TOWARDS TRANSFORMATION IN THE WINE INDUSTRY: THE WINE CHARTER & INDUSTRY SCORECARD Johan van Rooyen...

TOWARDS TRANSFORMATIONIN THE WINE INDUSTRY:

THE WINE CHARTER & INDUSTRY

SCORECARD

Johan van RooyenCEO, SA Wine & Brandy Company

andChair, WCSC Technical Team

1. The Wine Economy today

Core business activities/Stakeholders

producers - 4435 : < 100 ton + 50% < 500 ton + 80% wineries - 505 : small private 83%; Co-ops

13% Trade (?) - 97 : 67 wholesalers;

30 exporters Civil society and community based organisations

(±80)

Labour groupings (±11)

Note:

Size definitions (DTI-CGP) and stakeholders important

Economic value of the wine industry + R22 billion GDP contribution Turnover + R10 billion Exports + 3 billion and expanding 4x added value multiplier + R4 billion wine tourism Household income + R10 billion + 250,000 employment opportunities (add 50,000 tourism); Positive employment & income linkages Skew ownership; social legacies (later) Highly competitive and fragmented industry, but business consolidations are developing

(1.00)

-

1.00

2.00

3.00

4.00

5.00

6.00

Trends in the competitiveness of the wine industry in South Africa (1961-2003)

(5.00)

-

5.00

10.00

15.00

20.00

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

South Africa New Zealand Australia USA Chile France Portugal Italy Spain Argentina

Trends in the competitiveness of selected wine producing countries (1990 – 2003)

Key role of Government – national and local:Policing & regulatory

Service: certification

Support systems: trade, R&D, DTI support, etc

Levers and levies: licensing, water allocations, etc

Industry – Government partnership important:

The Wine Industry Strategy Plan (WIP) as framework

Goals:

Competitiveness and profitability (tariffs, taxes, R&D, trade policy, etc)

Economic transformation & Empowerment (BEE Charter)

Sustainable Natural Resources Management (BWI, IPW)

Socially responsible consumption (ARA, “papsak”, BEE Charter)

Increased competitiveness and world standing of the South African

wine industry

A highly skewed ownership, skills and business regime

Racialised political economy

A history of problematic labour relations, social evils and fragmented

civil society relations

Substantial positive rural linkages: income, employment, value add

Positive & negative legacies; but positive future prospects: productivity; power of ownership; unlocking resources; social sustainability; Fair trade prospects, etc

2. The context

The reasons for Black Economic Empowerment

Legislation requires and regulates

– An economic growth strategy to support the attainment of an equal dispensation for black groups: Focus on business mobilisation and entrepreneurship development

– Voluntary, except when doing business with the state or as a strategic industry

– Agriculture is a strategic industry and licences are required to produce and distribute wine

Performance assessment and grading of contribution towards BEE required (in terms of definitions and a scorecard)

3. Wine industry Charter Process (since October 2003)

3. Wine industry Charter Process (since October 2003)

Wine Charter Steering Committee (WCSC)– Representative of all role players

(Table of role players)– Regular monthly meetings– Technical support by specialists and industry groupings

Linking with other groups (manage overlaps)– Liquor traders and trade-mark owners– AgriBEE– DTI – Codes of Good Practice (CGP)

WCSC: Role playersWCSC: Role playersAgricultural Workers Association of SA (AGRIWASA)

Black Alliance for the Wine & Spirits Industry (BAWSI)

Cape Winelands District Municipality

Cape Women’s Forum

Disabled groups Food and Allied Workers Union (FAWU)

Independent Unions Group (ITUF)

National African Farmers Union (NAFU)

National Union of Food, Beverages, Wine and Allied Workers (NUFBWSAW)

Olifants River Black Economic Empowerment Forum (ORBEEF)

Rural Development Network (RUDNET)

Siyanda District Municipality

SA Liquor Brand Owners Association (SALBA)

SA Vintners Association (SALVA)

WCSC: Role playersWCSC: Role players

VinPro Wine Cellars SA (WCSA), the South African Wine & Brandy Company (SAWB)

The South African Wine Industry Trust (SAWIT)

Winelands District Municipality

Wine Tourism

Wholesale Merchants Forum

Women in Wine

Women on Farms Project (WFP)

Youth Groups

Wine Industry CharterWine Industry Charter

7 “Internal” Drafts to date WCSC meeting of 25 April 2006 took

decision to distribute Charter among interest groups first for workshopping

End of July : to the public and the media August/September : presented to the

Minister Electronic version available from -

[email protected] or [email protected]

Contents of the CharterContents of the Charter1. Introduction2. Challenges3. The mission statement4. The scorecard

Annexures: The context of the wine industry(That which directs the Wine Charter) Historical context Globalization Economic context Local context Transformation to date Wine industry Strategy Plan (WIP)

