2006-12-08Staff Report 2 "By Wezi Tjaronda WINDHOEK Considering that sheep farmers are losing millions on certain carcasses due to adverse pricing by local abattoirs, a research institution suggests that abattoirs found to violate the minimum set prices should be penalised. With the implementation of the Small Stock Marketing Scheme, which was implemented in 2004 to among others achieve maximum utilisation of local abattoirs and therefore increase the manufacturing capacity of the industry which would in turn create more jobs, the Institute for Public Policy Research (IPPR) says this seems to have been done at the expense of mutton producers, whom it says face losses of between N$1million and N$20 million due to adverse pricing by local slaughtering facilities. In a paper entitled ""Adding Value with Mutton: Is Pricing Everything"", the IPPR looks at the costs and benefits of the scheme. Apart from incurring losses, there have also been low take-offs in terms of other activities such as value addition to hides and skin, leather and other uses. Saul Kahuika, Calicious Tutalife and IPPR Director Daniel Motinga compiled the paper. The dorper sheep in Namibia, accounting for 60 percent of all sheep bred in the country, makes Namibia a net exporter of mutton because it produces it in excess. Namibia ranks third in Southern Africa in sheep production after South Africa and Tanzania, with the dorper as its prime breed for commercial trade. The country has been exporting about 960 0000 live sheep to South Africa for many years, which has been significantly reduced with the implementation of the Small Stock Marketing Scheme and which may completely cease in the long run. When it started in 2004, the slaughter export ratio was 1:1, which changed to 2:1 in 2005 in March 2005 and 6: 1 in September. As a result of the implementation of the scheme, additional slaughter capacity in Aranos and Keetmanshoop was created making way for 146 jobs, with the existing abattoirs sustaining their existing jobs. The scheme envisages a pro-rata increase in the local slaughtering of small stock to approximately 100 percent utilization of the available slaughtering capacity by November 2007. In the first 22 months, according to the paper, Namco in Keetmanshop and Windhoek reached 80 percent capacity utilization, implying that there was the possibility of reaching the 100 percent targets regarding abattoir capacity utilization. The underlying principles of the scheme are on the one hand to ensure competitive prices for producers, abattoirs and tanneries, as it would allow producers to trade their stock with local abattoirs, which would not have deprived them of higher returns at other markets. On the other hand, abattoirs would be assured of adequate capacity utilisation and remain profitable, which led to the establishment of price monitoring mechanisms between producers and abattoirs under the South African Red Meat Abattoirs Association (SARMAA) and that prices less N$1.50 would be the reference price for the next six months. But despite this, all other grades except the A grade have prices that lag behind that of SARMAA by a margin bigger than N$1.50 with the highest difference being N$4.49 for B2 grades. ""This means that for an 18-kg carcass a producer would be getting N$80.82 less, of N$54 after accounting for a difference of N$1.50 reference price by selling locally,"" the paper says. But, the Abattoir Association of Namibia yesterday objected to the IPPR's briefing paper as one sided. The AAN Secretariat said in a press statement small stock producers receive on average better prices for their sheep when slaughtering locally than in South Africa compared to processing in the formal abattoir trade. The secretariat said small stock producers pay 62 cents/kg more to transport livestock to South Africa, in the course of which the animals lose weight of approximately 12 percent, which is higher than the six percent local weight loss. This does not augur well for animal welfare to transport animals over a long distance, which the association said was becoming stricter especially considering that Namibia exports to the European Union market. ""Small stock producers exporting live sheep to South African abattoirs are thus N$2.37/kg worse off when slaughtering at abattoirs in South Africa that would be the case in Namibia,"" it said, adding, ""Small stock export abattoirs not only pay Namibian small producers a fair price but in fact on average a better price for most of the grades than prices Namibian producers would receive from abattoirs of the SARMAA of South Africa."" IPPR said although prices in all have been closer to those of SARMAA, and higher than the Namibian reference price, not all producers of A grades have been benefiting from a lower price deferential as they could benefit more by selling to the South African market. Due to this, the paper adds, the divergence in prices between abattoirs represent potential losses to sheep producers in particular. Losses for Grades A could amount to N$15 million, while Grade C could lose N$2.66 million. Without the reference price, farmers who would have realized a loss of N$20 million would make a profit of N$1.3 million across all grades, which raises the question whether the reference price is optimum for all or certain grades because without it farmers would realize more income from their mutton. The IPPR recommends that with overwhelming evidence of abattoirs not paying according to the reference price in the A grade category, there should be action taken against those found to be paying below the agreed price. ""Going forward, a penalty has to be devised that would be imposed on abattoirs found to violate the minimum set prices,"" it says, adding that while farmers show their commitment to economic development through receiving lower prices than they would on the world market, this should not alienate producers in the long term. The Meat Board, says the Institute, should not only closely monitor prices paid by abattoirs for grades B and, but it should also look into the optimality of the N$1.50 commitment fee imposed on local producers. The association said Namibian producers received a 25 percent increase in producer prices during 2006 which is the highest increase ever and warned that propaganda and negative reporting against the export abattoirs are counterproductive and not in the best interest of value addition. The closure of abattoirs due to lack of throughput would not only result in loss of jobs but also loss of revenue." 2006-12-08Staff Report 2
