotiation, legal documentation, and implementation.
  • 5.4 Cost Considerations: Similar to the Generic Codes: legal fees, valuation fees, advisory fees, B-BBEE verification fees, and the cost of the ownership transaction itself.

6. Gotchas and Best Practices

  • 6.1 Common Mistakes: Failing to meet the Net Value subminimum, inadequate documentation, fronting, not understanding the specific requirements for BBOS and Trusts in the AgriBEE Code.
  • 6.2 Fronting Risks: High risk, particularly given the historical context of land ownership and the emphasis on broad-based empowerment.
  • 6.3 Best Practices: Thorough planning, expert advice, genuine commitment to transformation, careful structuring of ownership deals (especially BBOS and Trusts), ongoing monitoring of compliance.

7. Alternatives to Ownership
The other elements of the AgriBEE Sector Scorecard are:
* Management Control:
* Skills Development:
* Enterprise and Supplier Development: With a focus on supporting Black farmers and agri-businesses.
* Socio-Economic Development:

8. Conclusion

The AgriBEE Sector Code builds upon the Generic Codes but introduces some specific nuances, particularly regarding the emphasis on broad-based ownership, designated groups, and the historical context of land ownership. The higher overall points allocation for ownership (29 points) reflects its importance in this sector. The potential overlap with the Forestry Sector Code is a significant area to be aware of.

Please contact us for a confidential discussion around your unique BEE ownership needs.

Chapter: Sector codes:
Chapter: Sector codes:
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