Beef Pric­ing Still El­e­vated De­spite Gen­eral Food In­fla­tion Down­ward Tra­jec­tory

Zambian Business Times - - FRONT PAGE -

BEEF AND BEEF PROD­UCTS recorded an­nual price in­creases rang­ing from 1.2% to 3.6% con­tra­dict­ing the down­ward food in­fla­tion tra­jec­tory ob­served last year....

• CSO De­cem­ber 2017 Re­port re­vealed that beef fil­let rose by 3%, T-bone by 3.6%, beef sausages by 1.5% and mince by 1.2%;

• Food in­fla­tion con­sti­tutes 55% of the CPI which closed the year at 6.1%

BEEF AND BEEF PROD­UCTS recorded an­nual price in­creases rang­ing from 1.2% to 3.6% con­tra­dict­ing the down­ward food in­fla­tion tra­jec­tory ob­served last year. Zam­bia’s beef is lo­cally sourced from South­ern and Western prov­inces which ide­ally should have tal­lied in down­ward tra­jec­tory with other key food com­po­nent of the Con­sumer Price In­dex - CPI. Food in­fla­tion weighs 55%; while non-food ac­counts for 45% of the in­dex.

Zam­bia gen­er­ally en­joy a prized cul­tural po­si­tion on the lunch and din­ner table. In most homes, con­sump­tion of beef and beef prod­ucts is as­so­ci­ated with not only hav­ing a good liv­ing but the means fi­nance a good di­etary re­quire­ment. To the ma­jor­ity of Zam­bians, a good diet or meal is hav­ing a plate of the na­tional sta­ple of corn meal - Nshima served with a side dish of beef or chicken with ac­com­pa­ny­ing veg­eta­bles like beans, cab­bage, and rape.

It is there­fore not sur­pris­ing to find that beef and chicken are per­haps the two most im­por­tant protein sup­ple­ments in most house­holds. Fish is the other com­peti­tor but it is more of an al­ter­na­tive or sub­sti­tute and va­ri­ety sup­ple­ment­ing protein source. The fact that ge­o­graph­i­cally, Zam­bia lies within the sa­van­nah re­gion, has fur­ther made the con­sump­tion of beef prod­ucts the cen­ter of how the gen­eral pub­lic views the cost of liv­ing, of which the price of beef is an im­por­tant pa­ram­e­ter with sig­nif­i­cant weight­ing.

The Sa­van­nah be­ing the home of wildlife has his­tor­i­cally pro­vided the lo­cal com­mu­nity with a source of an­i­mal pro­teins even from hunt­ing of wild an­i­mals which Zam­bia has in abun­dance. This fact puts the con­sump­tion and af­ford­abil­ity of meat prod­ucts to be rated highly by the vast ma­jor­ity of lo­cal cit­i­zens. The pres­ence of large wild an­i­mals has now been pre­served with con­trolled hunt­ing in game parks and an­i­mal re­serve ar­eas.

A re­view of the cen­tral sta­tis­tics of­fice re­ports for 2017 shows that year on year food in­fla­tion had de­clined to 4.8% by end of the year. The de­cline was from 7.8% in­fla­tion­ary rate recorded for the same month De­cem­ber in 2016. This is a mas­sive de­cline when you take a cur­sory look at the over­all food in­fla­tion down­ward trend, but as they say, the devil is in the de­tail.

A fur­ther look at the na­tional av­er­age prices for se­lected prod­ucts in­fla­tion­ary tracker re­veals a star­tling pic­ture. The sta­ple food, corn meal or Maize meal which is the first and most im­por­tant food item on the av­er­age Zam­bian food table has recorded a de­cline in De­cem­ber 2016 to De­cem­ber 2017 prices of 32.6% for break­fast mealie meal and 38.3% de­cline for roller mealie meal. This de­cline in prices has been passed on to con­sumers and comes as a ma­jor re­lief to many house­holds. It’s a ma­jor re­lief due to the fact that Zam­bia had ex­pe­ri­enced hy­per­in­fla­tion­ary pe­riod in the last two years.

A fur­ther re­view of the veg­eta­bles listed like cook­ing oil also recorded av­er­age an­nual re­tail prices de­clines of 4.8%, rape recorded an­nual price de­clines of 4.6%, Cab­bage prices de­clined by 10.4%, toma­toes had per­haps the high­est price de­clines un­der veg­eta­bles of 28.2% while beans prices also de­clined year on year by 10%.

