Growing from the ground
Vrystaat Ko├Âperasie Beperk (VKB) is one of the few remaining agricultural enterprises to adopt a co-operative business model. Managing director Koos van Rensburg talked to Jayne Flannery about the opportunities this affords.
South AfricaÔÇÖs agricultural co-operative movement was born in the early 1900s to provide commercial farmers with collective buying, marketing and organisational power.┬á By the early 1990s the movement was a dominant force not just in the agricultural marketing system, but also more widely in the rural economy. Deregulation and the promotion of small scale privately-owned farming enterprises following the collapse of the Apartheid regime changed the face of South African agriculture for ever. Hundreds of co-operatives opted to convert to private companies, leaving behind only a handful of the most stalwart.
ÔÇ£Our business is 93 years old and I regard the fact that it is one of the few remaining co-operatives as a unique source of strength,ÔÇØ states Koos van Rensburg, managing director of Vrystaat Ko├Âperasie Beperk (VKB), situated in the Free State.
He goes on to explain that the co-operative remains true to its founding objectives. In common with the co-operative movement at large, VKB was designed to bring together the bargaining power of producers in sourcing supplies, thus achieving economies of scale in purchasing. On the other hand, it was also intended to maximise farmersÔÇÖ individual marketing clout in relation to what any individual could expect to achieve acting alone.
The business model would not function if it were open to investors in the ordinary manner, but as a producer-led initiative, it offers unique benefits to members, who are also its principal customers. ÔÇ£We are not like a private company that must serve its shareholders. We exist to serve our members who are all producers and who will receive a share of any profit we make, relative to their contribution,ÔÇØ he explains.
On an annual basis, producers are returned a share of the profits generated in the form of a bonus, the size of which depends on the amount of business they have undertaken with VKB. Most have a major vested interest in supporting the co-operative, which aims to meet as many of their needs as possible. 
ÔÇ£When we declare bonuses, our members receive a cash portion that amounts to 10 to 15 per cent of the total. The remainder is accumulated in a reserve fund, which is also known as the membersÔÇÖ fund, and is held in the name of each producer. These funds are locked in for 15 years, meaning that we are able to grow our balance sheet far faster than a private company which is generally under pressure to make much more immediate rewards to shareholders. Our balance sheet, exceeding R1 billion assets, is currently to a large extent financed by equity and membersÔÇÖ funds, of which reserves total around the R200 million mark, with some R300 million accounted for by the membersÔÇÖ fund.┬á Members add another R300 million in invested moneyÔÇöit enables us to have a high degree of liquidity and a means of funding rapid growth,ÔÇØ he says.
Superior service combined with a share in the profits ensures a high degree of member and customer loyalty, which van Rensburg sees as key to the stability of the business. There is also a clear strategy in place to reach out to the next generation of farmers in compliance with the GovernmentÔÇÖs BBBEE directives, designed to empower black farmers. ÔÇ£We place a big emphasis on employment equity, training and the creation of a new generation of entrepreneurs within the black farming community,ÔÇØ he comments.
Van Rensburg is particularly proud of the work that VKB has undertaken in the Qwa-Qwa area, which is characterised by excellent cultivation conditions. ÔÇ£Black farmers have the land but not the other resources needed to use it to maximum effect so it had reverted to cattle farming despite the fertility of the area and the benefit of a stable rainfall. We started off by offering an intensive one-year training course and went on to offer support with finance, grain selection, insurance and also to provide a full-time technical expert who can assist with aspects of farming such as exactly when to plant and ensuring the correct soil acidity/alkaline balance for different crops.ÔÇØ
The co-operative has also been careful to leave a route open for small, subsistence farmers to enjoy its benefits on a non-membership basis. In addition, it sells directly to the public through its 15 outlets. This retail presence has been dramatically expanded though a recent acquisitionÔÇöearlier this year, VKB took over a 50 per cent share in the Northern Transvaal Co-Operative Ltd (NTK), to leverage synergies between the two businesses and take advantage of the scope for integrating their operational elements.
Van Rensburg is very clear that the marketing function must adopt a two-pronged strategyÔÇöfirst, meeting the needs of producers and customers and then marketing their surpluses. As he explains, VKB is a highly diversified business with a vision to provide everything a farmer could conceivably need along the lines of a one-stop-shop. As well as the normal requirements such as seed, fertilisers and pesticides, producers can also source anything from a tractor to the smallest implement, as well as a full range of services relating to finance,┬á insurance and grain handling and storage. Grain marketing is an area that has grown significantly over the past 10 years in response to producersÔÇÖ needs; there is now a capacity to deal with 1.1 million tonnes annually from 20 strategically placed silos, 13 of which are directly owned by VKB.┬á
From a strategic perspective, van Rensburg believes the imperative is now to leverage the co-operativeÔÇÖs financial strength and expand still further. A new animal feed factory has recently been established and next year will see a first move into the chicken broiling industry. Van Rensburg is keen to explore the possibilities of opening a new oil press as a means of progressing up the value chain. Meanwhile, the steady geographical expansion of the co-operativeÔÇÖs reach lends itself to consideration as a franchising opportunity in untouched areas.
Due to VKB and NTKÔÇÖs location, van Rensburg also sees opportunities to export to South AfricaÔÇÖs neighbours. ÔÇ£We are uniquely well-placed as Southern AfricaÔÇÖs main grain growing area that enjoys proximity to a deep sea harbour and is within easily reachable distance of Botswana, Zimbabwe and Mozambique,ÔÇØ he says.
