Sunday, May 9, 2021

Alternative markets can’t replace EU

Contrary to what some think, the Chief Executive Officer of the Botswana Meat Commission, Dr. Akolang Tombale, says that it wouldn’t be easy to replace the European Union market with alternatives ones that have been suggested.

More than 70 percent of BMC beef is sold in the EU which is a very lucrative market. Catering for this market is also prohibitively expensive because the Botswana government has to meet stringent conditions. Following an EU directive which made it mandatory for beef exported to its markets to be identifiable and traceable from farm to fork through a computerised system, Botswana introduced the costly livestock identification and traceback system (LITS) in 1999. The main conclusion of a study conducted by Davis Marumo and Milly Monkhei of the Department of Agricultural Economics, Education and Extension at the Botswana College of Agriculture is that this system an extra financial burden on the Botswana government.

“The imposed financial burden is almost the size of the current [2009] budget for social safety net programmes in Botswana. If money spent on the LITS project were to be re-directed towards poverty alleviation programmes, the mean annual household consumption expenditure from government transfers through [social safety nets] would at least double and reduce the incidence of poverty in the country,” the pair writes in a paper titled “The Effects of the European Union (EU)-Imposed Livestock Identification and Traceback System on Botswana’s Beef Exports, Revenue and Rural Poverty.”

According to their calculations, LITS cost the government P52 million a year on average to implement. Due to data limitation and time constraints, their study didn’t delve into a comprehensive cost-benefit analysis to consider possible alternative markets for Botswana beef. There is a very strong feeling among some people that the government should wean itself away from the EU market because it is expensive to cater for.

It turns out BMC has performed the sort of analysis that the BCA researchers couldn’t and Tombale says that EU still emerges as the most attractive market. For starters, he concedes the point about the cost of compliance being high but then quotes some figures to show that the EU remains peerless. The second most important BMC market after the EU is South Africa which serves as the second benchmark.

“The price difference between the EU and South Africa is 54 percent,” says Tombale, pausing momentarily to let the figure sink in. “This is what people don’t realise. We are willing to diversify our markets if the prices of the new markets beat those of South Africa and will enable BMC to realise profits. And remember that prices can’t go down.”

In relation to the latter, the BMC boss points out that even if they were to acquire new customers, it would still be necessary to get revenue that would enable the abattoir to continue paying farmers good prices for their cattle.

“I don’t think farmers would want to get lower prices for their cattle,” he says.

The other point Tombale makes is that abattoirs like BMC that are EU-listed, can sell anywhere in the world. For this reason, it is in BMC’s interest to preserve this advantage and use it to diversify to other lucrative markets.

Indeed BMC continues to seek new markets far and wide, a service for which it has engaged a United Kingdom-based company called Global Plotting Solutions. For very good reasons, the Gulf States, which are wealthy, are seen as a good prospect. An American study says that world demand for beef is on the rise, with consumption in 2015 expected to be 316 metric tonnes. The Gulf States beef market is growing and demand is strongest in urban areas. To buttress a different point he made earlier, Tombale says that Gulf States “can only look at you if you are EU-compliant.” However, in no way does that mean that BMC is having it easy.

Throughout, these States have been supplied by major beef producers like Australia, New Zealand and Brazil. To show just how the fierce the competition is, Tombale says that in Brazil, JBS, the largest food processing company in the world, slaughters 500 000 cattle a week while BMC slaughters only 200 000 a year. Ultimately economies of scale work in favour of JBS.

“Its prices will always be lower than ours. One of the challenges we face trying to market our products in the Gulf States is that they are used to low-cost beef,” he says.

There will also be days when Botswana is guilty by association. As even the African Development Bank (AfDB) acknowledges, the country has very high livestock trade standards but as Tombale notes, what continent Botswana is located in can be an issue with potential buyers who think of the Third World in monolithic terms.

“But the fact of the matter is that we are a premium producer and for the last two years have attained the highest grade for our processes and facilities,” he says.

Then there will be potential customers who have unique requirements that have to be met at extra cost. Tombale reveals that in talking to some Jewish customers, BMC learnt that in order to supply this group, it would have to reconfigure its processing plant such that it meets kosher standards.

“Currently, the plant is set up for halaal. The issue is, if we change the plant to cater for kosher, somebody has to pay for that,” says Tombale, making clear the fact that this particular client wasn’t willing to pay for such change. “We are willing to cater for everybody but must also realise profits at the end of the day. We can only change the current set-up if we are guaranteed higher returns. You can imagine the difficulty of having to cater for each group that has its own unique needs.”

The EU, he adds, is not a problem because at the end of the day, BMC gets a profit from meeting its conditions.

RELATED STORIES

Read this week's paper