“I consider that a very strong result,” Dr David Falepau says before breaking into a curious smile. By a strong result, the Botswana Meat Commission (BMC) Chief Executive Officer is referring to the P15 million loss incurred by the commission in the first quarter of 2011. And the smile suggests that the moment of oxymoronic comic relief is not lost to him.
The BMC financial position, however, is no laughing matter and Falepau is not cracking jokes. With a loss of P 38 million in the first quarter of 2010 and an accumulated deficit of P137 million, the commission is certainly swimming in red ink.
Cutting the loss down to P15 million at a time when the BMC is going through one of the most difficult times in history may not exactly signal the time to start popping champagne bottles, but it is a huge moral boost.
Weighed down by accumulated losses and the looming prospect of losing the lucrative European Union market, does the BMC really have a fighting chance? “Definitely! Definitely! It is very viable, there are no two ways about it,” says an optimistic Falepau. The new man on the BMC hot seat has never lost sleep over the commission’s mountain of accumulated losses. In fact, when he saw the BMC unnerving financial records for the first time, he sighed with relief.
“I was happy that I was not going to spend a lot of time on very small matters with small returns. It is just fundamental business principles that have not been quite right,” he says.
Falepau immediately rolled back his sleeves and went to work on the BMC marketing and sales division. He changed the marketing and sales from a volume trading outfit and introduced a key account management relationship system. In the past the undeclared marketing pitch was: when it is on the order tell us and we will supply it. The new system, however, ensures that the BMC sells what the customer wants. The result was a drop in losses from P38 million in the first quarter of 2010 to P15 million in the first quarter of 2011.
Falepau is confident that the BMC only has to twitch here and there and voila! the balance sheet would go from red to black.
“It’s just some very fundamental areas and the improvements would be huge,” he says. He has already crunched his numbers and he is convinced that the BMC’s financial position can go up by up to 15 percent, just by improving the throughput and a further 10 percent up, just by improving the sales pitch. For the past three years, the BMC has been operating at between 50 and 70 percent capacity because of the low and inconsistent throughput. The cost of carrying the 30 percent excess capacity is currently being borne by the commission. “By improving our marketing and sales, there is another 10 percent or even 15 percent,” he says.
The key to turning around the commission, he says, lies in improving the entire value chain.
“To be honest, BMC has never performed near anywhere that it should. Lobatse abattoir alone should be killing 750 cattle a day, and we have been doing below 500. But to turn everything around, the farmers have to come to the party by planning their production, consistently. In return, we would be able to schedule our production which will result in retailers being guaranteed the quality and quantities they demand,” he says.
He says going forward, the basis of BMC strategy has to be consistent and reliable supply of cattle, which fall within the range that can allow better returns to suppliers who are the farmers.
“We need our customers to be able to plan and tell us what they will need in advance,” he says almost non-stop.
But has BMC ever been able to fulfill its quota amounts with the European Union?
“No it has not. But it’s much more than just fulfilling the quota, what is important is scheduling at the beginning of the chain as well as at the end of it.”
While almost all his predecessors blamed the poor BMC performance on the tax structure, Falepau shrugs off the concern with “I do not let myself be distracted by things that are small bits. The tax is just a way for government to collect contribution from the industry.”
Perhaps the test of Falepau’s mantle will be on how he helps the BMC navigate its way through the difficult waters of uncertain European Union market and ensure that the commission does not flounder on the rocks of alternative markets that are not viable. BMC is currently battling to meet stringent EU markets while also shopping for alternative markets. The lucrative EU market offers good prices, zero tariffs and zero duty.
If the BMC is still unable to export to the EU in four months, and have still not established an alternative market, they may be forced to stockpile their produce. Falepau says the South African market prices are strong, but they would not want to offload their beef to South Africa because that may crash the market. That is the worst case scenario. The BMC is currently talking to Iran and negotiations have reached drawing rooms where export certificates are currently being drafted. Other possible markets are China and Russia.
Falepau is not one to take flight from challenges and seek out softer options. He feels that for BMC to maintain its credentials as a global competitor, it needs to meet EU standards. “The EU is the gold standard. If we feel we produce good quality beef it would help not to stay far from the EU. It would help to let the EU be our benchmark.”
While most local meat producers who want to export their products outside the country have turned the BMC Act into a whipping post, Falepau only has good things to say about the Act: “That was a stroke of genius. I think the people who drafted it had tremendous foresight. They ensured that all Batswana are able to benefit.”
That explains why Falepau calls for caution when the subject turns to privatization.
“There is an assumption that for BMC to perform it needs somebody to compete with. What people do not realize is that we are already in very tight competition. We are not the only ones supplying beef to the EU. For BMC to perform there is need to get the value chain right,” he says.
In fact, he blames BMC’s flawed communication for negative public perception against the commission.
“BMC has not communicated very well. It’s important to emphasise that from suppliers to retailers we are all in it together. My attitude is to be open about BMC opportunities. Supply is very important but so is ensuring that cattle are delivered on time, in full and to specification.”
Dr Falepau is adamant that things will not change for the better at BMC unless the whole value chain changes the way things are done.
But should Batswana who are not farmers not be worried by the amounts of money government throws into the cattle industry?
To answer this question, Falepau reaches deeper into the analytical discourse that lies behind his doctorate thesis. “There is nothing to suggest that Botswana Government supports the beef industry any more than it supports other industries. In fact compared to other countries, Botswana does not subsidize the sector at all,” says Dr Falepau.
He says one of the biggest mistakes so far was to expose BMC to the dangers that come with using a single market.
While the EU was good when it lasted, the tragedy was that the benefits were always going to be outweighed by disadvantages as happened last month when BMC had to stop exporting to the large and lucrative European market.
“European Union conditions are very tight and they will only get more stringent. It is a given therefore that compliance will not come cheap. What we need to do as Botswana is to make choices on the EU in relation to return on investment. The truth of the matter is that if you want to proceed with top quality beef then you better stay too close to the EU market standards.”
But what does the new CEO think of the BMC Act which was first drafted in the 1950s.
“I have gone through the act and I think it is the stroke of genius. For someone to have put in place control mechanisms all those many years ago that ensured everybody involved in cattle production was given a chance at BMC was to me extraordinary.”
But how has BMC survived so far with the loss of the EU market?
“It’s been a wakeup call. I am confident we will recover from it and emerge much stronger.”
So far BMC is looking at China, the Middle East, especially Iran, Russia and South East Asia as alternatives to the European Union.
While EU by far remains the best market, Falepau emphasizes its important to also look at those markets that are influenced not just by price.
This is because on numerous occasions BMC was hit by exchange fluctuation in Europe even as the price fundamental remained very healthy.
“Globalisation of the beef industry has been tremendous over the last 15 years. When BMC started, there were only a few countries that exported beef and even then to only fewer markets. That has changed. Too many countries are exporting and importing. The trade has become much globalised, but the same cannot be said for BMC. As it is, our exposure to just one market is a very big risk. To reduce that risk you need a number of markets so that if you lose one market you still can continue elsewhere,” says Dr. Falepau as a parting shot.
