BMC slashes producer prices to recoup losses

Brian Benza
Staff Writer | Friday August 6, 2010 00:00

But the cost cutting measure is likely to boomerang by discouraging cattle farmers from selling to the BMC, leading to a considerably reduced throughput

 In a statement released this week the BMC said that from August 1, they will be reducing cattle prices by an incremental 10 thebe each week, over a period of 20 weeks.In an immediate response to the news of slashed producer prices, the Cattle Producers Association of Botswana describes it as 'a self-sabotaging strategy' that will send a negative signal to farmers and disincentivise them. 

The BMC says it began paying the slashed prices on August 1. 'The purpose of the producer price reduction, which translates to P2 per kg of Cold Dressed Mass (CDM), is to align the Botswana prices to regional Export Parity Prices (EPP) levels,' said the BMC in a statement.

While the recession has been blamed for the commission's making the huge deficit due to depressed international beef prices, BMC says the decision to adjust the prices at this stage is motivated by the need to ensure the sustainability of the parastatal.

'This is for the long term benefit of cattle producers while ensuring that producers at the very minimum are paid in line with competitive prices prevailing in the region,' read the statement.

In a bid to attract the right kind of young well finished cattle required by BMC's EU export market since the start of 2009 the BMC has been paying farmers a P2 per kg premium over and above the regional EPP which is still 30 percent below export parity with the EU where the BMC sells 70 percent of its beef by value.

 The adoption of South Africa export parity prices saw beef prices constantly rising from around P8 per kg in 2005 to around P22 per Kg

Going by the 2009 figures in which 135,237 cattle at an average of 209 kg per head were sold to the BMC, the P2 cut in prices will see the commission save as much as P57 million. However the P2 cut is likely to discourage farmers from selling their cattle resulting in less throughput for BMC.

Industry sources say that mismanagement and low capacity utilisation at the BMC are the two factors behind the 2009 deficit. 'The most value destroying factor has been the BMC's inexplicable practice of underselling Botswana beef by an estimated P150 million per year. The Minister of Agriculture's response to these three factors has been the recent termination of the BMC CEO and the firing of all senior management at AMI, BMC's subsidiary marketing arm in the UK.

'BMC's strategy of cutting down prices is only going to improve cash flow in the short term but in the long term it's a self sabotaging strategy. Cutting down prices sends a negative price signal which is a disincentive for farmers,' said Philip Fischer LLB, Chairman of the Botswana Cattle Producers Association.

In 2009 BMC had a throughput target of 172,000 cattle but they only managed to kill around 135,237 cattle at an average of 209 kg per head.

On production costs, the BMC spent P148 million instead of P112 million while non-production costs amounted to P85 million against a target of P52 million. Though the BMC attributes its deficit to paying farmers 84 percent of the BMC's total revenue against a budgeted target of 66 per cent, the international benchmark for producer prices is 85 percent of total revenue.