Slaughter numbers plummet

A restructuring is on the cards for Meatco due to the continued low numbers of cattle it is receiving from commercial farmers.

A record low number of cattle were procured from commercial farmers by Meatco during 2017/18. Only 31 984 cattle were procured, compared with 56 766 the previous year and more than 100 000 cattle ten years ago.

Due to the expectation that cattle numbers will continue to decrease, Meatco has embarked on a restructuring of its operations and processes to ensure costs are aligned with the lower expected throughput in the coming years.

According to Meatco's 2017/18 annual report, one of the main challenges experienced during the reporting period was the large number of cattle exported to South Africa, which was driven by the high prices paid by South African agents at local auctions.

A total of 484 921 animals were marketed in 2017 compared with 345 765 during a 'normal' year and approximately 313 000 were exported to South Africa.

“It is even more concerning when viewed in the context of 2017 being a post-drought year, which was supposed to be a herd-building year. It is clear that little, if any, herd building took place in 2017,” the report says.

The high prices for cattle affected the number of live animals available for purchase by Meatco's feedlots and other facilities, as well as the throughput of slaughter animals to its abattoir.

According to Meatco it is understandable that the high prices offered by South African feedlots served as a strong motivation for cash-strapped producers recovering from a drought year to sell their weaners. However, it means that the national herd has not only diminished in size, but has become younger – a trend that has been continuing for several years now.

“Farmers have moved away from ox to weaner production due to cash-flow constraints, and it remains to be seen if producers will have the financial resources to move back to ox production in the years to come,” says Meatco.

It is therefore expected that the availability of slaughter cattle from commercial producers will remain a major challenge for Meatco in the next two years.

Meatco says it is therefore becoming more and more dependent on its backwards integration initiatives, Meatco-owned cattle raised by contract feeders and profit-share producers, and its own feedlots.

Combined they contributed 49 008 cattle to the throughput of Meatco's abattoir — representing nearly 60% of throughput during the reporting period.

To partly compensate for the much lower number of cattle procured from commercial producers nearly 10 000 more cattle were sourced from Meatco's feedlots than in 2016/17. In total, 33 506 of the cattle slaughtered came from feedlots.

Ingo Schneider, the then acting CEO of Meatco, said the core focus was on maintaining throughput through the abattoir on the back of the record number of animals exported to South Africa, as approximately 313 000 live animals had left the country.

According to livestock marketing data for 2017, 65% of all cattle sold were exported on the hoof; 18% were slaughtered at the local B- and C-class abattoirs; and only 17% were slaughtered at Meatco.

“This is the first time in the history of Meatco that its market share of slaughtered animals has dropped below 20%,” said Schneider.

He said these figures were echoed by the fact that only 31 639 of the 81 984 cattle slaughtered were procured from commercial producers south of the Veterinary Cordon Fence (VCF).

Regarding producer price, 2017/18 was a particularly good year for producers as the prices paid by Meatco were substantially higher than ever before in the corporation's history.

The average producer price of N$37.64/kg was 10.5% higher than in 2016/17 at N$34.06/kg and 4.9% higher than the South African parity price.

A total of N$749.617 million, representing 53.21% of Meatco's revenue of N$1 409 million, was paid out to producers.

Schneider said the downside of such high producer prices was that any farmer who wanted to restock after the previous season's drought could not do so because the prices were too high.

“In addition - and this is a major concern, not only for Meatco and producers, but for the whole red meat industry - at these high price levels, it doesn't make financial sense to export meat to European markets anymore, unless the corporation can materially curb the cost of maintaining an export abattoir.”

He said the internal and external costs that have to be carried as a result of being an export abattoir were substantial and unsustainable if Meatco had to continue paying such high prices for its raw material.

It is estimated that it adds at least 15 to N$20/kg to keep an EU-compliant abattoir going, excluding costs related to issues such as traceability.

“This is quite significant and an issue that will need to be addressed on a national level,” said Schneider.

According to him Meatco has embarked on a review of its organisational structure in the 2017 reporting year. An external consultant was commissioned to assist in this regard.

He said the organisational restructuring was necessary to align the company's operations to the fact that ever-lower numbers of cattle were expected to be made available to the abattoir in the medium term.

ELLANIE SMIT