The above sce­nario shows that the food table for an av­er­age Zam­bia had two ma­jor com­po­nents record­ing no­table de­cline in av­er­age prices for mealie meal and veg­eta­bles. But the most pre­ferred protein food items beef and chicken rather recorded in­creases in prices. A fur­ther re­view of frozen chicken how­ever shows that the prices have been on the de­cline from about Oc­to­ber to De­cem­ber with the an­nual price move­ments be­tween De­cem­ber 2016 to De­cem­ber 2017 record­ing a slight de­cline of 0.1%. The trends for frozen chicken prices seem to sug­gest that the re­duc­tion in av­er­age food prices is catch­ing up with the sec­tor.

Beef prices how­ever are hold­ing and in­creas­ing on an an­nual ba­sis. A re­view of the Cen­tral Sta­tis­tics De­cem­ber 2017 re­port showed that an­nual prices of beef fil­let rose by 3%, T-bone prices in­creased by 3.6%, beef sausages in­creased by 1.5% and mince - meat prices in­creased by 1.2%. So the ques­tion is why has beef and beef prod­ucts prices held and even in­creased when all other lo­cally pro­duced food prod­ucts de­clined as de­picted by the an­nual year on year food in­fla­tion and also shown by the prod­uct prices an­nual food tracker?

To an­swer this ques­tion, there is need to look at the beef pro­duc­tion value chain in Zam­bia. Most of the beef con­sumed in Zam­bia is lo­cally pro­duced with min­i­mal im­ports.

The Zam­bian gov­ern­ment re­al­iz­ing the im­por­tance of fish­eries and live­stock pro­duc­tion split the erst­while Min­istry of Agri­cul­ture and Live­stock into two namely, the Min­istry of Agri­cul­ture and that of Fish­eries and Live­stock. This was aimed to give spe­cific fo­cus on both live­stock - beef and oth­ers- and fish­eries pro­duc­tion.

In a pa­per en­ti­tled an­a­lyz­ing of beef value chain in Zam­bia pro­duced by the Ind­aba Agri­cul­tural Pol­icy Re­search In­sti­tute - IAPRI, the rapid ur­ban­iza­tion, the emer­gence of a siz­able mid­dle class with rais­ing house­hold in­comes has trig­gered off the de­mand and con­sump­tion of an­i­mal protein and beef in Zam­bia.

IAPRI re­search pa­per states that in Zam­bia, the beef mar­ket is seg­mented into two, stan­dard and choice beef mar­ket.

Stan­dard beef is pro­duced by the small holder farm­ers un­der low den­sity but or­ganic pro­duc­tion sys­tems. Its main at­trac­tion is that it’s or­ganic and caters for close to 80% of the Zam­bian beef mar­ket from low to some sec­tions of medium in­come earn­ers. How­ever, the stan­dard beef mar­ket is char­ac­ter­ized by sea­sonal sup­ply chal­lenges which lead to mar­ket price sea­sonal fluc­tu­a­tions. Choice beef is pro­duced by large scale com­mer­cial farm­ers and fat­tened in feed­lots with spe­cial breed se­lec­tion and high in­ten­sity meth­ods. It caters for the re­main­ing 20% of the lo­cal mar­ket in Zam­bia.

Some of the chal­lenges beef pro­duc­tion has had in­clude the fact that small holder farmer’s mo­ti­va­tions for keep­ing cat­tle had been for rea­sons beyond com­mer­cial­iza­tion, as a store of value than money, high in­ci­dences of an­i­mal dis­eases and lack of adop­tion of mod­ern an­i­mal hus­bandry and breed­ing sys­tems due to cul­tural rea­sons. These chal­lenges are all be­ing mit­i­gated as the small holder farms and fam­ily held herds of cat­tle pass on to the younger gen­er­a­tion who are more mod­ern and com­mer­cially ori­ented and ed­u­cated.

So the next stage of the value chain is pro­cess­ing and mar­ket­ing, this is per­haps the place were beef prices have the higher pos­si­bil­ity of be­ing man­aged. There are three main chan­nels that 80% of the cat­tle pop­u­la­tion can reach the re­tail mar­ket. These are via small scale traders, sell­ing to com­mer­cial farm­ers with feed­lots and thirdly di­rect sells to Abat­toirs.

