Meatco yesterday responded to chairperson of the Livestock Producers Organisation (LPO) Mecki Schneider, who was last week quoted as saying: “What is of huge concern is that beef prices, specifically, have not increased, despite the weakening of the exchange rate of the SA rand to which the Namibian dollar is coupled”.
CEO of Meatco Adv Vekuii Rukoro yesterday said his response aims to bring into perspective various additional factors influencing the producer prices besides the exchange rate. “It will be prudent to mention some additional factors to producers in order to put current producer price levels into perspective. Meatco has repeatedly stated that producer prices are also subject to a variety of factors,” he notes.
Rukoro mentions fluctuations in actual sales prices, sales movement and production volumes, quality of product, seasonality of production and markets, size of cuts, and distribution costs associated with getting the product to market as some of the key factors.
“These factors have been very influential on the producer prices and 2015 has indeed been a difficult year in terms of a number of these factors. Therefore, producers need to appreciate the average 2015 producer price holistically, and not just from a limited, one-sided viewpoint in terms of changes in the exchange rate.
Having said that, please consider the following:
• The weakness in the South African Rand/N$ only really commenced during August 2015 in terms of the Euro vs N$.
• The average Euro vs N$ exchange rate for the period preceding August 2015 (for January 2015 to July 2015) was actually far below (N$1.2453 / Euro) the average rate for the same period during 2014.
• For the period 1 January 2014 to end of July 2014 the average rate realised by Meatco in terms of the Euro amounted to N$14.5714/Euro. For the corresponding period during 2015, the rate amounted to only N$13.3261 / Euro – which is more than 8.5 percent (or N$1.2453) less than 2014.
• This is also the period during which Meatco slaughtered the majority of cattle as a result of the 2015 drought. Note that the GBP (British Pound) did appreciate against the N$ with an average of 2.58 percent compared to the 2014 year (N$17.8374/GBP for 2014 vs 18.2978/GBP for 2015), but 49.16 percent of our total sales value is Euro-based sales, compared to only 19.59 percent that is GBP-based.
“Namibia, actually southern Africa as a whole, has been experiencing a follow-up drought year that is in many areas worse than the 2013 drought. This had a negative impact on the composition and quality of cattle slaughtered during the 2015 year in terms of overall weight, condition, as well as grading.
“The overall quality of cattle, in comparison to the previous year, deteriorated in terms of an increase in 0 and 1 fat grades of 21.4 percent (from 26.01 percent during 2014 to 31.57 percent during 2015); and a decrease of 6.67 kg in terms of average carcass weight (from 243.73 kg/carcass during 2014 to 237.06 kg/carcass during 2015 – excluding feedlot A grades); average sales prices in Euro decreased, mainly due to the economic downturn in Europe, as well as Scandinavia – Norway specifically.
“This was mainly as a result of the significant decrease in the global oil price (from USD 106.18/barrel to USD 45.63/barrel). Norway’s main income is derived from the sale of oil and gas to its neighbours, and the decrease in the oil price therefore had a significant impact on the Norwegian market. The decrease caused by the economic downturn also resulted in the overall economic climate in Europe.
“More than Euro 60 billion is printed and injected into the European economy on a monthly basis in terms of the European Central Bank’s (ECB) Quantitative Easing (QE) programme to keep the European economy going. This amounts to approximately N$900 billion per month and equates to more than five times the annual Namibian GDP (approximately N$175 billion) per month. The QE programme began in March 2015 and is expected to continue through to the end of October.
“The downturn in economic activity was exacerbated by economic sanctions imposed between Russia and mainland Europe. Due to the sanctions, significant volumes of traditionally exported European originated products have been redirected toward the local European market. This obviously caused a decrease in the local European market price due to the temporary oversupply of beef in the market.
“As a result of the economic environment in Norway, Meatco experienced a decrease of approximately 10.28 percent in actual sales prices (in Euro) within the Norwegian market alone compared to the previous year,” he observed.
In addition to the decrease in retail prices, a further 8.10 percent sales decrease was realised in terms of the strengthening N$ against the euro during the first half of the 2015 year. Similarly, sales prices in mainland Europe decreased by 6.29 percent with a further 8.69 percent decrease due to currency impact.
During the period under review, Namibian producer prices did decrease as a result of, inter alia, the factors listed above. However, overall producer prices did not decrease at a similar rate as experienced in terms of sales returns.
The overall producer prices decreased by only 4 percent year-on-year, as opposed to the approximately 15 percent decrease experienced in most markets. The negative impact of the factors stated above was mainly mitigated via product re-direction between various markets – specifically from South Africa to Europe, and from Europe to the United Kingdom.
“It is also prudent to mention that the current percentage of sales returned to producers amounts to 63.67 percent against the average of 56.36 percent reported for the same period during 2014,” Rukuro concluded.