Wine Industry Charter: Consultative Process

Wine Industry Charter: Consultative Process

Invitation to interest groups to give:– Comments on the proposed scorecard, its expected contribution to

transformation, and problems likely to be encountered during implementation

– Advice regarding the completion of the Charter. These include:

• Strategies to support projects and programmes across all elements of the scorecard; and

• The institutional structure of the ‘Wine Charter Council’: institutions to implement the support strategies, and institutions to monitor progress during implementation

• Appropriate linkages with other charters (AgriBEE, Liquor Industry, etc)

• Scenarion planning / what-if analysis to set realistic and effective targets (GP&A facilitation)

4. Link to Government’s Code of

Good Practice (CGP)

4. Link to Government’s Code of

Good Practice (CGP)

Important guideline to all in the wine industry

Qualifying enterprises are expected to complete a

scorecard to determine their contribution to BEE

(qualifications still outstanding)

Industries may propose their own scorecards, but there is

a limit to deviations from the code of good practice of the

Department of Trade and Industry (DTI)

For the wine industry, it is necessary that the scorecard

be fully aligned to the AgriBEE and Liquor Trade

scorecards i.e. complete overlaps

Scorecard for large enterprises (GP)

Scorecard for large enterprises (GP)

Ownership 20

Control 10

Employment Equity 10

Skills Development 20

Preferential Procurement 20

Enterprise Development 10

Residual 10

100

Note: GP + R2m turnover; AgriBEE proposal + R50m turnover wine industry?

Scorecard for smaller enterprises (GP) (QSEs)Scorecard for smaller

enterprises (GP) (QSEs)

Ownership 20

Control 20

Employment Equity 20

Skills Development 20

Preferential Procurement 20

Enterprise Development 20

Residual 20

140

Note: GP + R300 000-R2m turnover; AgriBEE proposal

+ R5m-R50m turnover wine industry?

Small enterprises (GP)Small enterprises (GP)

Exempt (receive level 4 basis points), but could still have an opportunity to accumulate a high score and position themselves as “preferential partners”

GP below R300 000 turnover – to be revised?

AgriBEE below R5m turnover

Wine industry?

Contribution levels (GP)Contribution levels (GP)

BEE Status QualificationRecognition level for Preferential

Procurement

Level 1 contributor

100 points on scorecard 135

Level 2 contributor

>85 but < 100 points on scorecard

125

Level 3 contributor


110

Level 4 contributor


100

Level 5 contributor


80

Level 6 contributor


60

Level 7 contributor


50

Level 8 contributor


10

Non-contributor

<30 0

Wine Charter proposal for “small enterprises” = level 1 scoreGP&A proposal for “small enterprises’ = level 4 score

Who completes the scorecard?Who completes the scorecard?

From a wine industry perspective, participants are

defined as enterprises whose core business

focuses on any aspect of the value chain for

wine and who over three financial years have

earned on average more than 50% of their turn

over from these activities before being rated.

Producers, cellars, trade, services, service

providers

Overlap with other Charters?

5. Details of the Wine Charter: The Scorecard - Ownership5. Details of the Wine Charter: The Scorecard - Ownership

Indicator Weight

Target

Voting

rights

Executable voting rights by black persons 3 25% + 1 vote

Executable voting rights by black women 2 10%

Economic interest

Economic interest in the enterprise that black people are entitled to

4 25%

Economic interest in the enterprise that black women are entitled to

2 10%

Economic interest in the enterprise that black designated groups, participants in distribution or employee schemes, or participants in corporations are entitled to

1 3%

Realization points

Execution of ownership 1 No limitations

Net shareholders’ interest 7 10% of target (yr 1)

20% of target (yr 2)

40% of target (yr 3-4)




Bonus

points

Involvement of black new entrepreneurs, black respected participants in broad-based ownership schemes, or black participants in corporations

3 Bonus per each level of five percent

“Effective black land ownership”. This is the value of the land component as a percentage of the value of the total transaction multiplied by the percentage of black ownership

5 12.5%

How does this promote land reform?

How does this promote land reform?