Ac­cord­ing to IAPRI, the 20% choice beef is mostly sup­plied via the feed­lot sys­tem were the com­mer­cial farm­ers ac­quire weaned cat­tle of live weight of about 250kg, from mostly small scale lo­cal farm­ers, to fat­ten for about 90 days in feed­lots which makes the same an­i­mals hit about 400kgs, fetch­ing both higher weights and prices. The lo­cal farm­ers would do well to com­mer­cial­ize and take up this ad­di­tional rev­enue within 90 days with ad­di­tional feed in­vest­ment.

In Zam­bia, Zam­beef a LuSE listed com­pany is a ma­jor player and its ver­ti­cally in­te­grated busi­nesses span across the pro­duc­tion, pro­cess­ing, mar­ket­ing and re­tail­ing sec­tor. They have both feed­lots and abat­toirs dot­ted across Zam­bia that are re­spon­si­ble for buy­ing cat­tle from small holder farm­ers, feed­lot the an­i­mals were ap­pli­ca­ble and there­fore has some level of power to dic­tate the price of pur­chase and in turn the price of re­tail stan­dard and to some ex­tent choice beef and beef prod­ucts.

We were un­able to pub­licly get com­par­a­tive Zam­beef abat­toir an­nual com­par­a­tive beef buy­ing prices as this is mostly com­pany held in­ter­nal in­for­ma­tion, our an­a­lysts at ZBT are still mak­ing ef­forts to get the com­par­a­tive abat­toir pric­ing within the in­dus­try and other no­table play­ers and check these across the one-year span to an­a­lyze the data and de­duce if the buy­ing prices have changed from the farmer’s pro­duc­tion side but not be­ing passed on to fi­nal re­tail con­sumers.

Zam­beef also has an­other big ad­van­tage re­gard­ing their sales and dis­tri­bu­tion model, they have an ex­pan­sive re­tail out­let across the coun­try and ad­di­tion­ally re­tail their beef and beef prod­ucts via the big­gest chain store in Zam­bia, Sho­prite. This not only en­ables the com­pany to sell more beef but also have in­flu­ence on mar­ket re­tail beef prices. That’s the ad­van­tage that comes from be­ing a ma­jor mar­ket player, since it’s ex­pected that they en­joy economies of scale in pro­duc­tion, pro­cess­ing and dis­tri­bu­tion, their set prices act as a barom­e­ter for mar­ket play­ers to price off to en­able them sell their beef and beef prod­ucts.

The mar­ket is fur­ther con­strained by lack of well-struc­tured lo­cal traders who can eas­ily pass on any price re­duc­tion ben­e­fits to the lo­cal con­sumers. The Min­istry of Live­stock and Fish­eries needs also act pru­dently in as far as declar­ing an­i­mal move­ments bans on pur­ported an­i­mal dis­ease out­breaks is con­cerned. These bans have con­strained the growth of lo­cal an­i­mal and beef traders as move­ment of an­i­mals to mar­kets to pro­vide al­ter­na­tive price points is pro­hib­ited, play­ing into the ad­van­tage of large com­mer­cial beef com­pa­nies who have abat­toirs and are the only ones that are able to move ‘cer­ti­fied’ beef and beef prod­ucts dur­ing the times of an­i­mal move­ment bans.

This calls for a com­pre­hen­sive an­i­mal dis­ease erad­i­ca­tion, and only quar­an­tine spe­cific ar­eas in an event of any new dis­ease out­break. Lo­cal traders will also need room to grow and ma­ture so that the beef in­dus­try and mar­ket struc­ture can fol­low the well di­ver­si­fied and open mar­kets for maize and veg­eta­bles which re­flect the cur­rent eco­nomic con­di­tions. This will also al­low the lo­cal farm­ers to gain back their mar­ket bar­gain­ing pow­ers that will al­low them to fur­ther com­mer­cial­ize and in­crease over­all beef pro­duc­tion for both lo­cal con­sump­tion and the ex­port mar­ket.

Beef cat­tle in South­ern Prov­ince of Zam­bia. Beef pric­ing has con­tin­ued to rise de­spite the eas­ing tra­jec­tory in gen­eral food in­fla­tion

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