Assumption: Land as % of transaction

(1)

Assumption:% Ownership

(2)

Calculation:%: Land

accessed (by value)

(3 ) = (1 ) x (2)

Target

(4)

Weight

(5)

Bonus points

(6)= (3 )/ (4 )* (5)

30% 25% 7.5% 12.5% 5 3

50% 25% 12.5% 12.5% 5 5

80% 25% 20% 12.5% 5 5

30% 15% 4.5% 12.5% 5 1.8

50% 15% 7.5% 12.5% 5 3

80% 15% 12% 12.5% 5 4.8

ControlControl

Indicators Weight

Target

Participation in board of directors

Percentage of executable voting rights executable by board members that are black to the total number of voting rights executable by board members

3 50%

Executive members of the board who are black

1 50%

Executive members of the board who are black women

1 25%

Bonus points

Percentage of independent black non-executive board members that form part of the total number of non-executive board members

1 40%

Control (QSEs)Control (QSEs)

Indicators Weight Target

Black representation on level of owner/manager

20 25.1%

Bonus pointsRepresentation of black women on level of owner/manager

2 10%

Employment EquityEmployment EquityIndicators Weigh

tTarge

tBlack people with disabilities as % of full-time employees

2 4%

Black people employed as Senior and Top managers as % of all Senior and Top managers

2 60%

Black women employed as Senior and Top managers as % of all Senior and Top managers

2 30%

Black people employed on professional, experienced specialist, professional and middle management levels as % of total employment on experienced specialist, and middle management levels

2 75%

Black women employed on professional, experienced specialist and middle management levels as % of total employment on professional, experienced specialist, and middle management levels

1 40%

Black people employed as skilled technical and academically trained workers, junior managers supervisors, foremen, and superintendents as % of total employment on level of skilled technical and academically trained workers, junior managers, supervisors, foreman and superintendents

1 80%

Employment Equity (QSEs)Employment Equity (QSEs)

Indicators Weight

Target

Black representation on management/control level

6 40%

Black women on management/control level

6 20%

Black employees as % of all employees 4 70%

Black women as % of all employees 4 35%

Skills developmentSkills development

Indicators Weight

Target

SkillsDevelopment

Expenditure on skills development (the score will be adapted in direct relation to the intended literacy and numeracy levels until a level of 80% [ABET level 3 or Grade 7] has been reached)

6 2%

Expenditure on skills development among black women employees

2 1.4%

Expenditure on skills development among black disabled employees

1 0.3%

Learnerships and/or Skills programmes

Number of black employees on SETA approved learnerships and/or skills programmes as % of total number of employees

2 10%

Number of black women on SETA approved learnerships and/or skills programmes as % of total number of employees

2 2.5%

Number of black unemployed and/or rural black youth on SETA approved learnerships and/or skills programmes as % of toal number of employees

1 1%

Skills developmentSkills development

Organisation Transformation Index

Existence of a comprehensive and fully established BEE strategy that is being implemented

1 Yes

Appointment of a skills development facilitator with the authority to carry out transformation initiatives

1 Yes

Existence of a policy of non-discrimination, widely publicized by the enterprise, as well as external training in diversity management

1 Yes

Alignment with existing labour legislation 1 Yes

Implementation of an effective human resource management plan

1 Yes

Existence of a programme which gives practical effect to the intended programmes

1 Yes

Bonus points

Support black people in launching sustainable enterprises through skills transfer without approved qualifying mentorship programmes accredited by the relevant SETA

5 Yes

Skills development (QSEs)Skills development (QSEs)

Indicators Weight

Target

Application submitted to National Skills Fund

6 40%

Quantifiable expenditure on skills development for black employees over and above the Skills Development Levy as % of the relevant expenditure (the score will be adapted in direct relation to the level of literacy and numeracy in the enterprise until a level of 80% (ABET level 3 or Grade 7) has been reached

15 2%

Support back people in launching sustainable enterprises through skills transfer within approved qualifying mentorship programmes accredited by the relevant SETA

5 Yes

Preferential procurementPreferential procurement

Indicators Weigh

t

Targe

t

Expenditure on procurement from

providers based on their BEE

contribution levels as % of the total

number of purchases

15 70%

Expenditure on procurement from QSE


contribution levels as % of the total

number of purchases

4 15%

Expenditure on procurement from EME


contribution levels as % of total number

of purchases

1 5%

Preferential procurement (QSEs)

Preferential procurement (QSEs)


Expenditure on procurement from providers

based on their BEE contribution levels as %

of total procurement

20 50%

Enterprise developmentEnterprise development

Indicators Weight

Target

Cumulative non-recoverable contributions made as % of cumulative net profit after tax, measured from the starting date till the date calculated

6 2%

Cumulative non-recoverable contributions made as % of cumulative net profit after tax, measured from the starting date till the date calculated

4 3%

Bonus points: Qualifying contributions directly resulting in a rise in employment in the previous year

1

Enterprise developmentEnterprise development The following multipliers apply:

Employment in rural areas or areas indicated by the state

1.5

Contribution to exempt micro enterprises (EME’s)

1.25

Support the production of goods/services not yet made in South Africa

1.5

Contributions to warehousing funds 1.25

Support to land reform 1.5

Should an enterprise choose to make non-recoverable contributions only, then the weight changes to 10 and the target to 3.3%

Enterprise development (QSEs)Enterprise development (QSEs)


Qualifying enterprise development

contributions by the QSE as % of the

net profit after tax

20 29%

Rural development and poverty eradication: farming communityRural development and poverty eradication: farming community

Indicator Weight

1 Provision of good quality housing at a level higher than specified in Sector Determination 13, provided ALL specifications of SD 13 are met. This includes access to safe drinking water and toilet facilities.

4

2 Contribution to or provision of sport and recreational facilities as well as transport to participate in these as % of cumulative net profit after tax, measured from the starting date till date calculated

1

3 Availability and access to health and welfare services, including payment for or provision of health services, raising awareness of and treatment of HIV/Aids, care for the aged and disabled, programmes to combat malnutrition, drug abuse, ph syndrome, amp, as well as provision for retirement and funeral costs measured s % of cumulative net profit after tax, measured from the starting date till the date calculated

3

Rural development and poverty eradication: farming community

Rural development and poverty eradication: farming community

4 Investment in education: Support to ABET; education for children including support to farm schools, help with school fees, pre-school education, aftercare, encouragement for post-matric education and transport measured as % cumulative net profit after tax, measured from the starting date till the date calculated.

3 0.5

5 Remuneration: Specifically remuneration above the minimum wage as specified in Sector Determination 13, on condition that ALL specifications of SD 13 are met.

(0.5)(0.5)

10% above20%

above

6 Providing a safe and healthy living environment: Criteria and above legal stipulations such as measures against drowning, exposure to danger, access to means of communications.

1 Yes

7 Care for the environment: Implementation of programmes aimed at Biodiversity & Wine Initiative and the Integrated Production of Wine guidelines.

2 0.5

Rural development and poverty eradication: No farming community

Rural development and poverty eradication: No farming community

Indicators Weight

Target

Cumulative rand value of non-recoverable qualifying

Corporate Social Investment contributions as % of

cumulative net profit after tax, measured from the starting

date till the date calculated. Contributions must focus on the

broader community, and include social development,

responsible alcohol use, support for education in the interest

of the wine industry, and bursaries to study agricultural

sciences, viticulture and oenology.

7.5 1.5%

Cumulative rand value of qualifying industry-specific

contributions measured as % of cumulative net profit after

tax, measured from the starting date to the date calculated.

Contributions must focus on broader community, and include

social development, responsible use of alcohol, and support

for education which is in the interest of the wine industry,

and bursaries to study agricultural sciences, viticulture and

oenology.

7.5 1.5%

Rural development and poverty eradication:

No farming community (QSEs)

Rural development and poverty eradication:

No farming community (QSEs)

Indicators Weight

Target

Qualifying contributions to rural development and poverty eradication, as % of cumulative net profit after tax, measured from the starting date till date calculated.

20 2%

Summary:Wine Charter & Industry Scorecard

Items Large QSE’s Small

Ownership & control 25(+9%) 40 (+8%)

Employment Equity skills 10 20

Skills 20 (+5) 20 (+5) 50*

Preferential procurement 20 20

Enterprise development 10 (+1) 20

Rural development, Poverty eradication, CSR

15 20 50*

Points (max) 100 (+15) 140 (+13) 100*

* Voluntary in order to move to a level 2 contributor (level 1 if black owned)

6. Strategic Focus on Growth with Equity: Deviations based towards:

- Contributions by all (incentives)- Growth with equity focus- Contribution to Land Reform if so chosen- Focus of social capital and skills

1 In terms of the Codes an enterprise is exempt if its turnover is <R300 000 per year. This means:

They need not complete a scorecard

When another enterprise buys from the, they are regarded as “Level 4

participants”, irrespective of the ownership. If black-owned, Level 4 contributor.

2 The wine industry wants everybody to participate. It is therefore

proposed that: A small enterprise, if it so wishes, may voluntarily complete the Skills Development and Residual sections of the scorecard (each with a weight of 50), and if their score is high enough, they will be rated as a Level 2 contributor. If black-owned, a Level 1

contributor.

Wine industry accepts cut-off level of Codes of Good Practice

but must align with AgriBEE and “Liquor Industry” Charter.

Deviations from the Code of Good Practice

3. Includes land reform as an option in the Ownership and Enterprise Development elements;

4. Change the name of the Management Control element to the Control element, reduce its weight to 5 points and include only those indicators dealing with representation on the Board;

5. Group the Senior and other Top Management indicators with the Employment Equity element of the scorecard

6. Increase the weight of the Rural Development and Poverty Eradication element to 15 points (Large enterprises)

7. Distinguish between enterprises with and those without people living on the farm

8. Change the indicators, weights and targets where there are people living on the farm

Concluding thoughts:

• Management tool (complicated)

• Size critical

• Perceptions critical

• Provide comments

TOWARDS TRANSFORMATION IN THE WINE INDUSTRY: THE WINE CHARTER & INDUSTRY SCORECARD Johan van Rooyen...

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